The new dynamics of global energy and climate: A conversation with Exelon CEO Chris Crane

America was plunged into an energy crisis soon after I graduated from HS, so besides drinking way too much beer as a freshman at University of Wisconsin Stevens Point, I was occupied with forestry and energy. I try to go to energy related programs at Brookings, AEI or Wilson and so I went today to “The new dynamics of global energy and climate: A conversation with Exelon CEO Chris Crane.” Exelon is the largest electric parent company in the United States by revenue, the largest regulated utility in the United States with approximately 10 million customers, and the largest operator of nuclear power plants in the United States.

Mr. Crane talked about his firm’s vision which includes providing reliable power and cutting carbon emissions. He said that you can believe in climate change or not, but that firms like his have to adapt to it because it is happening. To stave off the worst of climate change the USA will need to drop carbon emissions by 80% by 2050. This is a tall order. The electrical sector is off to a good start. We are down 25% based on 1990 figures, but it may get harder to do. This was done largely by substituting natural gas for much dirtier coal. Nobody really anticipated the big supply of cleaner and cheaper natural gas. We cannot count on that sort of good luck again.

Renewables like solar & wind are coming along very well, but they do not supply the base loads.
There are times when the wind doesn’t blow, and the sun doesn’t show. Base loads for the time being can be supplied only by fossil fuels, hydro or nuclear. Exelon is the largest operator of nuclear power plants. The nuclear power plants are losing money. They cannot compete with cheap natural gas, but they have a big advantage in that they do not emit CO2. If these plants went off line, CO2 emissions would necessarily rise. This is what happened in Germany. In their rush to be green, they shut down nukes and dirty coal plants took up the base-load task. There is currently a social benefit to keeping the nukes in business.

As a result, German CO2 emissions actually went up not in spite of but BECAUSE of their green movement.

Carbon taxes – the good, the bad & the unlikely
Exelon supports carbon taxes, specifically the Baker-Shultz plan (I have written about this on other occasions). Crane thinks that only market driven plans have a real chance for success. We should look to outcomes, rather than back any particular technology and let various techniques compete. We do not know which will be best, or maybe what combination will be most effective.

Challenges include developing better electrical storage and connecting pipelines and power lines. New England is at risk, for example, because activists have opposed and effectively shut down construction of electric transmission lines that could bring Canadian hydro-power and gas pipeline expansion to bring abundant American natural gas to the region. Ironically, Exelon power plants in New England that use natural gas need to import LNG, and these imports come from Russia.

Hydrogen economy  – perpetually five years in the future

The talk ended on a hopeful note. Crane talked about the hydrogen economy. This is not a new idea, but its accomplishment seems always to be five years away. Hydrogen is a perfect fuel. It burns cleanly, with the only emission being water vapor. The problem is that hydrogen really is not a fuel source, but more a storage medium. Hydrogen exists nowhere in nature in a pure form. It must be made. The most ecological method would be to divide it from oxygen in water. H2O is made of hydrogen and oxygen and it the most common thing on the earth’s surface. But separating the H from the O takes lots of energy. A process might be to use solar to make hydrogen when the sun is shining and then to use this hydrogen in fuel cells to make energy when it is dark.

My first picture is from Brookings. The program was from 2-3:30. This makes a difference to me. I ride my bike down, but I prefer to take the Metro back, since it is uphill and I am tired. I can take the Metro before 3 or after 7, so I had to hang around until 7. Fortunately, there are nice places to hang. The next picture and the video show the Botanical Garden, a great place to hang around. Notice the longleaf and lobolly pines. After that are some elm trees near the old USIA and last shows the kiosk at McDonald’s. You order electronically and then they bring your order.

Solar energy in North Carolina

Solar energy can be a really bad idea. I found this new solar installation along US 1. It is worse than a parking lot. I suppose the solar produces power, but it displaces forest. When you clear cut a pine forest, it is still a forest. It just is in a new stage. When you destroy all the soil and install solar, you are ruining the land for a long time. My bet is that this was built with government subsidy and it will not be economically sustainable after that money runs out. But it will be a sand desert for a century later. It is an abomination.

