The piece centers on testimony by John Holdren, director of the White House Office of Science and Technology Policy and a well-respected academic from Harvard.  Dr. Holdren was testifying at a hearing on the reauthorization of the America Competes Act.  The Competes Act was passed three years ago in response to concerns about the state of America’s investment in science, math and technology education, research and development.  Those concerns are still valid today, and have been joined by even more compelling concerns about whether and to what extent America is falling behind in the global competition to deploy energy technologies that enhance energy security while combatting climate change.

The Competes Act is up for reauthorization this year, and may be one of the few pieces of legislation that could garner bipartisan support — particularly since the House champion of the legislation is retiring Science Committee Chairman Bart Gordon (D-TN), a moderate Democrat well-liked by his colleagues.

Holdren’s focus was on an area he knows well — R&D  for clean energy technologies.  And, contrary to the perception of many that the Administration is less than supportive of the private sector, Dr. Holdren made the point that commercializing new energy technology — beginning with basic research through large-scale demonstration and marketplace acceptance — is an activity that must be done in concert with the private sector — not as a part of some centrally-planned and executed government program.

As E&E quotes the testimony:

“When you want to get something into the marketplace, you really need to have folks intimately involved in the market, and nobody understands the market like the private sector,” Holdren said. “You get the benefits of the government’s engagement at the more fundamental and early applied level and the benefits of the private sector’s insights as you’re starting to move toward converting into products.”

That is precisely the right way to look at the research, development, demonstration and deployment continuum.  Basic research done at universities and in both private and public sector labs, followed by a mix public and private funding for demonstration and scale-up, plus — where necessary to compensate for externalities of competing, cheaper technologies — deployment incentives that phase out as commercialization takes off.

Dr. Holdren also focused on one of the better ideas to come out of Congress in recent memory, a DOE program authorized by the Competes Act:  the Advanced Research Projects Agency-Energy, or ARPA-E.  ARPA-E is ”an innovative high-risk, high-reward technology development program” that received $400 million in the stimulus bill and for which the Administration has requested $300 million for the Fiscal Year 2011 budget.  Early reports from knowledgeable observers suggest that DOE’s leadership of ARPA-E is largely on track.

Perhaps even more important are, as Holdren noted, efforts to “bridge the gap between research and development and innovation.”  Dr. Holdren commended DOE for trying to”connect its extensive national lab network to the private sector to move innovation from the labs into the marketplace.”  This has been a long-standing goal of DOE, but much more work needs to be done.   And while it was not, and is not yet, a focus of the Competes Act, it should be.

Ms. Mackenzie rightly highlights that “there are a few unknowns in this equation,” and that while regulations are broadly going ahead, “their exact execution isn’t certain.”   Natural plant retirements are also highlighted as having a greater effect on coal consumption than expected EPA regulations of sulfur dioxide and mercury.

A couple of other issues can be highlighted that offer a little more thought on the question and its premise:

Macro-Perspective:  U.S. electricity consumption is expected to rise by 28.8 percent over the next 25 years.  Today, coal provides over 40 percent of this electricity.  It is used as baseload power (running essentially all the time) and is the cheapest form of electricity generation.  One has to question whether “death” is really even an appropriate word.  There is little chance that a major shift away from coal generation can occur without seriously affecting both the supply and cost of U.S. electricity (which, of course, every sector to some extent relies on for energy).

A More Micro-Perspective:  The Congressional Research Service recently released a paper highlighting some of the factors that might affect the potential of natural gas power plants to displace coal power plants.  The premise being that a large proportion of natural gas generating capacity is underutilized (42 percent).  It notes that if utilization could be doubled, 19 percent of coal power emissions could be displaced.  However, it outlines a number of reasons why such displacement is unrealistic.

Transmission:

Plants rely on different paths to move power and there is no guarantee that a natural gas power plant could send to the same loads.

The interconnections are relatively isolated and surplus in one cannot be used in another.

