In my previous post I highlighted the recent, quiet admission by the US EIA (in a fine-print footnote to Table 15 of their 2012 Annual Coal Report) that they do not know what fraction of our nation’s large store of coal resources might be economically accessible, and thus potentially classified as reserves.
CEA has long highlighted indications that a revision like this might be in the works, including in our most recent round of coal reports issued last fall (see: Warning: Faulty Reporting of US Coal Reserves). But we’re not the only ones. Plenty of other people have pointed out the same thing over the years. Including…
At the end of 2013, the US Energy Information Administration (EIA) acknowledged that it does not know whether the vast majority of US coal can be mined profitably. If coal mining isn’t profitable, then barring some grand socialist enterprise the black stuff is probably going to stay in the ground where it belongs.
You might think this kind of revision would have warranted a press release, but the EIA’s change of heart was buried in a fine-print footnote to Table 15 of their 2012 Annual Coal Report, which tallies up all the coal resources and reserves in the US, state by state. The new footnote says:
EIA’s estimated recoverable reserves include the coal in the demonstrated reserve base considered recoverable after excluding coal estimated to be unavailable due to land use restrictions, and after applying assumed mining recovery rates. This estimate does not include any specific economic feasibility criteria. [emphasis added]
EIA’s estimated recoverable reserves include the coal in the demonstrated reserve base considered recoverable after excluding coal estimated to be unavailable due to land use restrictions or currently economically unattractive for mining, and after applying assumed mining recovery rates. [emphasis added]
Price is not the only economic variable to consider in deciding what kind of generation a utility should build. Different kinds of power have different risks associated with them. This is important even if we set aside for the moment the climate risk associated with fossil fuels (e.g. the risk that Miami is going to sink beneath the waves forever within the lifetime of some people now reading this). It’s true even if we ignore the public health consequences of extracting and burning coal and natural gas. As former Colorado PUC chair Ron Binz has pointed out, risk should be an important variable in our planning decisions even within a purely financial, capitalistic framing of the utility resource planning process.
Utility financial risk comes largely from future fuel price uncertainty. Most utility resource planning decisions are made on the basis of expected future prices, without too much thought given to how well constrained those prices are. This is problematic, because building a new power plant is a long-term commitment to buying fuel, and while the guaranteed profits from building the plant go to the utility, the fuel bill goes to the customers. There’s a split incentive between a utility making a long-term commitment to buying fuel, and the customers that end up actually paying for it. Most PUCs also seem to assume that utility customers are pretty risk-tolerant — that we don’t have much desire to insulate ourselves from future fuel price fluctuations. It’s not clear to me how they justify this assumption.
What would happen if we forced the utilities to internalize fuel price risks? The textbook approach to managing financial risk from variable commodity prices is hedging, often with futures contracts (for an intro to futures check out this series on Khan Academy), but they only work as long as there are parties willing to take both sides of the bet. In theory producers want to protect themselves from falling prices, and consumers want to protect themselves from rising prices. Mark Bolinger at Lawrence Berkeley National Labs took a look at all this in a paper I just came across, entitled Wind Power as a Cost-effective Long-term Hedge Against Natural Gas Prices. He found that more than a couple of years into the future and the liquidity of the natural gas futures market dries up. In theory you could hedge 10 years out on the NYMEX exchange, but basically nobody does. Even at 2 years it’s slim!
Reading the the Copenhagen accords of 2009, it would seem that virtually the entire world has signed up to stabilize greenhouse gas concentrations in the atmosphere at levels that will keep warming below 2°C, consistent with the scientific understanding of the climate system, and on an equitable basis globally. Unfortunately, virtually nobody is considering policies that actually lead to that outcome. Among others, the International Energy Agency (IEA) notes that our current emissions trajectory is consistent with 6°C of warming by the end of the century, which is considered by many to be inconsistent with an organized global civilization. In fact, even if we implemented all the “reasonable” policies we’ve talked about so far (which we’re not doing) the outcome looks a lot more like 4°C than 2°C.
Yet almost nobody is willing to either give up on 2°C publicly, or — maybe more constructively — start a serious discussion about what scientifically grounded, equitable policies that are actually likely to result in less than 2°C of warming look like. Almost nobody, but not quite.
