EPA Orders Deep Cuts in Emissions:  Rule is Big Win for Health Advocates; Republicans Vow to Continue Fight

Tracy and Solomon report the substance well: 

“The rule would require deep cuts in emissions of mercury, acid gases and soot from coal-fired power plants and is likely to reshape the industry as companies turn off old plants and decide whether to clean up existing ones or switch to cleaner-burning fuels such as natural gas.”

Note well that last bit about fuel switching.  Back when EPA started working on a mercury rule during the Bush 43 Administration, “fuel-switching” was something to be avoided.  At that time, the fear was that utilities would be forced to switch to more expensive natural gas, whose price volatility would wreak havoc with the electricity markets.

Today it’s a different story, and one reason that fears about blackouts in the face of the rule are wildly overblown is because at today’s gas prices, in some places, utilities are directly combusting  cheap natural gas without modifying their coal-fired units at all.  They’re paying a big inefficiency price, but the economics still work, and fuel-switching has become a good thing (except for coal miners).  So an orderly shutdown of dirty old coal plants and a restart of idle gas plants — or a retrofit or new build where there aren’t any idle ones — means this rule is likely to have little negative impact on electricity reliability at all.  As Tracy and Solomon note, the largest grid operator, PJM Interconnection, “said the process would allow it to maintain reliability.”

That is, of course, if natural gas prices stay low and stable, or only rise slowly and steadily over time.  And that leads us to the piece on B7 by Tennille Tracy:  Gas Exports Ignite a Feud:  Energy Firms Promote Exports, but Manufacturers Fear Their Costs Will Climb.

Tracy alerts readers to a very important EIA analysis to be delivered “in a few weeks” as to “whether exports will drain U.S. supplies and inflate domestic prices.”

Stay tuned for that, but of course exports can’t possibly “drain supplies.”  The extent to which prices rise as we connect a North American natural gas market to the global market, however, will have serious implications for both manufacturers (some of whom both consumer electricity and use natural gas as a production input) and your average rate-payer alike.

The so-called “Utility MACT” rule was signed Friday night — as Juliet Eilperin and Steven Mufson reported in Saturday’s WaPo:

The Obama administration finished crafting tough new rules Friday curbing mercury and other poisons emitted by coal-fired utilities . . . culminating more than two decades of work to clean up the nation’s dirtiest power plants.

The signing resulted from last-minute negotiations between the White House and the Environmental Protection Agency over flexibility that would be available to EPA to lengthen compliance periods.  That’s probably a good thing.  Given our abundant natural gas, many utilities can make the economics work to switch from coal to gas.  Where reliability may suffer as a result, deadlines should be extended.

WaPo then reported that the President had to make several environmental concessions to congressional Republicans late Friday night as part of a deal to extend the payroll tax cut.  Senate leaders agreed Friday night on a provision that would accelerate the Keystone XL pipeline permitting decision . . . .

And in return, a congressional rider on the Utility MACT was dropped.  Sounds like a good trade.  But let’s be clear about language here: the decision on Keystone has been ripe for some time.  The State Department EIS is done and has been for months.  What has now happened is that Republicans have countered the President’s move to delay a final decision until after the election.  To call it “accelerating” a permitting decision is just spin.  ”Accelerating” a political decision is more accurate. 

Now this deal is not yet done, as the Sunday shows and Monday papers reported.  Speaker Boehner is once again facing a revolt from his rank-and-file — not over either of the MACT for Keystone deal, but over once again increasing the debt by handing out a tax holiday.  So while the principals have all agreed on a Keystone deal, the vehicle in which is it riding is not yet over the finish line.

And even if the deal holds, it could backfire.  One potential outcome prior to this move was that the pipeline would be rerouted and ultimately approved by a new Republican presidential administration.  Now POTUS can argue that 60 days is too short to discuss a reroute and he can make the decision in February to deny the permit.

And then Congress can, one supposes, seek to overrule that decision — but that will be a steep hill to climb.  Republicans think they win on the politics by forcing cancellation and using it as a campaign issue.   Whether or not that’s a smart political calculation, the real question is where does the Canadian oil end up — in the US or in China?

The battle is playing out in Pennsylvania as the Republican-controlled legislature considers bills that would in their current form sharply limit a community’s right to control where gas companies can operate on private property. Critics say the final bill could vastly weaken local zoning powers and give industry the upper hand in exchange for a new tax, which municipalities badly need.

