energy Archives - Amateur Earthling

Five Times Faster by Simon Sharpe

Five Times Faster takes a systems approach to understanding why we haven’t made nearly as much progress on climate as we need to over the last 30 years of trying. Sharpe — a former UK climate diplomat — looks at the problem from 3 different angles: the way we assess and communicate the potential impacts of climate change; the way we think about the economy in the context of climate action, and finally how diplomacy and international agreements around climate action have been structured and negotiated. In each of these contexts he highlights the need for more consideration of non-linearity, feedbacks, and the potential for changing the underlying dynamics of the climate, economic, and political systems.

Carbon Captured by Matto Mildenberger

Carbon Captured is another book in the vein of Leah Stokes’ excellent Short Circuiting Policy and Making Climate Policy Work by David Victor and Danny Cullenward. It examines the political economy of climate policymaking over the last ~30 or so years starting mostly in the late 1980s when the issue started showing up on national policy agendas.

The central idea of the book (as Mildenberger repeats many, many times) is that carbon-intensive power centers enjoy political representation on both the Labor and Capital ends of the political spectrum that organizes most national parties. Mining and industrial unions as well as the owners fossil-fuel based businesses have all fought climate policy, and this means that no matter who is in power, someone is going to me working against the energy transition. Before 1990 carbon intensity just wasn’t a dimension anybody thought about in politics. In most places it’s still not a dominant political axis, though in the US it seems like the parties tried very hard to turn climate action into a partisan litmus test for the time being.

On top of this idea of “double representation” Mildenberger layers a couple of additional dimensions: how “corporatist” vs. pluralist are a country’s policymaking institutions, and whether the Labor movement has a deep, direct connection to leftist political parties (he ignores the analogous variable on the right, since he found that conservative parties are universally deeply tied to the interest of capital). With these variables in mind he explores the climate policy trajectories of 7 wealthy countries: the US, Australia, Norway, Germany, the UK, Japan, and Canada.

The idea is that a country’s level of corporatism vs. pluralism, and how tightly integrated Labor is with the left-leaning political parties will strongly influence what kind of policy trajectory the country takes. Countries with political institutions that reinforce the double representation of carbon interests will tend to take weak action earlier, with little public engagement, while those with less institutionally entrenched interests will tend to have more open conflict, likely resulting in later — but potentially more aggressive — policies. I wasn’t particularly convinced of this on the basis of the 7 case studies he explored.

It was kind of tragicomic that he chose the Clean Power Plan as the US example of “late but costly” climate policy, given that it was immediately repealed and never implemented, and then the policy targets were met anyway ahead of time with net cost savings. In contrast to his predictions, to me the IRA seems more like a policy implemented late but which is entirely composed of carrots rather than sticks (with the possible exception of the methane fee).

Regardless of whether this hypothesis is valid it was still very interesting to read these condensed policy histories. It definitely gave me some surprising wider context.

The End of the Steampunk Grid

Compound Tandem Horizontal Engine and Dynamo (1905). This is still how we make electricity.

I just finished reading Alexandra von Meier’s book, Electric Power Systems: A Conceptual Introduction. It’s an overview of how the generation, transmission, and distribution system works, and how it’s worked for pretty much the whole history of the grid, stretching back to the end of the 19th century. More than anything I came away with an appreciation for the gloriously analog nature of the machine. We have a steampunk grid, a massive artifact of the Victorian era, hiding behind and powering our increasingly digital world. This isn’t an engineering textbook, but it’s not exactly meant for a popular audience either. There’s an ongoing stream of complex numbers, calculus references, vectors, matrices, and electromagnetic fields… and without some understanding of them, a lot of the core ideas in the book will probably not come across very well.

At the upstream edge of the grid, we have thousands of gigantic machines, spinning in almost perfect synchronization. Massive amounts of iron and copper, literally turned by steam. They’ve gotten bigger and hotter and more precise and efficient over time, but they’re fundamentally the same type of generation the grid grew up with a century ago.

At the downstream edge of the grid, in large part we have the same kind of machines… but running in reverse, taking the undulating waves of electricity, and turning them back into rotation, through an invisible, smoothly spinning force-field. It’s like magic, but it’s something we’ve all lived with our entire lives. It’s so normal we don’t think about it.

Between these spinning machines we have masses of iron and tightly wound copper stepping voltage up and down, mechanical switches that look like something out of Frankenstein, and very little in the way of instrumentation and automation — at least by present day standards. And with a few exceptions, the electricity really does flow from one edge of the grid to the other in a dendritic network.

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?

Orphaned Wells, Wind Farms and Net Present Value

Wells left behind by industry threaten to overwhelm Western states.

