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President Obama Approves Drilling in the Arctic: Should We Be Outraged?

Full Spectrum: Energy Analysis and Commentary with Jesse Jenkins

On Monday, the Obama Administration gave conditional approval for Royal Dutch Shell to begin exploratory drilling for oil in the Arctic waters off the northern coast of Alaska.

The decision was greeted with outrage Tuesday by climate activist and author Bill McKibben, who challenged the Obama Administration’s decision to repeatedly offer up new fossil energy resources on public lands. In addition to the Arctic, the Obama Administration has opened up new swaths of Atlantic and Gulf of Mexico waters to oil and gas drilling and approved leases for new coal fields in Wyoming’s Powder River Basin region.

While acknowledging President Obama’s steps to cut emissions from power plants, cars, and trucks, McKibben goes so far as to call Obama’s decisions on oil and coal leasing the equivalent of climate denial:

This is not climate denial of the Republican sort, where people simply pretend the science isn’t real. This is climate denial of the status quo sort, where people accept the science, and indeed make long speeches about the immorality of passing on a ruined world to our children. They just deny the meaning of the science, which is that we must keep carbon in the ground.

McKibben’s rhetoric is way over the top. (Chris Turner call it outright irresponsible, and he may be right). After all, this president has done more to confront climate change than any other American president.

But as New York Times reporter Coral Davenport notes, there’s an obvious tension between the president’s effort to cement his legacy as a climate champion and his repeated decisions to unlock more domestic fossil energy resources for extraction.

McKibben knows this, and he’s found what I imagine is a personal “pain point” for the president and is exploiting it by publicly challenging his green credentials.

As Matthew Nisbet, a professor specializing in climate communications, has argued, McKibben’s tactics can be polarizing, and he is unlikely to convince new supporters to rally behind the climate cause with this kind of rhetoric.

Yet by publicly challenging Obama’s legacy, McKibben may also be effective at hitting the president where it hurts.

How those tactical considerations balance out in the end is unclear, at least to me.

On substance, Michael Levi at the Council on Foreign Relations raises several good points (as usual) in reply to McKibben. The demand-side of the equation is the biggest lever in tackling climate change. As long as the United States (and elsewhere) continues to consumes vast amounts of oil and coal, those resources will continue to be extracted somewhere in the world.

The Obama Administration’s view seems to be that as long as we are consuming oil or coal, we might as well be consuming domestic resources to the benefit of the U.S. economy.

At the same time, Obama is trying to cut back consumption of fossil fuels by regulating power plant greenhouse gas emissions, improving vehicle fuel economy, and supporting the growth of renewable and nuclear energy.

That position isn’t anything close to climate denial. But it’s also far too simplistic.

Climate change arguments aside, the Arctic is one of the most environmentally risky places to drill in the world.

The Bureau of Ocean Energy Management, which oversees offshore drilling, put the odds of one or more spills resulting from offshore Arctic oil drilling at 75 percent. 

As Davenport writes at the NYTimes, environmentalists and oil industry officials alike believe a drilling accident in the Arctic Sea “could lead to a disaster far worse than the 2010 Deepwater Horizon explosion, which killed 11 and sent millions of barrels of oil spewing through the Gulf of Mexico.”

The closest Coast Guard station with equipment for responding to a spill is more than 1,000 miles away. The weather is extreme, with major storms, icy waters and waves up to 50 feet high. The sea is also a major migration route and feeding area for marine mammals, including bowhead whales and walruses.

Shell failed their initial tests of emergency containment measures, and there’s effectively no public resources to help respond if (when?) accidents get out of hand.

In short, there’s very little assurance that an accident on an Arctic drilling rig could be contained and the risks of a full-blown disaster are quite real.

On environmental grounds alone then, I think drilling offshore in the Arctic is a foolish risk.

The climate case against Arctic oil is not as straightforward. The argument is that limiting oil supplies will have an effect on global oil prices, which will have an effect on demand.

As I’ve argued before, I think there’s some truth to this, but McKibben repeatedly overstates it.

Playing whack-a-mole and trying to block all extraction efforts is a losing strategy in the long run. Unless we have real substitutes for oil and coal, we’ll continue burning these fuels, and efforts to constrain supply will have only limited impact on demand.

In short, efforts to constrain off fossil energy supplies will never be central to tackling climate change. Michael Levi is right there. Our primary efforts should concentrate on reducing demand for fossil fuels.

At the same time, Obama keeps unilaterally opening up new federal lands and waters for fossil energy extraction.

He hasn’t made these decisions as part of some broader political compromise—for example, as part of a deal to secure bipartisan support for cap and trade legislation or in exchange for dedicating the revenues from public leases to funding clean energy innovation.

The fact that Obama keeps giving away the store without anything in exchange makes it clear the president actually thinks these decisions are good policy on their own merits and that he sees no real conflict with his climate objectives.