Dispatch:

The concept of displacement assumes natural gas power is underutilized or idle when coal is operating which is not necessarily the case (in fact they follow a similar utilization pattern—see graphic).

Prices:

I is historically very difficult to forecast what the effect would be on prices of both coal and natural gas.

The paper for example provides hypothetical estimates displacement based on power plant proximity.  However, even for coal plants within 25 miles of a natural gas plant, just 9 percent of total U.S. coal generation and 5 percent of the carbon dioxide emissions could potentially be displaced.

From an emissions perspective there is no doubt that natural gas currently has an advantage over coal in electricity generation, but coal nonetheless remains a fundamental source of energy in the United States.  We need to address both energy and climate security, and understand that there are times when one is improved at the expense of the other.  This is a careful balancing act that neither heavy-handed regulation and idealistic hopes, or a complete absence of intervention can solve.  A common-sense approach that focuses on demand, supply, efficiency and diversification is required.

Surface transportation policy, while perhaps not as scintillating a blog topic as Iranian oil production or the latest in diesel-excreting algae, is nonetheless vital to the future of American oil dependence. The way that we fund, choose, and build highway, transit and rail infrastructure over the next ten years will significantly impact oil consumption. Congestion, inefficient freight transport, and a failure to provide energy-saving alternative transportation options to travelers can undermine our efforts in other spheres, such as fuel economy standards. On the other hand, an efficient transportation system that employs intelligent technology, congestion pricing, and mode-neutral decision-making can help keep America economically competitive while reducing the volume of oil used in transportation – currently about 70 percent of total oil consumption.

That last bill, SAFETEA-LU (I won’t pain you with spelling out the acronym), expired in September 2009 and has undergone a series of extensions as Congress avoids dealing with the tricky problem of funding. The traditional source of transportation funds is the fuel tax, but in recent years tax revenues have declined amidst an aging transportation system increasingly in need of expensive repairs. Over the last two years, over $60 billion in general fund moneys have plugged the Highway Trust Fund gap. The solution has been to provide one-off transfers from the general fund, which while politically palatable increases the deficit and kicks the can down the road to our children.

Last week, these issues were once again put on hold when the House passed the Jobs Bill (H.R. 2847), extending the federal transportation program through December 31, 2010. The bill keeps the Highway Trust Fund solvent with a $19.5 billion transfer from the general fund.

It is highly unclear what will happen with the multi-year bill, with no one in the Administration or Congress willing to suggest a sustainable way to pay for long-term transportation investment. Over the next five years, the expected disparity between program needs and expected fuel tax revenue is around $215 billion (or $265 billion if Transportation and Infrastructure Committee Chairman James Oberstar’s (D-MN) high speed rail initiative goes through).

The transportation program is unique among federal expenditures in that it has historically operated on a user-pays principle. That is, the source of funding is linked to system use. Moreover, the price that users pay – the fuel tax – theoretically promotes energy security by incentivizing drivers to use less oil. Unfortunately, gasoline demand is so inelastic that any tax short of $1.50 or so will fail to seriously impact consumption. However, this fact does nothing to diminish the importance of retaining a user-pays principle, and of using that mechanism to more effectively influence people to make more rational decisions about when and how they travel.

So it is very unfortunate that no one is willing to step up to the plate and insist that the users of transportation infrastructure pay for a larger share of the costs of that infrastructure, not only in terms of capital but in terms of congestion delay, emissions, and the national security costs of oil consumption. The Administration has been very clear that it will not support a higher fuel tax: At a meeting with the heads of State transportation officials, Secretary of Transportation Ray LaHood said, “It’s easy for people who are not elected to talk about raising the gas tax. They don’t have to face the voters.” A fuel tax, however, is not the only way that users can pay for the system. Congestion pricing and tolling, which is used extensively in other countries rich and poor, can provide significant revenue. It is also more transparent to consumers (and therefore more acceptable) if the revenue is used to improve the facility on which the motorist is driving.

