Adversarial Electricity Portfolios

Controlled demolition of a tall smokestack.
Controlled Demolition. (CC-BY-SA Heptagon via Wikimedia Commons)

Can we construct adversarial electricity portfolios made of new zero-carbon resources that undermine the profitability of specific existing fossil plants? Some version of this is already happening, but it’s incidental rather than targeted. The economics of existing coal and nuclear plants are being eroded by flat electricity demand in combination with cheap gas, wind, and solar. Economical storage and dispatchable demand aren’t far behind. But how much faster would the energy transition be if we actively optimized new energy resources to undermine the economics of existing fossil generation?

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Density or Exclusion: the Perils of Local Zoning

In my last post, I suggested that while we like to think of housing as an investment, it’s really more like a crappy savings plan, potentially redeemed by the fact that you can live inside the piggy bank. Land can be a profitable speculative investment, but allowing land to appreciate and drag the cost of housing upward in real terms is fundamentally incompatible with housing being affordable.

Economists (including Adam Smith, David Ricardo, Thomas Paine, Henry George, Thomas Friedman, Joseph Stiglitz, and Matt Yglesias) have highlighted the negative impacts of allowing land owners to collect monopolistic “ground rents” but nobody seems to care. So now tens of trillions of dollars worth of real estate in the US is predicated on the idea that landowners get to retain these speculative gains. Barring a glorious Georgist Revolution, this is probably the arrangement we have to work within.

Build, Baby Build!

Luckily, in a city with increasing land values, where property owners get to keep all of those unearned financial gains, there’s an All American Capitalist Solution™ of sorts, which can potentially keep housing affordable, even when land is expensive: build more housing on less land. By building densely, high land costs can be shared across more households, reducing the overall impacts of expensive land, and allowing home buyers & renters to pay primarily for housing instead of land.

Continue reading Density or Exclusion: the Perils of Local Zoning

Ownership vs. Stewardship, Companies vs. Co-ops

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After more than two decades of growth and success, Fort Collins based New Belgium Brewing became 100% employee owned three years ago, with the employee stock ownership plan buying out the 59% of the company previously held by its founders.  Today it sounds like they might be putting themselves on the auction block. With around 500 employees, and a potential valuation of a billion dollars, it’s not too hard to understand the temptation.  That’s $2 million worth of company value per employee.

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The Myth of Price

Our society’s prevailing economic zeitgeist assumes that everything has a price, and that both costs and prices can be objectively calculated, or at least agreed upon by parties involved in the transaction.  There are some big problems with this proposition.

Externalized costs are involuntary transactions — those on the receiving end of the externalities have not agreed to the deal.  Putting a price on carbon can theoretically remedy this failure in the context of climate change.  In practice it’s much more complicated, because our energy markets are not particularly efficient (as we pointed out in our Colorado carbon fee proposal, and as the ACEEE has documented well), and because there are many subsidies (some explicit, others structural) that confound the integration of externalized costs into our energy prices.

The global pricing of energy and climate externalities is obviously a huge challenge that we need to address, and despite our ongoing failure to reduce emissions, there’s been a pretty robust discussion about externalities.  As our understanding of climate change and its potentially catastrophic economic consequences have matured, our estimates of these costs have been revised, usually upwards.  We acknowledge the fact that these costs exist, even if we’re politically unwilling to do much about them.

Unfortunately — and surprisingly to most people — it turns out that understanding how the climate is going to change and what the economic impacts of those changes will be is not enough information to calculate the social cost of carbon. Continue reading The Myth of Price

Coal Geology vs. Coal Economics & Politics

The geology part of classifying coal as reserves is a lot of work, but it’s doable — with enough drilling logs and other data, you can determine where the coal is, how much of it there is, and its general quality. Once you’ve got that concrete geologic understanding, it’s unlikely to change drastically — it might be refined modestly over time, maybe increasing as mining technology improves… but if you’ve done the work well, you’re probably not going to suddenly discover that 90% or 99% of the coal you thought was there actually isn’t.

The economic part part of classifying coal as reserves is fundamentally different, and more changeable with time, because market conditions change much more quickly than geology! I think the experiences of the UK and Germany are particularly interesting, because they were both early large coal producers, part of the first wave of fossil fueled industrialization. They’re extremely mature hard coal mining provinces that have fallen off their peak production dramatically — they’re ahead of the curve that most of the rest of the world is still on.