In short, President Obama has been treating the supply side of the equation as if it is completely irrelevant to climate policy.

That’s a big mistake.

The supply side is secondary, sure. But irrelevant? Far from it.

President Obama has done a lot—more than any prior president—to cut American demand for coal and oil.

But it’s long past time for President Obama to think harder about where his decisions to open up federal lands and waters for fossil energy extraction fit into a more comprehensive climate strategy.

Here’s a pair of simple principles:

  1. If extracting oil or coal in a particular region poses substantial environmental risks that are greater than other regions—as it does in the Arctic—then restricting development there can be done at a net win to the environment and the climate, even after considering demand-side dynamics. Yes, we will consume oil or coal from another region instead, but one with lower environmental risks. And by restricting exploitation of these environmentally sensitive regions, global oil prices will be marginally higher, leading to a marginal decline in demand and a modest climate benefit.
  2. Perhaps more importantly, if we decide the environmental risks are tolerable and auction off the finite fossil energy resources on our public lands and waters, we should dedicate the proceeds of these sales to developing and deploying the low-carbon substitutes for oil and coal that will power our economy in the future. This was originally a Republican idea, and it’s long past time the Obama Administration embraced it. Such a policy would explicitly link the supply and demand sides of the equation, and ensure that any time we extract publicly owned oil and coal resources, we are also taking a step closer to making these resources obsolete.

So should we be outraged that President Obama has opened another vast swath of public lands for fossil energy extraction? 

Bill McKibben’s condemnation of Obama is over the top, and applying the term “climate denier” to this president may complete the transformation of this term into a cudgel used to club anyone who disagrees with your favored climate strategy.

At the same time, what else is new? It’s an op ed after all, a domain where rhetorical flourish is the name of the game.  

Personally, I’m more disappointed in President Obama than I am in McKibben. After all, Barack’s climate tactics matter a heck of a lot more than Bill’s.

Reducing demand for fossil fuels will always be the central thrust of any successful climate strategy.

But it is also time to stop treating decisions to expand fossil fuel supplies as if they are irrelevant to the climate conversation.

If it takes a little overblown outrage to get that conversation started, that’s fine by me. 

Jesse Jenkins's picture

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Bob Meinetz's picture
Bob Meinetz on May 13, 2015 9:28 pm GMT

Jesse, asking “Should we be outraged?” is a bit like asking, “How much should we value the environment?”. Everyone will have their own answer, but I’m mostly in agreement with McKibbon. We’re seeing the prelude to climate effects which will last something on the order of 100,000 years. To put temporary economic concerns above altering the climate permanently and putting 1/6 of the Earth’s 8.7 million species at risk seems to me the height of hubris.

There are parallels between Arctic drilling and Keystone XL, opposition to which has had a significant economic impact. Whether it has a proportional environmental impact is not entirely in our hands; that doesn’t change the moral imperative to do our part. So when Michael Levi rationalizes that “more oil production in one place generally means less oil production elsewhere”, he adopts the same bankrupt ethos that some use to rationalize littering, cheating on taxes, and padding bills in Congress to guarantee funding in next year’s budget.

In the global moral dynamic, laws provide a framework for justice. But outside that framework we’re forced to rely on its negative space to which every individual lays claim – aka, “doing the right thing”. In my opinion, approving drilling in the Arctic fails that criterion.

I suppose I would be outraged if I was younger and thought it would do any good.

Hops Gegangen's picture
Hops Gegangen on May 13, 2015 10:29 pm GMT

 

Trying to cut off supply of oil would just cause outrage, like taking the crack from an addict. You have to work on the addiction first — reduce demand through higher MPG, electric cars, mass transit, etc.

 

 

Lewis Perelman's picture
Lewis Perelman on May 14, 2015 4:55 am GMT

Jesse, your disdain for Mckibben’s rabble rousing is apt.

But I’m confused about a seeming gap in your argument. Just a few months ago, Obama effectively banned onshore drilling in a large swath of northern Alaska, supposedly to protect wildlife. But, along the line you suggest, that surely would be safer, less costly, and more readily managed than the offshore drilling he now has allowed. Was that not worth mentioning?

If there is any logic or coherence in Obama’s policies, it must be exquisitely nuanced.

Lewis Perelman's picture
Lewis Perelman on May 14, 2015 4:55 am GMT

Jesse, your disdain for Mckibben’s rabble rousing is apt.

But I’m confused about a seeming gap in your argument. Just a few months ago, Obama effectively banned onshore drilling in a large swath of northern Alaska, supposedly to protect wildlife. But, along the line you suggest, that surely would be safer, less costly, and more readily managed than the offshore drilling he now has allowed. Was that not worth mentioning?

If there is any logic or coherence in Obama’s policies, it must be exquisitely nuanced.

Hops Gegangen's picture
Hops Gegangen on May 14, 2015 11:06 am GMT

 

I understand that if you run trucks over the tundra, the damage is inevitable and essentially permanent.