The politics of upcoming elections and recession economics mean that a multi-year federal transportation bill is likely not in the cards this year. However, when it does come time to reauthorize the bill, it will be vital to pursue an energy efficient, user-pays transportation system.

In fact, the Obama Administration requested about $4.2 billion in direct appropriations in FY 2011 for energy efficiency and renewable energy, fossil energy, nuclear energy, and power delivery.  That request, however, pales in comparison to the $16.4 billion in tax expenditures for energy related programs in FY 2011.

Tax expenditures essentially are government spending programs that are implemented through the Internal Revenue Code.  Certain income tax provisions are referred to as tax expenditures because they are similar to direct expenditures, especially those direct spending programs which have no spending limits, and which are available as entitlements.  Tax expenditures are similar to spending programs in that they intended to accomplish policy goal unrelated to equitable tax collection.  They are like entitlements because they are not subject to annual budget appropriations, but are paid out to any qualifying taxpayer regardless of the total cost.

For instance, in the FY 2011 budget request DOE has requested $760 million for fossil energy programs.  Tax expenditures related to fossil energy are projected to be over $2 billion.  The FY 2011 budget request for energy efficiency and renewable energy is $2.355 billion.  Yet, tax expenditures related to energy efficiency and renewable energy are projected to be over $11 billion, of which $8.9 billion is the ethanol tax credit.

The primary challenge with this system is that in setting spending priorities, it would generally make sense to take the funds available for energy policy and decide how to spend the total based on priorities.  Yet, by keeping the tax expenditures and direct expenditures in separate parts of the policy process, we never really determine whether we have all of our spending priorities in order.  For instance, do we really think that over 40 percent of all spending ($4.2 billion in direct appropriations and $16 billion in tax expenditures) should fund the ethanol tax credit? In a more rational system, we would consider the relative priorities of all policies, but as currently constituted, the system discourages such analysis.

As we work to improve the effectiveness of our energy policy, and as we move into a tight budget environment, we need to think very carefully about how we spend every dollar and make sure that our spending priorities reflect our policy priorities. 

Perhaps we all should be working to make sure that Secretaries Chu and Geitner become close friends, quickly.

To those of us who closely follow the energy debate in Washington, these are interesting stories, particularly the growing enthusiasm for an electric car fleet.  But looking at these headlines, someone who is not closely tied in to any or all of these issues could be forgiven for asking, “so what?”  Some of these debates just seem like they’ve been going on and on, as they always do in Washington.

Except this issue matters, as another headline reminded us this week.  “Singapore bolsters security over terrorist threat,” the AP reported yesterday:

“Singapore raised its security alert and bolstered its defenses Friday after receiving information of a terrorist plot to attack vessels off the coast of the city-state in one of the world’s busiest shipping lanes, a Cabinet minister said.

“Malaysia and Indonesia have also stepped up maritime and air patrols in the Malacca Strait, where millions of barrels of oil pass daily. Singapore’s navy warned Thursday that a terrorist group was planning attacks on oil tankers and other vessels but provided no details.”

“The Singapore navy said Thursday that small fishing boats or speedboats were used in past successful terrorist attacks against ships, and these kinds of vessels could be used in the Malacca Strait.

“The strait, which is 1.7 miles (2.7 kilometers) at its narrowest point, is formed by the west coast of Malaysia and the east coast of Indonesia’s Sumatra island. Singapore, one of the world’s busiest ports, lies at the southern tip of the Malay peninsula along the strait. According to the U.S. Energy Information Agency, 15 million barrels of oil a day passed through the strait in 2006.”