Carbon Taxes

Please refer to the link for reference – Pricing energy right is crucial and maybe a carbon tax can reduce taxes on things we think are good, such as labor and capital. If we want to reduce CO2, we can do that through regulation or through a carbon tax.
Regulation is a type of tax, it just is not very efficient. It appeals to people who just like to tell others what to do, but it is always more complex and does not – unlike a carbon tax – raise revenue. A carbon tax is relatively easy to administer, harder to cheat and it permits individuals and firms to plan. By making carbon a clear cost, firms can target reductions. – Vítor Gaspar, International Monetary Fund.
This elegant tax also have the advantage of focusing intelligence on reducing CO2. If you regulate, the best minds try to figure out ways to avoid regulation. If you make carbon a cost, those same smart guys figure out ways to reduce the cost.
Next up was John Delaney, US House of Representatives (D-MD). He talked about his new bill to tax pollution not profits. He proposes a carbon tax with proceeds to lower corporate taxes (American corporate taxes are highest in the world) and target some to help displaced coal workers and the poor. He said that these are not all optimal places to put the money, but in politics you need to compromise.
Even if you think climate change is a low probability event, the potential costs are high enough to take action now. This action is the most effective. He quoted Wayne Gretzky, the hockey great who explained that you have to go where the puck is going, not where it has been. Regulation tends to be backward looking.
Finally we had Bob Inglis, Energy and Enterprise Initiative. He spent most of his time praising Delaney, who had to leave for a vote. He thought the carbon tax would come, it would go from impossible to inevitable w/o pausing at probable. Both sides need to give. Conservatives need to give on the idea of the tax. Liberals need to make it sweeter by agreeing to reduce corporate taxes. It depends how important they really think climate change is.
These are good events. One of the great things about Washington is that you can continue your education in these ways. And you often get a free lunch.

Fracking for the best reasons

I strongly in favor fracking for what I consider good environmental, economic and geopolitical reasons. Let me explain my trifecta.

Start with environmental. U.S. CO2 emissions are lower than they were ten years ago, in fact lower than any time since the mid-1990s. Gas replacing coal is a big factor. Natural gas is the cleanest of fossil fuels in almost every way. Renewable forms of energy are developing very rapidly. Inexpensive natural gas may slow its development a little, but not significantly. Using gas is reducing emissions faster than renewables could be developed and deployed to do the job. As prices come down and networks are built, renewables will replace most fossil fuels and the overall footprint will have been less. Recall that deploying technology is as important as developing it. Things take time.

Fracking has environmental costs, as do all forms of energy exploration. But those costs are lower than the alternative fuels – the real alternatives at this time and the next decade. Water problems can be addressed and mostly have been. The bigger problem with fracking comes with new roads and increased traffic in rural areas. This is serious, but – again – we have to compare to real world alternatives. I love forests and do not wish to see any destroyed. However, I also know that fracking has relatively small footprints and forests return. This is not forever.

Economically, there is no doubt fracking is great. It has pumped more money into the U.S. economy than all the fiscal stimulus and has been part of almost all the good new jobs created since the great recession. Inexpensive fuels is helping bring industry back to the heartland. Beyond that, gas is a feedstock for things like fertilizers and chemicals, so it goes even farther.

I saved the geopolitical part for last, since it also includes ecological and economic factors. As I wrote, I am confident that renewable alternative energy source will be dominant within a few decades. This means that much of the world’s fossil fuel resources will remain in the ground, unused and made much less valuable. If this happens, I want it to happen to not in America. Let the fossil fuels that lay under places like the Middle East or Russia stay unused and “wasted.” Let American sources be used while they still have value. Let’s use it like it’s going out of style, because it is and let others get stuck with the excess inventory.
This points to another geopolitical benefit. Much of the world’s exportable concentrated fossil fuels lays under unstable places, places often not friendly to us. With our American energy boom, they just do not matter as much anymore. Think of how much more acute would be the problems with Russia or Iran if they could much more effectively deploy the energy threat. It is bad enough as it is. It could be worse.

The great thing about fracking is that natural gas and oil it produces tend to be widely dispersed. This spreads the wealth and diversifies risk, instead of having it all under a few easily threatened places.

I am aware of the risks. There is no life w/o risk; I am also aware of the benefits.

If there were natural gas under my land, I would permit fracking. I would be very demanding in terms of where the pads should be located, how the roads should be maintained and how the natural communities should be respected and restored, but I would let it happen. I think this is the smart play for our country generally. Do it right; do it with a larger margin of error than we think we need. Spend the extra time and money to ensure protection. But do it – because the benefits far outweigh the costs. A century from now, when we have transitioned to a cleaner energy economy, we will look back and see that using fracking as a bridge was a smart idea. By that time, the forests we replanted will be vibrant. Some will be “old growth” and some plantation forests will have grown, been harvested and be growing again. Signs of fracking will be curiosities like those stone wall that once separated cultivated fields and now have forests on both sides.

Bright and brightening American energy future

We might worry that the American energy boom is creating too much prosperity, since we have bottlenecks in inadequate, ports, pipelines, rail and shipping. Of course, adapting to those things will create jobs based on REAL wealth.