For the off-shore drilling, I understand exceptional precautions have to be taken to prevent spills.

So, while as green as anyone, and even one of McKibben’s roused rabble, I am not freaking out over this. If we are going to burn oil, at least this isn’t tar sands oil. 

I tend to think in terms of priorities, which to me are, roughly

1. Replace coal with renewables and natural gas

2. Improve fleet mileage and migrate to electric vehicles

3. Displace fossil oil with biofuels from algae

Then we can let oil supply dwindle due to decreased demand.

Robert Hargraves's picture
Robert Hargraves on May 14, 2015 2:15 pm GMT

The mistake that McKibben, Obama, and most climate environmentalists are making is focusing on what NOT to do, rather than proposing positive, progressive, pro-environmental, pro-prosperity steps TO DO. You correctly describe the current whack-a-mole strategy as unproductive. Alternative, inexpensive, carbon-free, safe energy sources exist. My colleagues and I are working on mass-produced nuclear power plants to deliver electricity at 3 cents/kWh — cheaper than coal,  at thorconpower.com. The Naval Research Labs has developed a way to extract carbon dioxide and hydrogen from seawater to make JP-5 jet fuel at $5/gallon — a bit more than the current petroleum-sourced fuel, and we can cut that cost with cheap nuclear power. There are great, achievable solutions to our climate/energy/prosperity problems, loudly opposed by thoughtless green ideologues and politicians leading from behind.

Mark Heslep's picture
Mark Heslep on May 14, 2015 4:40 pm GMT

If we are going to burn oil, at least this isn’t tar sands oil. “

Hops –

I don’t see an obvious argument that offshore Arctic oil, along with its delivery mechanisms, should always preferable to Canadian tar sands oil.  



Arthur Yip's picture
Arthur Yip on May 14, 2015 6:46 pm GMT

Obama is definitely pursuing an “All but coal” strategy which is very pragmatic.

Shell has been more gas than oil for a while. I am sensing this has more to do w gas than has been reported.

USGS estimates #Arctic offshore reserves at 26B bbl =144 quads of #oil, & 130 tcf =134 quads of #gas.

See http://www.bloomberg.com/news/articles/2015-04-10/shell-s-huge-gas-bet-u...

 

Benjamin Franta's picture
Benjamin Franta on May 14, 2015 6:59 pm GMT

The two principles you lay out are fine ideas.  But Jesse I must disagree with your central assumption that demand should be the main lever to focus on for moving away from fossil fuels.  The main problem is that demand typically does not discriminate between sources of energy (fossil fuel energy or other) — the demand is for the energy, not the fossil fuels.  

The other problem with trying to use demand as a lever is that consumers by and large aren’t able to make active choices about where their energy comes from.  When we check our email, how much control do we have over where the energy comes from to operate the servers?  When we buy a pair of shoes, how much control do we have over where the energy comes from to operate the factory they were made in?  And in transportation there is some choice in the amount of energy used but not much in the way of where that energy comes from.  This characteristic of limited choice on the consumption side is the case with any kind of infrastructure, including energy.

So when demand-side reductions are proposed in the abstract as a way to move the market away from fossil fuels, I never really understand what is being proposed in reality.  Logically, it seems like a losing strategy — trying to get people to use less of the infrastructure that they have little control over.  And it certainly hasn’t worked over the past decades that it has been tried.  

Supply, on the other hand, is more directly linked to active policy and investment choices.  Those can be controlled much more directly than demand.  Indeed, once supply infrastructure is built, it is very difficult to prevent it from being used.  As you say, constraining fossil fuel supplies will probably not have a strong effect on demand — for energy — which will make energy from fossil fuels more expensive relative to other sources of energy.  That would seem to be a good thing, as it will help move the market away from fossil fuels faster than it otherwise would.

So I simply want to propose the idea that although one should not necessarily ignore the demand side, there are some reasons that supply side might be a much more effective area to focus on.  

In any case, my impression is that Arctic oil is generally economically inconsistent with a 2-degree carbon budget.  To me that makes this decision of Obama’s rather inconsistent with his other stated climate goals.

Jesse Jenkins's picture
Jesse Jenkins on May 14, 2015 7:01 pm GMT

Just to clarify, when I say “focus on the demand side” I mean demand for fossil fuels. That includes (principally IMO), developing substitutes for fossil fuels — aka alternative supplies of clean, affordable energy. 

As I said, the supply side is not irrelevant, for many of the reasons you outline. But it is a losing strategy to try to constrain off enough supply to limit CO2 emissions. In the absence of substitutes, demand for fossil fuels is too substantial, and you can’t halt enough fossil fuel extraction with this kind of action. Activists just don’t have anywhere near enough leverage—Venezuala or Iran or Russia don’t care much about what U.S. climate activists do for example. That’s why I say the supply side is relevant, but will remain secondary to ensuring fossil fuels become obsolete.