Local governments argue that drilling is an industrial activity, just like that of a gas station or a cement factory, that should be subject to zoning. Dozens of towns, cities and counties across the country have enacted rules on drilling noise, lighting and the distance from homes and, in some cases, outright bans. In New York State alone, there have been at least 70 such actions.

Companies say the rush to regulate has produced an overly burdensome set of demands that is denting their potential when the economy desperately needs a lift.

Supporters of the Pennsylvania legislation argue that it would hold the industry to higher, more uniform environmental standards in addition to charging them fees.

This question of where to regulate is a critical one.  And many view local governments as only half right:  Yes, energy production is “an industrial activity” — but it’s not “just like . . . a gas station or a cement factory.”  Most commercial industrial activities can be sited in areas appropriate for the specific activity.  Energy production needs to occur where the resource is – whether that’s coal, oil, natural gas – or even wind and solar.  And energy is the lifeblood of the US economy.  Energy produced in one locale is depended on by folks living in many others.   So holding industry to high uniform environmental standards while ensuring that local fears don’t trump regional needs makes regulation of energy production at the highest practicable governmental level the right answer for our nation’s energy security.

But that’s history, and the annual two-week negotiations over addressing global climate change did end on Sunday with what the WaPo called “a last-minute deal.”  The deal?  An agreement to potentially reach an agreement that would apply something called “an agreed outcome with legal force” to developing nations.  This is arguably an advance on the Kyoto Protocol, which did not require developing nations to commit to reduce their greenhouse gas emissions.   And that’s important because some “developing nations” — namely China and India — are leading the globe in aggregate emissions.  To be fair, their per capita emissions are far lower than developed nations, but that shouldn’t give them a free pass.  The key negotiating issue since the US pointed out the fundamental unworkability of the Kyoto Protocol has been  how to account for developing nations’ exploding emissions without unfairly impeding their economic growth — after all, the developed nations built their economies on cheap fossil fuels and only subsequently has the world (well, most of it) realized that there will be highly negative consequences because of it.

It remains to be seen whether this year’s climate confab really moved the ball on this point.  Host South African foreign Minister Maite Nkoana-Mashabane certainly thinks so, as the WaPo quotes him saying, “We have indeed saved tomorrow today.“  Veteran climate watcher Alden Meyer, of the Union of Concerned Scientists, had a different view, noting failure to achieve agreement on reducing the gap between expected emissions and those most scientists believe are the maximum that the climate can endure without expensive and life-threatening damage:  “There’s nothing [in the agreement] that’s going to get the world to lift its game and close that gap.”

Maybe more important news this weekend came from the Nuclear Regulatory Commission, where dysfunction apparently reigns.  Both the WaPo and the WSJ reported Saturday on four NRC Commissioners, two Democrats and two Republicans, writing to the White House accusing Chairman Greg Jaczko of  ”actions and behaviors [that] are causing serious damage to this institution.”  That quote is from the WSJ, which runs an unfortunate lead sentence (“Four of the five members . . .”) — if you didn’t already know that there are only four commissioners and a chairman, you don’t find that out until the end of the piece, so casual readers may have thought there was a hold-out.  The fact is that all four of these highly respected professionals, Democrat and Republican alike, took the trouble of airing their concerns about the NRC’s leadership to the White House.  House Oversight and Government Reform Committee Chairman Darrell Issa, not the fuming four, released the letter to the media.

The bipartisan nature of the criticism made Senator Harry Reid’s (D-NV) otherwise laudable defense of his former staffer ring a bit hollow.  As reported in the WaPo on Sunday, he called the complaints “a politically motivated witch hunt.”  We’re guessing Senator Reid meant that Chairman Issa was hunting witches, not labelling the letter such.  But since loyalty in Washington is often in short supply, we’ll give him a pass either way.  Not so the NRC as a whole, an organization too critical to our energy future to have it’s oversight confined to the weekend papers.  Oversight hearings, anyone?

power plants are already ratcheting back purchases of thermal coal, which produces smog and soot-causing emissions as it is burned to produce electricity, in favor of cleaner fuels.

Globally, however, Day notes that there will be steady or higher coal prices in the form of demand from Asia; China and India are building coal-fired power plants at a furious pace.

