The Looming Battle over Energy Costs

There is a looming battle over the cost of energy between the ‘green at any cost’ versus the ‘green enough at a reasonable cost’ where wind/solar forces will battle natural gas—you can sense the fog of war ahead as the battle being set up.  The graphic above from a recent GTM Research report shows the reality in clear focus.

The policy landscape has been designed to drive toward clean energy policies sometimes without much regard to the cost.  It started with environmental groups challenging our polluting ways.  Over time those views gained mainstream acceptance and today there is broad public support for the goal of a clean environment, protecting air quality and water quality for the future.

We’ve supported the growth of regulatory requirements since the 1960′s to reduce contaminants and pollutants imposing environmental impact review procedures ahead of new construction of virtually anything today.  Congress and the states have passed environmental protection laws that continue to advance this policy agenda.  In the ‘good old days’ before our economy crashed business complained about the cumulative cost of these rules, but the public view was conditioned to see it as whining since it rarely affected us directly and we knew from looking around us that things needed to be cleaned up.

We needed this process of redemption to change our ways and correct the mistakes we have made from the days when the air was truly dirty and we dumped all manner of wastes into our waterways.  We sinned badly against our environment and it was time to repent, clean up our mess and our act.

That repentant view, however, gave way to a continual push for even more environmental ‘remediation’ not to fix things broken but to impose a view of the way things should be that came to be a tipping point in the battle brewing today. It began building slowly as public support for environmental protection grew.  Politicians took notice and jumped on board.  Laws were passed to score ‘greener than thou’ points, regulations were adopted to pursue green agendas.  Environmental impact statements were required and the process of getting building permits, operating permits and other regulatory approvals moved beyond reasonable mitigation to turn our regulatory permitting process into regulatory extortion.

Congress did not help by approving laws so vague that it essentially gave government agencies vast power to write rules so onerous, prescriptive and intrusive they bore little resemblance to their underlying enabling act.  This corruption of the legislative process has led to a corrosive regulatory kudzu covering everything with unintended consequences.

At some point in the process of environmental reformation and repentance we moved from seeking redemption for our past environmental sins and righting those wrongs to pursuing a ‘greener is required’ agenda that tilted the balance and transformed the message into a ‘green at any cost’ prescription.  Times were good, business was making money, the economy was solid, people were comfortable so we all were swept along by this greener is better consensus view.

We lived comfortably in that greener is better world for the past decade or so, but stuff happened.

It wasn’t the great recession although that was as close to ‘rapture’ that any of us wanted to get.  It wasn’t the loss of jobs, the erosion of our manufacturing base, the rise of China as the production factory of the world, the volatile price of imported oil.  Each of these things had a logical explanation.

Something happened that opened our eyes and showed us that we had eaten of the fruit of the tree of regulatory life in the center of the garden and realized we were now naked.  The great recession had the effect of breaking all of our comfortable cycles.  It changed the rhythm of life for everyone.  It forced us to confront reality or face our economic rapture.  And when we opened our eyes and saw that we were naked—we were ashamed and afraid.

Oh, Brother!  I know, you must be thinking where is this rant going?

Look around you, we still care about our environment.  We still believe in protecting the quality of our air and water and leaving this planet a cleaner, healthier place for our kids that we inherited.  We do. But our eyes have been opened to the reality that our willingness to accept this cumulative cost of greener is better has turned into regulatory kudzu.  You know kudzu, it is that coiling, climbing, trailing plant that grows along roads and forests covering trees with a shroud of dense foliage.  It eventually kills its host plant by blocking out the sunlight.  Efforts to eradicate it have proved difficult because of its relentless growth and insidious twining structure—and because environmental rules prevent spraying herbicides for fear we might threaten some endangered species.

Regulatory kudzu may be the existential threat to both our economic growth and our environmental sustainability.  And that is what the looming battle is shaping up to decide.   Will we spray some common sense herbicide on this regulatory kudzu before it chokes the life out of us?

What is the reasonable and appropriate balance between ‘greener is better’ and ‘green at any cost’?

  • Has our regulatory kudzu made it so costly, so time consuming, so much of a hassle to build, manufacture, or drill anything in America that our businesses and our jobs go elsewhere to stay in business?
  • Must we sacrifice our economic competitiveness in order to have reasonable environmental quality?
  • Are these regulatory policies counter-productive in a global competitive market where renewable portfolio standards and solar subsidies in America and the EU are used by China to fund its excess production for export growth causing PV prices to fall so much that they drive domestic US and EU producers out of business to assure global market share dominance?