The drastic downward revisions that both the UK and Germany made were due to changes in economic policies and domestic politics — not geology. Both nations historically had strong labor interests tied to coal mining, and the desire (like most nations) to maintain an indigenous energy supply. But as the cost of supporting the industry grew and its productivity fell, the political logic of maintaining the illusion of a viable coal-based energy system faded away. In Germany, it seems likely that popular support for the nation’s ambitious Energy Transition made it easier for the nation to face up to geologic reality. In the UK the politics seem to have been influenced by the Thatcher government’s desire to privatize previously nationalized industries like coal mining, as well as the discovery of massive offshore natural gas reserves in the North Sea.  In both cases the “proven reserve” numbers appear to have vastly overstated to begin with, but the political desire to support the industry and maintain the illusion of long-term energy independence was a powerful incentive to ignore the geologic reality.

However, in the end, geology wins.

Where are we headed?

The EIA’s admission that we have not, as a nation, officially and transparently evaluated the economics of extracting our vast coal resources opens the topic up for discussion. The economic and political forces at work today in the US may be different than they were in 1980s Britain, or early 2000s Germany, but they’re pushing in the same direction. A powerful incumbent coal industry is weakening both financially and politically — because of their own increasing production costs, low natural gas prices, flat electricity demand, plummeting renewable energy costs, and concerns about both traditional pollution and greenhouse gas emissions. This gives us the opportunity to re-evaluate our policies around them. What should we change?

We might start with ending the practice of soft pricing in uncompetitive BLM coal lease auctions, as laid out by the Government Accountability Office in February. However, by far our largest subsidy to the industry is our acceptance of the externalized costs they impose on us. A 2011 Harvard study (on which CEA co-founder Leslie Glustrom was a co-author) estimated these costs to be roughly $345 billion/year in the US — equivalent to adding $0.18/kWh of coal fired electricity (explore the study graphically, or see the full peer-reviewed paper).

Even if we ignored traditional environmental impacts and public health consequences, and just applied the modest $37/ton social cost of CO2 calculated by the US Office of Management and Budget, that would add roughly $60 to the cost of a ton of coal! With current PRB production costs in the neighborhood of $10/ton, and operating margins often less than $1/ton ($0.28/ton in the case of Arch last year), this — or even a smaller carbon price — would likely be a crushing blow to the fuel.

Given the current state of the industry, even without these “drastic” policy changes it’s possible that we are headed for our own major downward reserves revision. This isn’t “running out of coal”. Britain and Germany both still have enormous amounts of coal — it’s just not worth digging much of it out of the ground, given the available alternatives. It’s time to figure out whether we’re in the same boat, admit it to ourselves and the world if we are, and move on to the task of building real solutions.

Two Possibilities, One Course of Action

There’s an irony in all this, which is that regardless of whether we’re running short on economically recoverable coal, we need to expunge the fuel from our energy systems as quickly as possible in order to avoid catastrophic climate change. If the global reserves numbers reported by the WEC are accurate, then we need to leave 60-80% of those reserves in the ground. This was highlighted most famously by Bill McKibben in Rolling Stone in 2012, and implies that a huge fraction of the world’s fossil fuel assets are in fact worthless, unburnable carbon, and most of the world’s coal companies and unconventional hydrocarbon extraction projects are destined for bankruptcy. On the other hand, if the reserve numbers need to be revised downward because most of the listed coal isn’t economically extractable, then a lot of the coal industry’s supposedly bankable assets are worthless and the industry’s growth potential is seriously constrained.

In either case, the right thing to do is stop planning as if today’s coal plants are going to continue operating for much longer, figure out a way to take them offline, and replace them with cost-effective, low risk, zero-carbon generation resources and energy efficiency.

  1. US EIA on the Economics of Coal: No Comment
  2. A Long Time Coming: Revising US Coal Reserves
  3. In Good Company: A Brief History of Global Coal Reserve Revisions
  4. Coal Geology vs. Coal Economics & Politics

A Long Time Coming: Revising US Coal Reserves

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…

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US EIA on the Economics of Coal: No Comment

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]

This stands in contrast to the footnotes for the same table in their 2011 Annual Coal Report, and many prior years:

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]

Continue reading US EIA on the Economics of Coal: No Comment

Kevin Anderson and Getting to 2°C

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:

Continue reading Kevin Anderson and Getting to 2°C

A Carbon Price for Colorado

In May of 2013 I gave a talk at Clean Energy Action’s Global Warming Solutions Speaker Series in Boulder, on how we might structure a carbon pricing scheme in Colorado.  You can also download a PDF of the slides and watch an edited version of that presentation via YouTube:

What follows is a more structured written exploration of the same ideas.

Continue reading A Carbon Price for Colorado

Quantifying the Cost of Sprawl

Sprawling single-family suburban development is more expensive than compact land use.  There’s more infrastructure per capita and per unit area (pavement, power lines, water and sewage lines, etc), in conjunction with much lower tax revenues per unit infrastructure.  This is true if you look at either the capital (up front) costs or the ongoing operational costs.  Most subdivisions aren’t actually prepared to pay their own way when the bill comes due.