This is an important point.   Many clean energy advocates repeatedly claim that China is investing multiples more in clean energy than is the US.  That’s true, but it’s also true that China is investing multiples more in all energy than is the US.   Why?  Because they have to.  The US and the rest of the West are nearly 100% electrified — China, India and the developing world have a ways to go before they hit that.  Indeed, lack of comprehensive electricity is a key determinant of a nation’s status as developed or developing.

So, while US generators are turning from coal, US miners have been exporting coal, including thermal coal, at a near-record pace this year.

And coal’s disadvantage against natural gas — investment in pollution-control technology doesn’t make sense in the face of cheap natural gas — will eventually go away, as natural gas prices eventually will climb.

Day quotes analyst Chris Kostas on the prospect of new emissions rules having an impact on natural gas prices:  “I don’t think that the natural gas market has priced (them) in.”  That may be a minority view, given the long lead time these rules have had, but it is a fact that natural gas settled Friday at $3.58 per million  Btus, and has been stuck down there for months.

 Devon Maylie had a piece in the WSJ reporting from South Africa, where the annual Kyoto Protocol climate change negotiations are making hardly any news.  Maylie notes that South Africa is poised to invest $12 billion in solar, wind and biomass projects to reduce their 90% reliance on coal.  Watch for China’s heavily subsidized renewable industry to soak up much of that new work.

And finally, Guy Chazan reported, also in the WSJ, that EU sanctions against Syria are causing Shell to pull out of the country.  We’ll end on that piece of good news.

1.  Ana Campoy and Stephanie Simon reported on a dispute in Oklahoma over a wind farm that may interfere with oil production.  The Osage Nation owns the mineral rights to nearly 1.5 million acres in Osage County, and has since the early 1900s. The Missouri-based Wind Capital Group has leased land to set up windmills from private parties on that same real estate.  The interesting legal question is whether building a wind farm will impair access to the land needed to develop the mineral rights.  And of course the wind farm side of the dispute is pleading urgency, as financing is “contingent on a government tax credit that is only available until the end of 2012.”

Here’s the problem with that:  Those tax credits are production tax credits that only make wind economical — if at all in the face of cheap natural gas — if they are extended every year, not just once.  And even if they are extended, long-range they are doomed.  In a time of abundant fuel for electricity contrasted with extremely expensive oil, the right answer in this dispute is to shelve the wind project and produce the oil, if that’s what it takes.

2.  Bravo to the EU, and specifically the French, for seeking to ban Iranian oil imports in an “unprecedented step against the world’s third-largest oil exporter over its alleged nuclear-bomb program,” according to reporters Laurence Norman, Max Colchester, and Benoit Faucon.  While it’s great to see the French pushing this, it would be nice to hear US policy-makers lending support.

3.  Sharon Terlep reported on the NHTSA investigation into the fire risk posed by the Chevy Volt after “crash tests caued fires in two instances, a development that could be a serious setback for electric vehicles.”  On one level, this makes sense, but should we really worry about brief fires “within hours or days” after “the agency intentionally damaged the battery compartment and ruptured the coolant line”?  Sounds like a bit more than a crash risk, and more like sabotaging a machine to cause a problem.  We’ll be following this story.

4.  And finally, the WSJ editorial page took another shot at the “green jobs” ideology, pointing out that “the real employment boom is taking place in oil and gas.”  Not surprisingly, our recent explosion in domestic oil and natural gas production has been good for workers.  We’ll end on the good news:

“(O)il and gas production . . . now employs some 440,000 workers, an 80% increase, or 200,000 more jobs, since 2003.  Oil and gas jobs account for more than one in five of all net new private jobs in that period.”

Saturday’s WSJ also noted that forecasts of colder temperatures caused natural gas futures to jump 4.2% to $3.923 per million Btus.  ”Frosty Air Heating Up Gas Futures” quoted Matt Smith at Summit Energy:  ”It’s all about the weather.”    The same article reported that US EIA found underground gas inventory up 92 billion cubic feet, “much higher than the five-year average build for the current period.”  If futures can “jump” to only $3.92 per MBtu, the news is really how astoundingly low natural gas prices will probably stay. . . .

Front page in multiple papers Saturday on White House review of all loan guarantees made by DOE under the stimulus bill.  WaPo headline:  ”White House orders audit of Energy Dept. loans: Move comes amid GOP subpoena threat in Solyndra case.”  The story that won’t die, the “review is a tacit acknowledgment that the loan program, defended by President Obama and his senior advisers for weeks, has raised enough internal concern that an outside assessment is necessary to clear the air and determine its future.”  Good luck clearing the air.  Loan guarantee program future is bleak . . . .