For the last several years Kevin Anderson and Alice Bows of the Tyndall Center for Climate Research in the UK have been trying to publicize this massive disconnect, and get policymakers and the public to acknowledge that in reality there are only radical futures to choose from — either a radical alteration of the climate, or the radical emissions reductions required to avoid it. There is no status quo option. Anderson and Bows are critical of both the scientific establishment for playing down this disconnect, and leaders for refusing to acknowledge in public what some of them understand very well in private.
This conversation isn’t going to go away any time soon. Some selections:
Here’s an hour-long invited talk by Anderson at the Cabot Institute from 2012:
We should begin levying a modest carbon tax, in the range of $5 to $25/ton of CO2e.
The tax must be applied to the fossil fuels used in electricity generation (coal and natural gas). Ideally it should also be applied to gasoline, diesel, natural gas used outside the power sector, and fugitive methane emissions from the oil and gas industry, but those are less important for the moment.
New electricity generation resources must be allowed to compete economically with the operation of existing carbon-intensive facilities, and fuel costs must not be blindly passed through to consumers without either rigorous regulatory oversight, or utilities sharing fuel price risk.
Carbon tax revenues should be spent on emissions mitigation, providing reliable, low-cost financing for energy efficiency measures and a standard-offer contract with modest performance-based returns for new renewable generation.
Over time the carbon price should be increased and applied uniformly across all segments of the economy, with the eventual integration of consumption based emissions footprinting for imported goods.
PEAK COAL REPORT: U.S. COAL “RESERVES” ARE INCORRECTLY CALCULATED, SUPPOSED 200-YEAR SUPPLY COULD RUN OUT IN 20 YEARS OR LESS
Federal Estimates Overstate Reserves by Including Coal That Cannot Be Mined Profitably; Production Already Down in All Major Coal Mining States… And Utility Consumers Are Facing Rising Energy Bill Prices.
WASHINGTON, D.C. – October 30, 2013 – America does not have 200 years in coal “reserves” since much of the coal that is now left in the ground cannot be mined profitably, according to a major new report from the Boulder, CO-based nonprofit Clean Energy Action (CEA). The CEA analysis shows that the U.S. appears to have reached its “peak coal” point in 2008 and now faces a rocky future over the next 10-20 years of rising coal production costs, potentially more bankruptcies among coal mining companies, and higher fuel bills for utility consumers.
A good short profile of the city of Freiburg, Germany, and their many sustainability initiatives. Freiburg is a little more than double Boulder’s size — both in population and area, so it has a similar average population density. It’s also a university town with a strong tech sector locally. The whole city was re-built post WWII, but they chose to build it along the same lines as the old city, with a dense core, and well defined boundaries. Today about half of daily trips are done by foot or on bike, with another 20% on public transit. They have a local energy efficiency finance program, on top of the national one administered by KfW, and higher building efficiency standards than Germany as a whole. Half their electricity comes from combined heat and power facilities that also provide district heating and hot water. It seems like they’d be a good model city to compare Boulder to, and learn from.
Geothermal energy is the Earth’s own internal heat. It’s a huge potential resource, but so far it’s seen only very limited use. Traditional geothermal power can only work where there are naturally existing hydrothermal systems that bring the heat of the interior to the surface. A new technique called enhanced (or engineered) geothermal systems (EGS) may make geothermal power much more widely available. If it can be scaled up commercially, EGS will enable us to create hydrothermal systems anywhere there’s hot rock not too deeply buried — which includes a large swath of Colorado. This is potentially significant in the context of creating a zero-carbon electrical system because like hydroelectricity, and unlike wind and solar, geothermal power can be dispatchable: you can turn it on and off at will. This makes it a great complement to intermittent renewable power, as it can be used to fill in the gaps then the wind’s not blowing or the sun’s not shining. It remains to be seen whether it’s technically feasible, and if so at what price, and on what timeline, but it’s certainly worth investigating.
Passive Passion is a good 20 minute long film introduction to the German Passivhaus energy efficiency standard, which reduces building energy use by 80-95% (depending on what existing code you compare it to). It looks at the roots of the design standard in Germany, and gives a few examples from the tens of thousands of Passivhaus certified buildings in Europe, including single family homes, row houses, apartment buildings, public low income housing, and office buildings. They talk about what makes the standard work: airtight building envelopes, super insulation, no thermal bridging, heat recovering ventilation. The film also looks at a few builders and designers in the US trying to popularize the cost effective implementation of these methods. It’s clearly possible. The examples are out there today. We just have to decide to do it! If we’re going to get to carbon zero, someday our buildings will all have to function something like this.