Jesse

Mark Heslep's picture
Mark Heslep on May 14, 2015 7:41 pm GMT

The main problem is that demand typically does not discriminate between sources of energy (fossil fuel energy or other) — the demand is for the energy, not the fossil fuels.”

For electric power, yes, but otherwise, transportation overwhelmingly creates demand only for liquid fossil fuels, space and water heat – natural gas. 


Arthur Yip's picture
Arthur Yip on May 14, 2015 7:41 pm GMT

I agree that supply inertia/lock-in is significant, but I disagree that trying to prevent it via activism can be more effective than fighting demand, or “effective” at all. There are some benefits and wins from fighting the supply of US coal (local health effects) and some US/Canadian oil (local environmental impacts), but see:

1) Germany, UK, Australia, where you first have to get past coal’s own “grassroots supporters” and where gas is not available to displace coal easily like it has been in the USA.

2) Japan, Korea, France – with no supply to consider/fight, see how their energy systems responded. 

3) China, India, Indonesia, Russia, Nigeria, South Africa, Poland. (1/3 of the world’s population, and another 1/3 behind them)

Of note, China is closing coal plants in rich regions and import less, but is actually building (cleaner and more efficient) plants next to new domestic mines.

It’s often asserted that “everybody around the world is [anecdoctally] standing up to fossil fuels” but that is far from the reality. Fossil fuels, while imposing significant costs, also provide significant benefits that we enjoy and others would love to enjoy (at any cost).

Oh, and we really shouldn’t be fighting the supply of gas in general (on grounds of climate), not when we’re nowhere near eliminating coal and oil. Gas also has less lock-in when we figure out how to get past it, and it supports renewables integration.

Benjamin Franta's picture
Benjamin Franta on May 14, 2015 8:40 pm GMT

Thanks for clarifying.  Respectfully, though, the problem still stands: the phrase “demand for fossil fuels” doesn’t appear to mean anything.  For instance, what is an example of demand for fossil fuels that is distinct from demand for products that use energy?  Even when someone buys a car that uses gasoline instead of electricity, typically the purchase is made not because the car uses gasoline, but because of other factors (like the price of the car).  The demand is for the transportation, not the fossil fuels.  The same is true for electricity.  Fossil fuels are used to supply products for which there is a demand (like transportation or electricity).  Those products themselves — like transportation or electricity — are not going anywhere.  Demand for those things will remain embedded in modern life.  The task seems to be to use sources of energy other than fossil fuels to supply those products.  All of this action is on the supply side.  Indeed it is a supply side competition.  But it has very little to do with changes in demand that are independent of changes in supply.

You describe decreasing the “demand for fossil fuels” as increasing the supply of alternatives, which again indicates that the action is on the supply side.  Why bring “demand for fossil fuels” into the equation at all?  It’s a poorly defined concept without much basis in practice.  Why not simply say we should increase the supply of alternatives, which is a much more concrete (and actionable) idea?  This is an important distinction to make.  It avoids the “demand for fossil fuels” inaccuracy.  But it also makes clear the competition on the supply side.

For the supply of alternatives to beat out the supply of fossil fuels, it makes sense not only to develop and expand the supply of alternatives (e.g., research and subsidize), but also to impede and constrain the supply of fossil fuels (e.g., tax and limit extraction opportunities).  To move the market away from fossil fuels as quickly as possible, this strategy is simply pragmatic.

It is inaccurate to say that there is an “absence” of substitutes (alternatives).  However, the supply of substitutes is relatively small and needs to be expanded.  To get to near-zero emissions, though, substitutes must not only expand; they must also beat fossil fuels on the supply side.  Again, this implies a need not only to advantage the supply of substitutes but to disadvantage the supply of fossil fuels.

The goal — making fossil fuels obselete — is pretty widely accepted.  But it’s important to describe accurately how that could be made to happen.  The clearest description seems to be a competition on the demand side.  I have yet to see a single common example of “demand for fossil fuels”.  If you know of an example, I would love to hear it!

 

Benjamin Franta's picture
Benjamin Franta on May 14, 2015 9:01 pm GMT

The demand is for transportation, not liquid fuel.  And the demand is for heat, not natural gas.  These demands will not change, yet the technologies used to supply these demands must change.  Thus, the issue is one of supply.  This merits a focus on supply.

If one does accept the use of liquid fossil fuel in transportation as constituting a “demand” for fossil fuels, then it is a demand that is entirely dependent on the supply options available.  Again, this merits a focus on supply.

Arthur Yip's picture
Arthur Yip on May 14, 2015 9:15 pm GMT

So based on that, one might conclude that we should “focus” on stopping gasoline cars from exiting factories and only allow electric vehicles to come out or people to walk, bike, or take transit. 