This is the danger, and it is a very real one.  A single successful attack by a handful of terrorist in a speed boat could close off 15 million barrels of oil a day, oil that the United States and indeed the entire world are utterly dependent upon.  Prices would instantly skyrocket, and our still very tenuous economic recovery could be strangled in the crib.  This is why an energy security bill is important, whether or not it is attached to climate change.  This is why electrification of transportation matters, at a scale that could actually reduce our oil dependence.  This is not just another Washington debate.  The consequences of inaction are severe, and every day that we delay is a day in which the threat could become reality.

That approach is reported to center on a utility-only cap and trade system, with other non-refinery, industrial sources phased into the system over time and then a separate “linked fee” system for refineries.  In discussing the shift from “economy-wide cap and trade” to this new approach, reporter Darren Samuelsohn quotes an American Univeristy professor dispensing some wisdom on the play:

“Matt Nisbet, a professor of communications at American University, sees an opportunity for better public debate in the wake of Graham’s comments declaring the end to the broad cap-and-trade approach.

“I think what’s happening politically is we’re moving from a very narrow limited focus on just one option,” he said.

In the past, the longtime focus among politicians and reporters was on cap and trade alone, squeezing out other options like a carbon tax or a cap-and-dividend approach.

“Most of the discussion is not on substance, but rather political viability and the game or jockeying in order to win support,” Nisbet said.”

Now in general, if you’re looking at the CLEAR Act approach offered by Senators Cantwell and Collins or the carbon tax concept floated recently, this time by Senator Murkowski, then yes, those are options beyond traditional cap and trade.  The former is a pretty clear cap and dividend, with trading limited to fuel producers.  And the latter is, of course, both cap-free and trade-free.

But to say that starting with utilities and then phasing in other emitters (except refineries) is some radical departure from Waxman-Markey or Kerry-Boxer is a bit more spin than substance.  Those bills actually do start with utilities first and then phase in, albeit quickly, other industrial sources.  The chief difference in the talked-about plan is in the treatment of refineries.  Under Waxman-Markey, refineries would be subject to a cap and receive some small measure of allowances — a much smaller share than utilities.  Under the pending proposal — at least as described in the press — refineries would not be subject to a cap but instead pay a fee that the government would use to buy allowances.

That has the benefit of clarity and, from a refinery perspective, protection against volatility in the allowance market.  The extent to which a linked fee could accomplish the dual purposes of being refunded to consumers and pay market price for allowances is unclear — but then clarity at this pre-legislative draft stage would be unusual.  Stay tuned.

The article notes that Sen. Graham found fault in the House bill because it forced the industry into an upstream cap-and-trade system covering emissions from refining and emissions from the products sold.  “It really increases gas prices dramatically more than consumers can bear,” Sen. Graham said.  “The goal is to price carbon on the transportation side in a way that’d allow alternative vehicles to become more attractive to the consumer, and to manufacturers.”  Sen. Durbin said that “maybe the sector approach is the right start,” and Sen. Landrieu said that she had been in talks with Sens. Kerry and Lieberman on a “linked carbon fee” on transportation fuels.  No decisions have yet been made, but these are certainly interesting political developments that could ultimately attract more support than a cap-and-trade system from those interested in the climate debate and the energy debate.

For consumers it means that future vehicle purchase decisions (gasoline, hybrid, plug-in hybrid, electric) will be more informed.  But it would not only create price signals for consumers that could be more simply interpreted.  From an operations perspective it is something that oil companies can account for in their activities just like they account for any other cost from electricity to manpower.  This could reduce uncertainty and risk, and create greater project stability overall.  As the shift away from our dependence on oil in the transportation sector continues, we must analyze all of these potential policies to ensure that we move forward on those that are most effective.

Yet after the default, news outlets reported versions of the following :

“ICE Brent crude oil prices are trading nearly three percent lower as Greece debt worries bring European stocks sharply down.”

Or

“The weak dollar is the biggest driver of crude prices this morning and hopes of a financial rescue for Greece are propping up sentiments.”