IMO, we sometimes forget that real wealth comes from real stuff. This is a real stimulus, both the biggest hope for an eventual robust economic recovery tomorrow and the thing that is keeping our economy growing today, albeit a bit anemically.
We should also make the distinction between infrastructure that is real and that for show. The real infrastructure it built to satisfy needs created by tangible things like our American energy boom. We see that as wealth creating and good. So we are tempted to make bogus investments, that look like this but really don’t carry anything. Real investments raise the economic temperature. The bogus ones are more like lighting matches under a thermometer and hailing success. Glad to see real need which will create real wealth.

A Boom In Oil Is A Boon For U.S. Shipbuilding Industry

Ten supertankers are under construction and there are orders for another 15, but just three years ago the tanker market was barely moving.

Speaking of the energy boom, the ingenuity of our fellow Americans is not limited to fossil fuels and our happy challenges will soon include how best to integrate abundant energy from alternative sources.

As solar and wind become cheaper and batteries improve, more people will be in the energy production business. However, the temptation to go it alone should be resisted. As the linked article says, “Distributed resources such as solar and storage can generate more value and have better economics for customers and society both if they are connected to the grid.” I think of it like the Internet. You CAN have a stand alone computer, but does anybody really want one?

Why the Potential for Grid Defection Matters 

This blog post explores why cost parity doesn’t necessarily equate to widespread customer defection, why defection would create a suboptimal electricity system, and why even the specter of customer defection is relevant.

Big plans

Big, comprehensive plans usually come to grief. It is impossible to identify all the variables and how they interact even if things stay the same – and they never do. Big plans make hard, still and brittle systems. Being robust & adaptive is better in a world that cannot be predicted. Having a good process in mind is better than a great plan.

In Germany’s case, they ended up doing precisely what the plan was supposed to avoid. Carbon emissions are now rising in Germany, even as those in the “plan-less” U.S. are falling.

I have been following this planning debate my whole adult life. I recall that I used to be upset that we had no big plans. When I was in college, professors told me it was a weakness of ours. I recall reading how communists would dominate us because they had a coherent plan. Didn’t work out for them. I remember the Japanese supposedly had plans that thought a century ahead. (We should not have thought that was impressive. Imagine a plan from 1914. Assumptions would not have played out.) Well that one didn’t work out so well either.

A big, detailed long range plan is a work of fiction. It may be beautiful. Fiction is often clearer and more rational than fact. It makes people feel better but it is pure BS if you get more than a few years out. You cannot predict the big discontinuous change because it is discontinuous. It is the meaning of the concept. All planning depends on the future resembling the past. At times when it doesn’t … we use the simple term overtaken by events, but it is worse.

A better plan is distributed decision making and emergent strategy. You can set goal, but know that you need to change them when conditions change and assumptions prove wrong.

From a strictly personal greed point of view, however, I hope our European friends hold onto their master plan a few more years. We are experiencing a boom in wood pellets, shipped from the Port of Chesapeake to Europe. It has really helped the prices for pulp and even smaller round wood. They use our renewable forest litter to generate electricity. We can produce and ship them cheaper than our European friends can, even with their local advantage. So thanks guys. The plan is working for some people, just not maybe the ones you planned for.

Fracking stimulus: real energy for the real economy

American energy is booming and energy is driving the economy. It is a stimulus much larger, more effective and sustainable than anything the Obama folks have done. And it is reaching all over the U.S. Fracking is lowering energy costs and reducing pollution. It is giving business to railroads, jobs to truckers and money to rural landowners. Beyond that, the fracking boom is stimulating a renaissance in heartland industries, such as fertilizers, plastics and other petrochemicals. In my native state of Wisconsin, the western part of the state had some problems in rural areas. Then came the fracking boom in North Dakota. Fracking fluid is mostly sand and water and Wisconsin sand is particularly well-suited for fracking.

This story is being repeated all over the American heartland. I suspect that the immense proportions of the success are under reported because much of the value and the jobs are going to smaller cities or rural communities outside the general purview of the bicoastal elites. But it is real and sustainable. This is not cash for clunkers or Solyndra pipe dreams. This is real and sustainable. And instead of costing billions, it is providing billions in earnings and taxes.

Of course there is also the conspiratorial reason to think it is under reported. The bicoastal elites tend to dislike both fossil fuels and the “hicks” in the heartland. Beyond that, if we understand the true engine pulling the American economy, how can politicians take credit?

W/o the fracking stimulus, our economy would be even more in the dumps and it may be fracking and its less expensive energy and abundant petrochemical complex that pulls us out.

Everything about fracking appeals to me. My blue collar heritage loves jobs for honest working people in an America is making real things, wealth through creation, not artificial stimulus or redistribution. The environmentalist in me sees the carbon reduction and the clean burning gas energy. My inner economist figures the potential salvation for an economy still in slow recovery from the great recession. My spirit of enterprise is excited by the courage and imagination of the men who took this technology discarded by big oil and made it great. My sense of fairness is enamored with the spread of prosperity to my people of Middle America and my patriotism is exalted by American energy letting us give the middle finger salute to despots and tyrants that control so much foreign oil and gas. We did it again.