And we sort of do that, in a very limited way, with regulations and standards on fuel efficiency and ZEV mandates. But would it be effective to take that further? Cost effective? Politically feasible? Desirable?

Arthur Yip's picture
Arthur Yip on May 14, 2015 9:24 pm GMT

supply and demand are sides of the same coin. 

(I think you meant competition on the supply side in your last paragraph)

there is an absense of _viable_ substitutes/alternatives _that can scale-up and beat fossil fuels cost-effectively_.

Fossil fuels are demanded because they perform incredibly well in comparison to alternatives. That’s the supply competition.

Alternatives should be advantaged. Fossil fuels should be disadvantaged. But there are political economy constraints to the extent which fossil fuels can be disadvantaged, whether that is a carbon price or a social movement attempting to cut off individual projects.

The idea is there is more room and feasibility to “advantage” alternatives by making them cheaper and better so that they will win the supply competition, and that there is not much room to “disadvantage” fossil fuels when energy is so critical and fossils perform so well.

Bob Meinetz's picture
Bob Meinetz on May 14, 2015 9:50 pm GMT

Arthur, advantaging alternatives and disadvantaging fossil fuels are also two sides of the same coin.

There is plenty of room to disadvantage cheap fossil fuels. But the best way is with a revenue-neutral carbon tax, which British Columbia has shown works with no political economy constraints whatsoever.

Benjamin Franta's picture
Benjamin Franta on May 14, 2015 10:02 pm GMT

Yes, I think it makes sense to improve (e.g., in availability and price) the supply of transportation options that do not require liquid fossil fuels relative to the supply of transportation options that do require liquid fossil fuels.  There are many ways to do that, and they all affect the supply of transportation options available to consumers.  This does not mean mandating 100% electric vehicle production, as you suggest.  That could be a rather jarring policy.  

The point is that when people say, “reduce the demand for fossil fuels”, what they are almost always actually referring to is improving the supply of alternatives.  This is fine, but we should say what we mean, which is “improve the supply of alternatives”.  This is because talking about “demand” for fossil fuels is misleading — fossil fuels are consumed incidentally during the use of products for which people actually do have a demand (e.g., transportation, heat).  And the demand for those products is not the problem — the use of fossil fuels in supplying those products is the problem.  So it makes sense to really focus on the supply side here.  Indeed, there is widespread demand for a better supply of alternatives!

This brings up an interesting question, which you also allude to: when we make technologies that are tied to fossil fuels more efficient, is that actually good for climate?  Fuel efficiency standards decrease the operating expenditures of vehicles that use liquid fossil fuels.  That makes them more competitive against technologies that are less dependent on fossil fuels (like electric vehicles).  (Biofuels are a bit of a wildcard here.)  Fuel efficiency standards are an example of something that is supposed to reduce the demand for fossil fuels.  They may have reduced the use of fossil fuels (in the short run), but they certainly haven’t reduced the demand for driving.  At the same time, they’ve increased the attractiveness of driving with a liquid-fueled vehicle compared to driving with an electric vehicle.  It’s a policy that tries to reduce demand for fossil fuels (something which doesn’t exist in a direct way), but it actually improves the supply of transportation options that use liquid fossil fuels relative to transportation options that don’t.  If the goal is to shift the market away from fossil fuels, I’m not sure that fuel efficiency standards are useful.

Arthur Yip's picture
Arthur Yip on May 14, 2015 10:11 pm GMT

The BC carbon tax is awesome.

But no political economy constraints? Why has the price been frozen for years now? And why are greenhouses and some fuels used in farms and airlines and cruise ships and non-energy CO2 not covered? (And also BC is a special case given its electricity is >90% hydro)

Bill Hannahan's picture
Bill Hannahan on May 14, 2015 10:21 pm GMT

Jesse, you wrote;

“I simply want to propose the idea that although one should not necessarily ignore the demand side, there are some reasons that supply side might be a much more effective area to focus on.”

In the essay you wrote;
“efforts to constrain supply will have only limited impact on demand.” “The supply side is secondary, sure. But irrelevant? Far from it.”

So which is most important? Theoretically, either could work.

1.   Demand side solution. Reduce the population to what it was in 1600, 0ne billion people. All could enjoy a upper middle class U.S. lifestyle on spaceship earth while maintaining a healthy environment.

2.   Supply side solution. Develop energy sources that cost less than the extraction of fossil fuel. the fossil fuel will stay in the ground. This can be acomplished by evolving nuclear power technology.

 

I think 2 is more practical in the near term, 1 should be our long term goal.

Arthur Yip's picture
Arthur Yip on May 15, 2015 3:17 pm GMT

Disagree – it is really the fossil fuels that are demanded because they perform best. We’ve chosen and continue to choose the fossil fuel option because they are awesome (see other comments in this thread for why), except the pollution and geopolitics.