What underlies these enigmatic – if confidently assumed – connections?  We can use this particular example of the link between Greece’s economic woes and oil prices to better understand how inextricably oil is interwoven into the global political and economic fabric. Unlike other widely traded commodities, such as soybeans or diamonds, nearly every major world event, from conflict to natural disaster to GDP growth rate changes impacts the price of oil, which we then feel almost instantly at the pump as we try to get to work or take the kids to school.

What happened is as follows: European governments, led by Germany, drafted a financial bailout plan for Greece. As a result of this good news, the Euro rose from a historic low caused by the troubles of Greece and other EU members, and European stocks rose in tandem. This forced a weakening of the dollar. Higher stock prices + Weakening Dollar = Rising Crude Prices.

It is fairly indisputable that there is a correlation between the dollar and the price of a barrel of oil. For most of 2009, oil prices rose whenever the dollar weakened.  However, it may be mistaken to always treat it as a causal line, as reported in October 2007 by the UK Times:

“Dollar weakness has boosted the price of dollar-denominated commodities and helped oil to surge by more than a third since the middle of August.”

Global oil prices are denominated in dollars, so when the dollar falls against another currency, like the Euro, oil becomes “more expensive” from the perspective of those of us at American pumps – it is worth more nominal dollars.

Stock prices are also often invoked as a reason for oil prices going up or down. Traditionally, high oil prices meant higher costs for businesses and pushed down stock prices. Therefore, oil prices were inversely related to stock market movements. Investors put their money into oil (and precious metals like gold) both to hedge against dollar and stock market risk. In recent years, there has been an unprecedented increase in speculative commodity investment.  More recently, the relationship has been closely positive: that is, when stock prices go up, so do oil prices. This may be because investors see higher stock prices as indicative of higher future oil demand.

The relationship between the dollar and oil prices is, in fact, more complicated than simple causation. Instead, there is at least some degree of two-way causality. When the price of oil goes up, countries (including the U.S.) have to import more oil, which hurts our current account and terms of trade. That should weaken the exchange rate. The more we import, the weaker the dollar. Even further, higher oil prices hurt our economy, and when an economy weakens, its currency usually depreciates.

Another complicating factor is the effect of the real interest rate, or monetary policy. As the real interest rate declines, commodity prices tend to go up. Investors can’t get as much return on their money if they lend it out, so they put it into commodities like oil instead. Expectations about inflation also affect oil prices. If investors don’t believe the Fed can contain inflation, they are likely to put their money into oil. All of this means that oil volatility is a function not only of physical demand and supply, but of monetary policy.

These somewhat arcane issues highlight the important reality of oil dependence in an environment of increased speculation. By importing such massive quantities of oil, we bring down the value of the dollar, weaken our terms of trade, and leave ourselves vulnerable to volatility that springs from many sources beyond physical supply risks and demand pressures, including global stock markets and international monetary policy.

On Tuesday, three members companies of the Electrification Coalition—a partner of SAFE—testified before Senator Dorgan’s Appropriations Subcommittee on Energy and Water Development.  Each of them emphasized the importance of moving forward with an organized plan to deploy an electrified transportation system in order to reduce American exposure to the dangers posed by oil dependence.

Frederick W. Smith, Chairman, President and CEO of FedEx Corporation, asked, “[I]f we can spend approximately $15 billion a year for eight years in order to eventually end an addiction that would otherwise cost us upwards of $600 billion a year in perpetuity, does it not make wise budgetary sense to do so?”

Richard Lowenthal, CEO of Coulomb Technologies said, “This technology is here today.  We have the capability right now to deploy an electrified transportation sector that will dramatically improve our nation’s trade balance, national security, and environment, and reduce consumers’ cost of transportation.  What is required is coordination and support to push past initial regulatory and financial hurdles.”