Front page Sunday NYT:   “A New York Village’s Debate Over Drilling Turns Personal”:  ”The debate over horizontal hydraulic fracturing . . . has become increasingly contentious across the Eastern United States, with dozens of communities passing or considering bans.”  No real news here, including the allegation that fracking opponents are also generally “antigrowth fanatics, opposing a once-a-year music festival . . . wind turbines . . .even additional Little League fields. . . . .”

And the most important piece of the weekend, Dan Yergin in Sunday’s WaPo, Outlook section.  In “Oil’s new world order,” Yergin makes the point that the global geopolitical balance of power in the oil economy is shifting.  He finds that a “new world oil map is emerging” . . .”centered not on the Middle East but on the Western Hemisphere.”  But don’t breathe a sigh of relief yet, for since “there is only one world oil market” the U.S. “will still be vulnerable to disruptions . . . .”  Darn.

The WSJ editorial page makes its usual point about political investing — that it’s a bad idea.  What the editorial omits is that Solyndra wasn’t some fly-by-night, crony capitalist facade.  Rather, as the Chernova piece points out:

In 2010, it was ranked atop The Wall Street Journal’s survey of venture-backed cleantech companies.

Now, we don’t pretend to know what goes into the annual WSJ survey of vc-backed cleantechs, but presumably being a shaky recipient of politically-directed funds doesn’t get you to the top.

Unfortunately, Chernova’s piece contains a significant error, if you read all the way to the end.  In an attempt to balance the political scales perhaps, the piece concludes:

Solyndra’s loan was the first under a guarantee program created in 2005 under the administration of President George W. Bush.   Much of the program’s funding has come from the 2009 economic-stimulus package.

Not exactly.  The original loan guarantee program, authorized by a Republican Congress as Title XVII of the Energy Policy Act of 2005 and signed into law by President Bush, was an innovative technology deployment incentives program, designed to both get the nuclear industry moving again and spur the commercialization of new clean energy technologies.  For that program, failure was expected, as the intent was to assist projects that were too risky for private financing.  Such projects are generally proved out at the lab and pilot demonstration scale, but have never been scaled up (in our country) for commercial application.  Those projects face a so-called “valley of death” that DOE’s loan guarantee was intended to help them walk through.

An administration spokesmen rightly made the point in Chernova’s piece that:

“(N)ot every one of these innovative companies would succeed” and that the DOE’s overall portfolio “continues to perform well.”

Fair enough if you are talking about spurring innovative technologies.  Those projects should be expected to fail as it is their technology risk that prevents them from getting private financing.  If the entire portfolio is slightly net positive, that’s probably enough, but if every project succeeds then all the program is about is providing low-cost capital to technologies that really should get private financing.  And that is rightly viewed by many as “corporate welfare.”

 But Solyndra received a loan guarantee under a new section of the law (1705) added by the American Recovery and Reinvestment Act (ARRA, or “stimulus”).  That section did two things:  first, it put the taxpayer on the hook for more funding for projects  (by appropriating funds for the credit subsidy) and stipulated that the projects had to be already commercial and prepared to go to construction within two years — so-called “shovel-ready.”  At the time, Solyndra met those tests.  What happened?  Continued US economic malaise, Chinese competition and low natural gas prices.  In other words, market dynamics.  Does that call into question the entire premise of Title XVII?  We think not.

Does it mean that perhaps Title XVII ought to be focused on the transportation energy sector, where high energy prices and national security concerns demand innovation?  Probably so.

Recently, IBM unveiled the results of its 2011 Global Utility Consumer Survey, revealing that most consumers around the world failed to understand elementary electricity pricing and energy concepts.  Of over 10,000 people surveyed in 15 countries, 30 percent did not understand the unit “dollar per kilowatt-hour” and 60 percent failed to know what a smart grid or meter was.  Unsurprisingly, IBM also found that individuals familiar with the basic terminology were more likely to support smart grid technologies.

This is a concern, given that smart metering, which can assist in the adoption of electric vehicles, depends on an understanding of energy pricing.  And understanding electricity costs can be much trickier than just cursory energy units.