We “demand” transportation … but options for transportation are far from equal, so we end up demanding a particular version of transportation. Yes, infrastructure, urban planning, vested/corporate interests, have played roles in setting up how reliant we are on oil-based transportation, but FF option still performs better (cost, availability, ease of use, convenience, e.g. charge time, range, reliability ), despite Tesla’s efforts.

Efficiency reduces the use of fossil fuels (less rebound).(Demand drives use, but I see you have a different interpretation of “demand for fossil fuels”)

Efficiency can definitely help reduce FF’s % of the market. It does so by slimming down the whole market demand for energy, but yes, we definitely need new and better supply options (even more so than the efforts to slim down).

Arthur Yip's picture
Arthur Yip on May 14, 2015 10:58 pm GMT

This article reminds me of how constraining/disadvantaging supply usually ends up working only after we have anticipated reduced demand via efficiency/intensification or viable alternatives/substitutes: 

– Whale oil and hunting bans

– Deforestation/wood for energy and attempts to preserve forests

– Land reserved for nature and wildlife – nature reserves

– CFCs, Montreal Protocol, and Dupont’s HFCs

AKA why decoupling via intensification and substitution is the “only”/realistically much more important “way” to go

(stay tuned for new upcoming research from Breakthrough Institute about all of this and more)

 

 

Benjamin Franta's picture
Benjamin Franta on May 14, 2015 10:43 pm GMT

Thanks for the correction.  Yes, supply side competition.  

However, supply and demand are not part of the same coin, at least not in all markets.  Demand as a concept is useful when it refers to things that people want, value, and are willing to pay for.  Then consumer choices will drive the growth of those things.  When “demand” is used to describe things that people use accidentally, unknowingly, or even unwillingly, then it is a much less meaningful concept.  The situation with fossil fuels is much more akin to the latter than the former.  People use fossil fuels incidentally in using products that they do demand.  However, my impression is that most people would prefer to use those products without using fossil fuels.  

In a sense, the demand for fossil fuels is already very low, because people would prefer not to use them.  However, the range of supply options available is lagging behind the sentiment of demand.  This is normal in infrastructure markets.  In these situations it makes sense to focus on the supply competition (if there is one).  

The idea that there is an absence of substitutes that can scale up and beat fossil fuels cost effectively — I don’t know where this idea comes from.  Wind power is already as cheap as or cheaper than fossil fuels on the whole.  Solar power is continuing its historical cost-reduction learning curve.  Grid-scale storage is starting to look like it will not be extremely expensive.  And the price of electric vehicles will be tied to the cost of storage.  These substitutes are highly scalable.  The main problem seems to be the speed of scaling up, not whether these substitutes can scale up.  I agree that there are major, perhaps seemingly impossible challenges in scaling these up quickly enough to reduce emissions by 80%, for example, by 2050.  I think it’s inaccurate to say, though, that we don’t have the substitutes.  We have them — we just need to build them cheaper and faster.  

 

Bob Meinetz's picture
Bob Meinetz on May 14, 2015 11:10 pm GMT

Arthur, I had to check current information about BC emissions because it’s been a while. Apparently, carbon emissions are back on the rise:

http://www.policynote.ca/bcs-carbon-emissions-on-the-rise/

I’m not sure why. The initial effect attributed to the tax coincided with a global recession, so it’s hard to separate signal from noise in 2009.

Gasoline consumption has been demonstrably reduced by at least 16%. So maybe it’s time to remove the exemptions for farms/airlines/cruise ships, and ratchet it up a notch.

Arthur Yip's picture
Arthur Yip on May 15, 2015 3:43 pm GMT

Completely disagree: “people use [fossil fuels] accidentally, unknowingly, or even unwillingly” [and therefore] “demand for fossil fuels is already very low”.

Fossil fuels are demanded & used because they are simply better than the alternatives, so far and for foreseeable future. Yes, alternatives have been unfairly disadvantaged due to infrastructure, lock-in, corporate interests, subsidies, short-sightedness, etc, but not as much as commonly believed. Take it all away, and fossil fuels are still very concentrated and powerful. Getting the same quality and quantity of energy services without fossil fuels is and will be a grand challenge.

Fossil fuel demand is even higher in the developing world. They may love solar panels and distributed generation, but try offering the cost-equivalent amount of fossil fuel and power plant equipment, and see which they prefer. (AKA opportunity cost) (and they do not and won’t be valuing the CO2 externality the same way we do)

Wind, solar, storage, and EVs can increase in number, quickly, from where they are now, but will have huge technical and economic problems scaling up quickly to the TW / 80% by 2050 / societal / global level. Building them cheaper and faster necessitates improvements from R&D, not just deployment and political will. And because they aren’t enough, we need natural gas, nuclear, CCS, bioenergy, and also more serious thinking about adaptation and geoengineering (unfortunately).

