ENERGY SECURITY: What Does It Really Mean?

April 7, 2011 § 2 Comments

Source: mfrtech.com

This is loosely based on February’s Breakfast Forum topic

The International Energy Association (IEA, not to be confused with the domestic version EIA) defines energy security as “uninterrupted physical availability of energy at affordable prices, while respecting environmental concerns.”  To most, this is not the only aspect.  A straw poll of the general populace would likely find that it is more concerned with energy independence.  In this context, energy equates almost singularly to oil, since it is reliant on imports while other forms of energy are largely generated domestically.

Reduced reliance on imported oil resonates on many levels.  Increased domestic production helps, but not as much as substitution of conventional transport fuels.  Both measures serve to create jobs and help the balance of payments.  We consume roughly 18 million barrels of oil daily, as compared to about 21 million a scant two years ago.  Of this, about 60% is imported.  At $100 per barrel, that represents about $400 billion payments out of this country, creating jobs elsewhere.  Compared to Europe, our taxes on gasoline are relatively low, so conservation is not hugely advantageous.  This is why electric cars will have better breakevens in Europe than the U.S.  But legislation to improve gas mileage does improve efficiency, even though feature creep has cut into that gain.  Cars today have more power hungry devices than they did 25 years ago, and much larger as well.  The Toyota Corolla of yesteryear is a mere shadow of its current self.

Climate change arguments are steadily losing traction in Washington, D.C. Energy security on the other hand is in play.  There is also something about the word “security” that gives comfort.  Witness the clever coining of the Homeland Security name, invoking visions of a warm fireplace and apple pie aromas.  Then the naming folks lost their way with the Bureau of Ocean Energy Management and Regulation replacing the simple Minerals and Management Service.  MMS was replaced by BOEMR, which unfortunately comes out sounding like ”bummer” – but enough with the digression. Energy security objectives could result in low carbon solutions.  Certainly, natural gas replacing diesel will reduce net emissions, as well as biofuels. Electric cars achieve this objective by shifting the emissions away from the tailpipe to a more tractable location, the power plant.  They also are about 50% more efficient than conventional engines on a “well to wheel” basis.  So you simply consume less energy per mile no matter what the emissions.

Economic security was the basis for the IEA definition.  Since energy is central to our economic being, secure affordable access is a must.  James Hamilton at UC San Diego has a somewhat controversial position that essentially states that the last recession was largely driven by oil price shocks. In his previous work, Hamilton has demonstrated at least a temporal correlation between recessions and oil shocks.  The importance of this observation is that we have previously subscribed to the position that an upcoming plateau in oil production will lead to a serious supply imbalance unless we move immediately to oil substitution.  Consequently, oil substitution may no longer be a choice, purely from an economic security standpoint.  The climate change positives will simply be lagniappe (meaning “gravy” in Cajun vocabulary).

Military security is a factor as well, although seemingly in an indirect fashion.  Military measures to keep the oil shipping lanes open have other defense and foreign policy purposes too.  Many still believe that the Iraq war was about access to oil.  If so, the return on investment will certainly not be high.  Even the business developed due to oil revival in Iraq has not benefitted domestic firms any more than it has European or Russian for that matter.  But there is strong precedence for wars being fought, and questionable governments being supported in the pursuit of energy access.  Finally, any military effort relies on secure access to transportation fuels.  The Germans realized this in the build up to WWII.  They refined the Fischer-Tropsch technology invented in the late twenties.  The entire war effort was fueled by transport fuel from coal.

The Post-election Energy Future

December 19, 2010 § Leave a comment

This post is loosely based upon the November 18th RTEC Breakfast Forum topic, Implications of New State and Federal Leadership on Clean Energy Enterprise

The midterm elections produced dramatic shifts in the political balance in Congress and both legislative bodies in North Carolina.  The effect on energy policies can be expected to be significant as job creation will trump climate change.  Conventional energy will be up while ethanol will be down.  A price on carbon, barely possible in the previous regime, will now be off the table.  That will likely put the Integrated Gasification Combined Cycle (IGCC) variant of clean coal on life support.  It will be interesting to see whether son-of-SuperGen in Illinois will survive.