The coming battle over the cost of energy is being framed by unintended consequences.  The forward movement on these separate fronts revolves around energy choices or energy impacts on our economy.  But one unintended consequence is that regulatory kudzu is now being forced to compete with global economic competitiveness, the rebirth of manufacturing, domestic energy production growth, energy security and the need for reliable low cost energy to create sustainable jobs and restore America’s global economic competitiveness.  The flashing red light of regulatory kudzu overreach is being exposed not just in our environmental regulations but in financial and market rules, health care and labor and other areas as well.

The Battle for Low Cost Domestic Energy Security

The Rebirth of American Domestic Energy Production is Sustainable. After decades of growing American dependence on imported oil, America turned the corner using American technology and quiet American persistence the growth of unconventional oil and natural gas using horizontal drilling and hydraulic fracturing to unlock the previously uneconomic energy treasure under our feet.  With that technology America turned back imported liquefied natural gas (LNG) as a replacement fuel for declining conventional natural gas supplies.  American became a net exporter of energy in 2010 for the first time in decades.  The growth of domestic energy production and its rippling effect in job creation across places we scarcely imagined possible is changing our attitudes.  When North Dakota, West Virginia, Ohio, Pennsylvania can join the traditional big energy producing states of Texas, Alaska and California in benefiting from this rebirth of domestic energy production we have a genuine Spindletop on our hands.

The American War on Coal is a both an Economic and Regulatory Failure. The tsunami of new regulations designed to undermine the economics of coal fired generation as a power supply source in America is a failure.  Despite all the proposed new regulations pancaking on top of our already strong laws, the US EIA says that coal will still be a significant contributor to America’s power supply mix through at least 2035.  But guess what?  All that coal we have decided not to use in America is being exported to China where you can be assured it will not likely be used in as an environmental responsible manner as we would have used it.  Do you see the point?  We have elected to impose on ourselves the cost consequence of shutting down more than 80,000 MW of low cost coal fired power generation to reduce greenhouse gas emissions in America to reduce global warming or moderate the climate crisis (in Al Gore speak du jour) so that China and other emerging countries can buy that coal now exported by US companies unable to use it at home.  The US Court of Appeals has now stayed the Cross State Air Pollution Rule implementation, one of the most onerous of these new rules, meaning the court found the opponents of the rule are more likely than not to prevail in their appeal.  How do you spell S-T-U-P-I-D again?

The Holy Grail of Grid Parity has Arrived.  For years we have been told that wind and solar energy would come down in cost and when they reached grid parity (able to compete head to head without subsidies with natural gas combined cycle power generation) we would be victorious in energy transformation.  Grid parity has arrived.  Thanks the massive expansion of export production of photovoltaic panels and wind turbines in China designed to suction up all the renewable energy subsidy monies in markets where state regulators imposed renewable portfolio standards forcing utilities to buy renewable energy—many times above the market cost of alternatives—the price of PV panels and wind turbines are at or near grid parity in many markets.  In Europe, the costs of these above market feed in tariffs are unsustainable and being cut back.  In the US subsidies of any kind are increasingly suspect by a public that fearing rising federal debt and deficits and many states will soon reach their RPS goals and declare victory—except California which upped the ante to 33%.

Grid Parity is Our Friend.   Not only will grid parity pricing of solar and wind energy reduce the need for subsidies and thus restore the domestic market for the next generation of wind and solar projects using America’s best technology rather than China’s least efficient, grid parity pricing will more effectively undermine the economics on new coal and new nuclear power projects than anything the government regulators can imagine.  Faster, better, cheaper and with none of the regulatory kudzu overreach in the current war on coal.    The long term sustainable impact of this reliance on market forces is America will get both more clean renewable energy using the best technology, it will get less dirty coal and more clean natural gas generation.  It will accelerate the transition from large, hugely expensive baseload nuclear power to smaller, safer, modular small nuclear projects.

And then there is this, an epiphany is coming to light even in California.

In California in December 2011, the California Energy Commission released its draft 2011 Integrated Energy Policy Report, the biennial statement of California’s energy policy strategy.  The reaction of the utilities was decidedly skeptical.  In filing after filing they pointed out the cumulative cost of California’s energy policies are going to result in substantial rate increases.  They worry about the flight of business out of state to avoid the burdens in a fragile economy.  They worry about losing their opportunities for growth sufficient to cover the costs of all these regulatory burdens.