(see other comment in this thread for the details on “huge technical and economic problems”)

Arthur Yip's picture
Arthur Yip on May 14, 2015 11:15 pm GMT

A good question is how revenue-neutrality relaxes or does not relax political economy constraints. Can we feasibly continue to ratcheting up carbon prices? Will societies actually accept a carbon price that starts low and goes up +5%/yr?

Also another good question: leakage/competitiveness/difficulty of collective action = another political economy constraint?

 

Bob Meinetz's picture
Bob Meinetz on May 14, 2015 11:29 pm GMT

Arthur, I’m not sure anyone can answer those questions yet. I believe societies will accept it if there are alternatives, but it may take years for them to become available.

Because of the carbon tax, BC has the lowest income tax rates in the country. For people to understand that by choosing non-carbon alternatives they can actually profit from the tax is counterintuitive; it may take awhile to sink in. I don’t have any knowledge of how the tax has affected BC’s competitiveness, although exempting cruise ships is probably related to that.

Difficulty of collective action is a subject which crosses the line into group psychology and best left to people with more knowledge (and interest) in that area than me.

Arthur Yip's picture
Arthur Yip on May 15, 2015 3:25 pm GMT

the wonkier, more detailed response to “where this idea [that “we [currently] have no [viable] substitutes”] comes from”:

1) Beware the LCOE of wind and solar – it fails to represent costs imposed on the grid/system (externalities!) as penetration increases.

2) Beware learning curves and trends – can we expect them to continue on and on? Are they inevitable or do they need (indeed, rely on) continued supreme efforts i.e. subsidy and R&D? (And of course I support these efforts and believe activists and politicians should give them more positive attention!)

3) Beware consumer preferences – does everyone actually wants to generate their own power? Willing to bear the inconvenience of overnight charging or the risk of low-charge due to weather conditions? Or the financial cost of paying for energy needs upfront? I don’t mean to say there aren’t any but how many, realistically?

4) Beware rebound and leakage – fossil fuels will fall in price if we are successful in substitutes, and will raise the bar again. This means either we or other countries will find it attractive to use more.

5) Beware technological change for fossil fuels – they can get cheaper too and we also can suddenly end up with a lot e.g. shale gas

6) Beware diversity – physical resource and market and social conditions vary significantly within and between countries. Some things really aren’t going to work at scale in some places. Island nations don’t have the land for too much land-intensive renewables. Poor wind or solar conditions makes it much more costly to rely on those resources. Social preferences vary and Germany and California are outliers.

Mark Heslep's picture
Mark Heslep on May 15, 2015 12:12 am GMT

Will societies actually accept a carbon price that starts low and goes up +5%/yr?”

Arthur – 

Isn’t the first question how to obtain acquiesence of the carbon price in all societies more or less at once? Otherwise energy use moves elsewhere seeking a lower price of carbon, harming the economies of those first to take it up.

Nathan Wilson's picture
Nathan Wilson on May 15, 2015 4:48 am GMT

Let’s not forget the importance of energy security; Obama is still in the process of getting us out of two oil wars!  Oil from the Middle East may have lower environmental impact than domestic or arctic oil, but it is apparently impossible for a Super-power to get secure access to that oil without military entanglements.

There are several ways of reducing our use of petroleum that we should persue:

  • fleet efficiency improvements
  • mass transit
  • replacement with methane (fossil and bio-methane)
  • vehicle electrification
  • cellulosic biofuels (particularly aviation fuel)
  • synfuel from sustainable electricity (particularly in nations where such energy is cheap)

But until the switchover is complete, let’s try to obtain the oil we need without going to war.

John Oneill's picture
John Oneill on May 15, 2015 9:22 am GMT

   ‘  Replace coal with renewables and natural gas’

Why not ‘ Replace coal and natural gas with nuclear ‘ ? One-stop shopping is quicker.

Arthur Yip's picture
Arthur Yip on May 15, 2015 3:38 pm GMT

Correct, which is why there are proposals to start low and also some others that propose to enact carbon tariffs (border adjustment taxes).

The problem is that countries value carbon differently. There will never be a real “global price” because of different stages of development. For those with little to no modern energy, do they care about mitigating climate change or getting energy access at any cost?

You might get a global agreement for countries to reduce emissions from their own baselines, but not to act at the same policy stringency at all.

Again, this relates to how hard it will be to solve global climate change via international agreement / carbon budgets/limits/prices. It’s probably a necessary piece of the puzzle, but not the critical / biggest piece, which is RD&D and figuring out the whole set of tools we’re going to need (bioenergy, nuclear, CCS, geothermal, adaptation/geoengineering, in addition to preferred solutions such as wind, solar, efficiency, storage).

Mark Heslep's picture
Mark Heslep on May 15, 2015 4:09 pm GMT

“…out of two oil wars! “

Two?  Afghanistan? Iraq War is still in progress?