And Mary Ann Wright, Vice President and Managing Director of Business Accelerator Project Power Solutions for Johnson Controls said, “Investing in a series of large-scale demonstration projects will encourage the adoption of electric vehicles and prove their market readiness … By concentrating investments in a limited number of communities, we can maximize leverage from the opportunity to demonstrate that grid-enabled vehicles can meet drivers’ needs.”

Speaking of the Olympics, perhaps as important as the hearing is the fact that the millions of Americans who are watching the games every night are being treated to Nissan’s advertising campaign for its new all-electric LEAF.  Electrification is not just for Washington any more.

Elsewhere in the energy world, EPA Administrator Lisa Jackson tried this week to head off a potential showdown between the administration and a bipartisan group of senators concerned about EPA regulation of greenhouse gas emissions.  It is unclear at this point whether her effort was successful or not.

Tuesday’s E&E (subscription required) reported that:

“Facing mounting pressure from congressional lawmakers on both sides of the aisle, the Obama administration yesterday vowed to gradually phase in climate regulations for industrial sources.

“U.S. EPA Administrator Lisa Jackson said that no stationary sources will face greenhouse gas regulations this year and that small sources will not be subject to permitting requirements any sooner than 2016. EPA is also considering ‘substantially’ raising the thresholds in its proposed ‘tailoring’ rule to exempt more facilities from requirements that they minimize their greenhouse gas emissions.

“The announcement is seen as a step forward by both Republican and Democratic lawmakers who have expressed concerns about the possible economic consequences of regulating carbon dioxide and other gases, but several senators said they still plan to move forward with efforts to handcuff EPA’s regulatory authority.”

“‘It helps,’ said Commerce Chairman Jay Rockefeller (D-W.Va.), who was one of the lead signatories on the letter sent last week to EPA.”

“Sen. Lisa Murkowski (R-Alaska), who is pushing a separate resolution aimed at blocking EPA climate rules, also welcomed EPA’s announcement.”

E&E’s sister publication ClimateWire, however, showed Senators being less than satisfied:

“Senate lawmakers intend to push forward efforts to curtail U.S. EPA’s climate regulations, despite the agency’s assurances yesterday that it will cautiously phase in controversial permitting requirements.

“‘I am glad to see that the EPA is showing some willingness to set their timetable for regulation in to the future—this is good progress but I am concerned it may not go far enough. I believe we need to set in stone through legislation enough time for Congress to consider a comprehensive energy bill,’ Rockefeller said in a statement.”

Once again, an age-old truism in Washington is confirmed: conflicts between branches of government can be as or more intractable than conflicts between political parties.

The piece, actually citing Agence France-Presse, begins:

“China’s chief climate change negotiator says the country has no plans to cap its greenhouse gas emissions for the time being, state media reported today.

“Su Wei, who led China’s negotiating team at the U.N. climate talks in Copenhagen in December, said yesterday that China “could not and should not” set an upper boundary on its greenhouse gas emissions right now because the country’s economy is still growing, so its carbon emissions must be allowed to increase.”

The Chinese government is keenly interested in making their booming economy more energy efficient, and has pledged to “reduce its carbon intensity — the measure of greenhouse gas emissions per unit of gross domestic product — by 40 to 45 percent by 2020 based on 2005 levels.”

Former President Bush pioneered the energy intensity metric in his commitments to reduce emissions, but the Chinese have a better ability than Bush did to see it through.  The “pledge will be a binding part of China’s next two five-year economic development plans,” says Agence France-Presse.

In their quest for improved energy efficiency, the Chinese are deploying both conventional and advanced energy technology at a rapid pace.  Indeed, there’s much talk in Washington about the US losing its technological edge in this field.  One respected analyst recently posited that China “missed the industrial revolution and then missed the telecommunications revolution — they aren’t going to miss the green technology revolution.”

Be clear, though, that the expressed intent of the Chinese in developing green technology is to first protect economic security by enhancing their energy security and then as a welcome by-product to also reduce greenhouse gas emissions.  That’s a focus that American policy-makers would do well to replicate.