So, what is the price the consumer pays to run a load of laundry at home?  The answer is it depends – on variables ranging from where you live, to whether you are purchasing power from a regulated market, to whether your utility company utilizes block or tiered pricing.  For example, in an unregulated market, the price of electricity is set by the marginal producer (and thus marginal fuel).  In 2010, the average electricity price of Idaho was $0.065/kwh, while prices in Hawaii averaged $0.251/kwh.  Hawaii’s isolated location means that electricity is generated from higher priced oil; in contrast Idaho is located near low-cost hydroelectric dams, reducing overall electricity prices.

How is the price different than the cost of running a load of laundry?  In addition to the previous factors, costs depend on the season and time of day you are using the washer.  In fact, electricity costs can change on a minute-by-minute basis.  For example, base load fuels, such as coal and nuclear, which are contracted months ahead, are cheapest.  In contrast, peak load, from an unexpected heat wave for example, will be met by hydroelectric or natural gas on the real-time market, significantly increasing electricity costs.

But there is a disconnect between electricity price and cost.  Even though electricity produced during peak hours is more expensive than electricity produced at night, most consumers still pay the same electricity price regardless of the time of day.  And even as more and more utility companies shift to some form of variable pricing, many consumers still value electricity the same way.  This is fundamental problem that smart metering attempts to solve.  Tracking energy consumption provides information, and thus opportunities to take advantage of variable electricity pricing.

The goal is that ultimately, the price of running the washer will correspond more closely to its cost.  And consumers will know, not only how much a load of laundry costs, but its cost depending on the time of day it is used.  Yet in order for this to occur, it seems for now, we need to revert back to consumer energy education basics – the smart grid hinges on it.

A recent post discussed the strain that severe weather can have on the electrical grid.  The complications droughts can have on energy production are an equally pressing concern.

Nearly every stage of energy production requires water: from oil drilling, to coal mining, to power plant generation.  And in general, many potential liquid fuel replacements require more water during production than conventional gasoline.  For example, liquid fuel production from coal uses more water than conventional gasoline production on an energy-equivalent basis.  Gasoline produced from enhanced oil recovery uses 55X more water than gasoline produced from standard drilling methods.  At the far end of the water-intensity spectrum, corn ethanol production uses more than 39,000X more water than gasoline produced from standard drilling methods.  And soy ethanol production requires 3.8X more water than corn ethanol production, 149,000X more water than gasoline produced from standard drilling methods.

What about the current “it” fuel of energy companies?  Shale natural gas requires significant quantities of water – typically on the order of 100,000 barrels for a high-volume hydraulic fracturing.  However, while shale production is water intensive, at 1 gallon of water per million BTU produced, it is relatively low in comparison to other energy production mechanisms.

It is important to note that in hydraulic fracturing, where steam is blasted underground, water is “withdrawn” before it is recycled back to its source.  In contrast, water “consumption” means that the water is unavailable for further use (as in the case regarding agriculture feedstocks for biofuels, or water vapor emitted from power plants).  Of course, water withdrawal does not mean that the water has not been altered; for example, the temperature of the returned water may not be suitable for human consumption.

Lastly, electric generation is hardly exempt from water use.   Power plants need water for two reasons: 1) to create steam to drive the generator and 2) to cool the power plant.  This is particularly relevant due to the rising demand of electric and hybrid vehicles.  Since their fuel source comes from the grid, it is estimated that on average, plug-in electric hybrids use 3X more water consumption, and 17X more water withdrawals than gasoline-powered vehicles.

Ultimately, energy’s unavoidable need for water is largely dependent on local conditions, such as available water resources, timing and extent of withdrawals, and regional climate.  Yet extreme droughts that cause widespread shortages can heighten the competition for water resources between irrigation and energy production.  Exceptional droughts that create water emergencies directly conflict with power plants’ needs for an ample and certain water supply.  Lack of water conditions could force power plants to reduce operations, requiring additional electricity to be purchased elsewhere on the gird, and rise electricity costs.

Current technologies such as closed-loop systems and dry cooling can lessen power plants’ water intensity.  In the future, heavy water portions used in enhanced oil and gas recovery can be displaced with CO₂.

Nevertheless, water is, and will continue to be, a vital input of future energy supply.  With the possibility of more frequent and extreme summer droughts, this additional factor will further strain an already stressed energy system.  Solutions will require water resource management to play a more prevalent issue in the energy security discourse.