It was not a fierce battle but it was a shot across the bow. The time of economic reckoning or rapture draws near.  Get back to a reasonable balance fast is the plea.  Fight regulatory kudzu.  Resist being so green that everything turn brown from disuse.  We are searching for a new energy and environmental consensus—one that is balanced with environmental quality and economic competitiveness given equal weights.

Amen!

Comments

  1. avatar altresco says:

    Oh, Reality. It is so good to see you!

    It’s been lonely out here in “Insanity land”. But we have been preparing for your return, reality.Come on in. Let’s have dinner and draw out the plan for using those green as part of a balanced meal.
    Believe it or not they can still some fuel efficiency, and the new design we have in mind, will get you back on schedule, with much higher mileage.
    As frustrating as it has been, the craziness has forced us to create new and better paths. We just need to use ALL of the ingredients, and in the right sequence.

    With the new generation as part of a matched set, we can do a lot of things to, not only bring America back to competitiveness, we can make it better than ever.
    As my Taoist thinking seeps in, it takes a while, and a lot of iterations to determine what’s “Good news” or “Bad news”
    I think there is more good news than ever before if reality can wake people up and realign the thinking.

  2. avatar Paulb says:

    I had trouble following the logic. Big coal has been working hard to minimize cost and maximize profit. They have until recently been able to operate 1950′s and 1960′s era plants with no new anti pollution measures. No they need to pay for antipollution or stop operating and it is war…

    You statement that the war on coal is a failure since plants will operate until 2035 shows the logical fallicy. Coal plants with some scrubbers that meet emissions standards can continue to operate, and will be a big part of our energy picture until 2035. It is not a war on coal, it just imposes a cost for the formerly free services that allow dirty plants to spread toxins out the stack and over hundreds to thousands of square miles for FREE for decades, probably on the farms that fed your kids and are feeding your grandkids. Stopping the soot and neuro-toxins falling on American soil are real benefits to American tax payers.

    The Chinese would fire the coal plants you mention with coal from somewhere, probably dirtier coal. So, per your statements the US gets cleaner air, lower medical and other costs, and loses no jobs since the Chinese buy all the coal we don’t use. SWEET, lets close more coal plants, dirtiest to cleanest.

    Your banner says disruptive innovation, where is the innovation in the coal industry? Maybe this is it, let the Chinese coal plants sicken and kill the Chinese citizens if they chose. Let the people of the US chose cleaner air, few lakes with mercury tainted fish.

  3. avatar Martin Linskey says:

    I like the Zap spunk, but can not for the life of me figure out why such a smart site keeps pushing for coal. Natural gas is of course the great leveler and its price, in combination with the achievement of the regulators to clear up pollution is putting a huge amount of pressure on coal, which is why two of the three largest coal companies have made big shale bets.
    I will bet that you don’t live in a Northeastern state and never had to deal with real pollution. It was horrific. New York City back in the sixties was ridiculously polluted. It still has a ways to go, but I don’t think anyone in the Northeast is wishing for the good old days of the super smogs.
    The Chinese are simply suffering right now due to their dependence on coal which has created massive smog plumes half the size of Australia. They have no transition fuel like our lovely shale gas. They know it. They see it every day. Their lungs feel it. The NASA photos don’t lie. The best thing that we can do for China is to develop an alternative to coal. We are good at taking wacky ideas and making them work. The worse thing we can do is ship them our coal. It is like the cigarette companies selling butts to kids overseas because they can’t do it here.

    Take a look at Low Energy Nuclear Reaction. Andreas Rossi is eagerly trying to get UL approval for his ECATs. If they work as advertised, you will see a truly disruptive technology in its infancy. Just as Enrico Fermi helped the US with the Manhattan Project and High Energy Nuclear Radiation, maybe another Italian can save the day for us. Don’t underestimate our ability to take other people’s ideas and innovate our way out of very tight jams. That is the American way. Or as Winston Churchill said, Americans can always be counted on doing the right thing…after they have exhausted all other possibilities.

    • Gary L Hunt Gary L Hunt says:

      I am not pushing for coal. Nor am I unconcerned about its impacts. But neither do I think it prudent to force so much of it to shut down prematurely to pursue some politically correct policy prescription. Let the market decide. Natural gas is cleaner, more flexible, load-following and the marginal fuel of choice in every market. Low natural gas prices will do more to undermine the economics of coal and nuclear baseload than all the EPA bureaucrats combined. Of course low natural gas prices also drive down the grid parity price for wind and solar forcing them to to compete or consolidate.

      Volatility is a wonderful thing.

      Gary

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