National energy security will move up on the agenda.  Steve Chu and his aggressive research agenda will go under the microscope.  Business friendly policy will be in and energy efficiency should be unaffected.  In the “anybody’s guess” category is the federal subsidy on electric cars.  In North Carolina, oil and gas exploitation will be in.  Wind could be buffeted because of fervent championship by the past administration; hopefully they will rise above that.  These and more are discussed below.

Energy security considerations are likely to lead to encouragement of domestic resource exploitation.  This will entirely be in the province of oil, and to a lesser degree gas.  Replacing imported oil with domestic fuel substitutes will create jobs. The obvious implications will be toward deep-water exploitation related policy.  Also, expect considerable pick up in oil from tight rock, such as the Bakken and Eagle Ford prospects.

Electric vehicles fall in the category of oil replacement.  The current subsidy of $7,500 per vehicle will probably be kept, but the timetable for taper off and elimination will probably accelerate.  General Motors has been reborn and their results, including the post IPO stock price, are healthy.  Their considerable bet on the Volt and the attendant job creation will be a factor.  Some corporations, most notably GE, are doing their bit in this regard.  GE recently committed to purchasing 25,000 electric cars from GM and Nissan by 2015.  Their purpose was to give the manufacturers the certainty to move into mass production.

Biofuels will be a mixed bag.  Drop-in fuels such as alkanes from plant matter will be favored over ethanol, and mixed alcohols will be somewhere between.  This is because of the plug-and-play convenience of drop-ins; nothing different about the engine, the fuel pump or the distribution infrastructure.  A story in the Economist expands on this point.  Alkanes made with sugar as feedstock may be advantaged by the fact that Brazilian sugar has no import tariff.  In fact, there is a good chance that the 50 cents per gallon tariff on Brazilian ethanol will go away, as may the 52 cents subsidy to blenders of corn derived ethanol into gasoline.  In a burst of candor, Al Gore admitted recently that his Senate tie-breaking vote for it was solely for the purpose of being elected.  He now says the subsidy for first generation ethanol, read corn based, must go away.  The new Congress will likely make this happen.  But not any time soon.  The recent Obama compromise on taxes contained an extension of the ethanol subsidies.

Low carbon sources of energy will be disadvantaged by carbon not having a price.  However, the cap and trade system in Europe has not really worked either.  The price has fluctuated and has generally been too low to make much difference.  Consequently, the responsibility will shift to clean energy, making it purely on economic terms.  This is not all bad because if and when carbon emissions carry a penalty, the alternatives will be even more advantaged.

Wind energy from certain sources is already very competitive with coal, especially if externalities relating to the environmental cost are considered.  Help in the form of federal support for research and development could be helpful.  The recent report from the President’s Council of Advisors on Science and Technology suggests major funding initiatives and associated models in revenue generation for this.  But the revenue models are in fact taxes on existing energy units.  While modest in size, the new Congress will likely be opposed unless job creation is pitched as a principal benefit.  Healthy skepticism of federal coffers of this sort will also be an impediment.  The fund created previously by a tax on nuclear energy was not seen as spent wisely.  Even France has gone away from this model.  The French Petroleum Institute (IFP) used to be funded by a tax on vehicle fuel.  Similarly, the Gas Research Institute in Illinois was funded by a tax on natural gas transport.  Both models are now defunct.

In North Carolina, offshore drilling will potentially become permitted but is unlikely to lead to any actual activity because past exploration of the Atlantic coast has not been promising.  Even if allowed, the oil industry will probably invest elsewhere.  Shale gas drilling might find a home in the state.  It is not believed to be as prospective as the Marcellus in Pennsylvania and New York.  But economic accumulations are plausible.  Pennsylvania leaning on regulation to assure environmental security will likely have to be studied and used as a basis for policy.

Many see the new sheriff in town as a blow to sustainable energy goals.  Climate change based policy may well take a back seat. Energy security drivers and energy efficiency measures, however, will have an important impact.  The International Energy Agency has forecast that well over 40% of carbon mitigation will need to come from using less; carbon dioxide sequestration will account for only about 10%.  In conclusion, energy efficiency measures are important and largely unaffected by the political shift.

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