U.S. oil imports from the Middle East (Kuwait, Iraq, Saudi) have fallen to ~7% (1.4 mbbls/day) of total U.S.consumption.  If necessary I suspect the US could quickly replace the ME imports from N.American production alone, and likely will  anyway within the next ~five years.  The threat from ME oil now lies with its ability to fund malevolent state or rogue actors.

Benjamin Franta's picture
Benjamin Franta on May 15, 2015 4:30 pm GMT

The six reasons you give don’t imply that substitute technologies aren’t available.  Externalities existing for substitutes doesn’t imply that the substitutes themselves don’t exist, just as externalities existing for fossil fuels doesn’t imply that fossil fuels don’t exist!  If externalities were a determining factor in the viability of energy sources, then coal would have been largely out the window.

Continuous learning curves are never inevitable; it would be a mistake to assume that.  However, currently solar is set to continue along its traditional learning curve.  The reason that learning curves exist is because of R&D and improvements in manufacturing and markets.

Substitutes like wind and solar do not rely on people wanting to generate their own electricity.  Some people will want to; many will not.  That is not the determining factor for the viability of substitutes, although it can help push the solar market forward.

Reasons 4, 5, and 6 are true but, again, do not imply that we don’t have substitues nor do they imply that those substitutes aren’t viable.

Arthur Yip's picture
Arthur Yip on May 15, 2015 5:12 pm GMT

Availability/existence/viability depends on cost-effectiveness. If it’s not cost-effective, it’s not a real substitute due to opportunity cost.

We indeed “have the science” of solar and wind and efficiency and storage, but getting them to markets and implementation is still very much so a mixed challenge, technical, economic, political, social, etc.

Hops Gegangen's picture
Hops Gegangen on May 16, 2015 12:16 pm GMT

 

I’m not anti-nuclear by any means, but to scale up globally some of the proposed technologies for preventing proliferation and accumulation of hazardous waste will have to be successful, don’t you think?

 

John Oneill's picture
John Oneill on May 16, 2015 2:34 pm GMT

     Something like 90 percent of CO2 emissions come from countries that already have nuclear power or nuclear weapons, so I don’t see proliferation as much of an argument. Truth to tell, I suspect that the history of the last half century might have been a lot bloodier if the most powerful states hadn’t rendered themselves effectively impervious to direct attack – India and Israel both fought three wars with their neighbours before they acquired nuclear weapons, but none since. ‘Hazardous wastes’ from nuclear power haven’t yet been demonstrated to have harmed anybody, so they’re not that hazardous – from weapons development, maybe, but still orders of magnitude less problematic than coal.

Hops Gegangen's picture
Hops Gegangen on May 16, 2015 3:06 pm GMT

 

True, but you recall when the Soviet Union collapsed, there was a lot of worry about nuclear stock piles. The more concentrated nuclear waste is around, the more likely it is to fall into the wrong hands.

But I agree about nuclera being better than coal. My theme is ABC — anything but coal.

Nathan Wilson's picture
Nathan Wilson on May 16, 2015 6:02 pm GMT

What?  we were worried about Soviet weapons, not their waste!

The whole “nuclear waste problem” is a complete fabrication designed to distract us from the really serious problem of fossil fuel waste (of which there is a million times more).  Even municipal waste (including batteries and consumer electronics) is a bigger problem.  

Nuclear waste is the only kind which is sufficiently compact and well-funded (i.e. born with a trust fund) that we can afford to push it down a really deep hole where it will stay out of the biosphere; all other waste (which we dump in landfills) is basically destined to show up in our grandchildren’s drinking water.

Kimberly King's picture
Kimberly King on May 22, 2015 1:22 am GMT

Not sure why folks are stil riveted on pursuing the propagation of cellulosic fuels. Viable commercial cellulosic ethanol production has yet to be demonstrated.

Robert Rapier posted this recently: 

http://www.energytrendsinsider.com/2015/05/20/where-are-the-unicorns/

[snip]

“In the 2007 EISA, Congress mandated that 100 million gallons of cellulosic ethanol had to be blended into the fuel supply in 2010, 250 million gallons in 2011, and then rapidly ramping to 16 billion gallons per year by 2022. Despite the mandates, there was no cellulosic biofuel produced in 2010 or 2011, and only 20,000 gallons were produced in 2012 by a company that subsequently declared bankruptcy. In 2013 about 230,000 gallons of cellulosic biofuel were produced by KiOR, which also subsequently went bankrupt…The issue has always been about cost — due to complexity and high energy inputs. That’s why the cellulosic ethanol plants from 100 years ago were shut down….3.5 million gallons from plants with total announced nameplate capacity of 58 million gallons. Total production for the record month of April was then only 6% of nameplate capacity. That’s pretty bad considering these companies are at least 8 months into their learning curves. Normal learning curves on a process don’t mean sub-10% capacity more than 6 months after start-up. That’s an indication that serious miscalculations have been made about the complexity of the process.

 

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