Source: ‘Orphaned’ oil and gas wells are on the rise (High Country News)

A good High Country News story about the problem of orphaned methane wells in Colorado & Wyoming. Well operators “become bankrupt” and walk away, leaving the public to cover cleanup costs. In theory, operators have to put a bond up to get a permit, but the bond isn’t enough to cover cleanup costs. One operator named Atom recently forfeited a $60K bond on 50 wells, which subsequently cost the public ~$600K to clean up. The same problem exists with reclamation bonds covering coal mines on federal land in Wyoming, except the dollar values are three orders of magnitude larger.

If the bond amounts were much larger, the money vs. time curve of a methane well or coal mine would start to look much more like that of a wind or solar installation, from capital’s point of view. Big reclamation bonds would look like part of a big up front investment, which is then followed by a long trickle of income as the mine or well produces over its lifetime.

You can slosh the costs & profits around through PPAs and other arrangements, but at a basic level, that big up front cost + long trickle of income is the fundamental cashflow time series of renewables too. Even if these different energy investments all add up to the same dollar value, the time distribution matters, because capital often just cares about net present value. (See Dave Roberts’ famous Discount Rates: A Boring Thing You Should Know About With Otters!)

From an extractor’s point of view, pushing the reclamation costs into the future makes them unimportant, because they’re discounted to the present. By the time they loom large, the true remaining value of the well or mine is already negative, with cleanup costs included. And the only rational thing to do at that point is to walk away. That’s what bankruptcy is for. But in this case, the counterparty is the public, and we have no upside risk.

The public takes on the environmental or cleanup costs of the mine or well at the outset, rather than internalizing those costs within the business decision. To put energy investments without those environmental or cleanup costs on equal footing, you’d need to give them up front or ongoing subsidies. And here we’re just talking about the traditional “environmental” costs — not the climate costs.

Half of finance and capital markets is just smuggling money through time. We can pull piles of it back from the future. Or we can exile our debts to the future. From and to those people we don’t think are us. The other half of finance seems to do the same thing with risks, extracting certainty from others, pushing uncertainty onto others, moving uncertainty through time. Trying to keep upside uncertainty, and lose downside uncertainty.

Pricing is just a little piece of what markets do.

Facing the Risk in Fossil Fueled Electricity

I recently wrote about how our risk tolerance/aversion powerfully affects our estimation of the social cost of carbon, but obviously that’s not the only place that risk shows up in our energy systems. Fossil fuel based electricity is also exposed to a much more prosaic kind of risk: the possibility that fuel prices will increase over time.

Building a new coal or gas plant is a wager that fuel will continue to be available at a reasonable price over the lifetime of the plant, a lifetime measured in decades. Unfortunately, nobody has a particularly good record with long term energy system predictions so this is a fairly risky bet, unless you can get somebody to sign a long term fuel contract with a known price. That doesn’t really get rid of the risk, it just shifts it onto your fuel supplier. They take on the risk that they won’t make as much money as they could have, if they’d been able to sell the fuel at (higher) market rates. If the consumer is worried about rising prices, and the producer is worried about falling prices, then sometimes this can be a mutually beneficial arrangement. This is called “hedging”.

Continue reading Facing the Risk in Fossil Fueled Electricity

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.

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.

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

In Good Company: A Look at Global Coal Reserve Revisions

In my last post, I recounted some of the indications that have surfaced over the last decade that US coal reserves might not be as large as we think. The work done by the USGS assessing our reserves, and more recently comments from the coal industry themselves cast doubt on the common refrain that the US is “the Saudi Arabia of coal” and the idea that we have a couple of centuries worth of the fuel just laying around, waiting to be burned. As it turns out, the US isn’t alone in having potentially unreliable reserve numbers. Over the decades, many other major coal producing nations have also dramatically revised their reserve estimates.

Internationally the main reserve compilations are done by the UN’s World Energy Council (WEC) and to some degree also the German equivalent of the USGS, known as the BGR. Virtually all global (publicly viewable) statistics on fossil fuel reserves are traceable back to one of those two agencies. For instance, the coal reserve numbers in the International Energy Agency’s (IEA’s) 2011 World Energy Outlook came from the BGR; the numbers in BP’s most recent Statistical Review of Energy came from the WEC.

Of course, both the WEC and the BGR are largely dependent on numbers reported by national agencies (like the USGS, the EIA and the SEC in the case of the US), who compile data directly from state and regional geologic survey and mining agencies, fossil fuel consumers, producers, and the markets that they make up.

Looking back through the years at internationally reported coal reserve numbers, it’s surprisingly common to see big discontinuous revisions. Below are a few examples from the WEC Resource Surveys going back to 1950, including some of the world’s largest supposed coal reserve holders. In all cases, the magnitude of the large reserve revisions is much greater than annual coal production can explain.

Continue reading In Good Company: A Look at Global Coal Reserve Revisions

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