Green AND Growing – U.S. CO2 emissions drop again

The U.S. economy grew 2.8% last year, But energy use DROPPED by 2.4% and CO2 emission DROPPED even more, by 3.8%. And despite the overall decline in renewables, the carbon intensity of power generation still fell by 3.5 percent, mostly because natural gas is replacing coal. We are figuring out how to grow the economy, keep the free market and still go green.  

This provides a good case study. Our European friends, who talk green, have not achieved both growth and carbon reduction. They have also sometimes reduced CO2, but at the expense of growth. Meanwhile, the U.S. is successfully separating growth from increased energy use and energy from increased carbon emissions. 

This is not the first time we have responded well. Our American market system just works better than the planners in other places. It often doesn’t seem that way. Planners have a rhetorical advantage. They can point to their plan. We can only respond with the true but unsatisfying, “Our plan is to let millions of people make plans in the belief that what they come up with will be better than your experts.”

This is something I have noticed in my years of travel and living overseas. Many places are nicer than the U.S. in theory. People have more rights, in theory. They get more stuff, in theory. But Americans do better in reality. I think it is just difficult for academics to understand the U.S. market economy. Market forces are as protean as they are ubiquitous. They defy explanation. So for many years, since before we were even a country, intellectuals have been predicting our imminent demise.

The CO2 problem remains, however. China and others are emitting enough CO2 to swamp any improvements we make. In less than ten years, China will emit more CO2 all by itself than the whole world did in 1990.

We can figure out how to make the future work;  I have less confidence in some others.

My picture shows elm trees at the White House. These elms resist Dutch elm disease that wiped out so many elms in the 1960s and 1970.

Fracking 99% successful

Fracking 99% successful

A new U of Texas/Environmental Defense Fund study shows that new natural gas fracking operations capture 99% of the methane. This corrects an earlier speculation by a couple of activists from Cornell who claimed that escaping methane negated the significant effects of natural gas in reducing greenhouse gas emissions.  

I am trying to give the Cornell folks the benefit for the doubt and assume that their motives were not merely political. If we extend this consideration to them, we find that they might have fallen victims to old data and perhaps looked backward instead of forward. It makes no sense to believe that “greedy” firms would want to let lots of their product just be lost. They would constantly be working on ways to get more product, even if they cared not at all about their image or following laws and regulation. And let’s give credit to regulation. EPA regulations are coming on line that will ensure that there is no backsliding.

Older wells are less effective. This is not surprise. Methods and technologies improve. Think of a computer that is twenty years old. If you studied computers in general and included the 1993 version of the PC, you would not have an accurate picture of what was possible in 2013.

The news about shale gas was good and it keeps on getting better. It has changed the equation in the Middle East. In the last five years, fracking has created more than a million jobs and pumped more real money into the U.S. economy than the total of the borrowed stimulus. It has helped the U.S. reduce its greenhouse gas emissions, so that we will reach our putative Kyoto contacts w/o having to take the draconian steps envisioned. It is putting money into rural economies and helping spur the return of industrial production to the American heartland.

As importantly, our fears and apprehensions associated with the process are proving exaggerated or unfounded. Natural gas will provide the bridge to the future. It is allowing us to drastically reduce our CO2 emissions, while bringing jobs and money back to the USA. It is very close to being a miracle.

Peak gasoline

Another example of our vastly changed energy landscape is the fact that we a have passed “peak gasoline.” We did this way back in 2007 and it looks like we will never again burn as much gasoline as we did in that year. So, we are producing more oil and gas and using less gasoline. Who would have predicted that ten or twenty years ago. Our CO2 emissions are also dropping quickly. This is good news for almost everyone, but it creates a problem for highway maintenance. Highways are maintained by gasoline taxes. Less gasoline burned means less money.  

A simple solution would be to raise the gasoline tax, although this is a dynamic equation. As you raise the tax, you get less use and in the medium and long run less revenue. But raising gas taxes is politically very difficult, especially in a political season and in the last few years the political season never ends.

These developments continue to amaze me. Coming of age in the 1970s, we were told that we would run out of oil and gas soon, that there was no way people would burn less gasoline w/o draconian measures, maybe rationing and that the energy future would be a bleak succession of shortages and decline.

Today we have achieved success beyond that wildest dreams of the experts of the 1970s. If we could go back in time and tell them what happened, the experts would think we were crazy or worse. The “worse” would be that you would be an energy crisis denier. Everybody hated them. but they were right.

It goes to show how unpredictable things really are and why the only real way to plan is to let lots of options be tried. No central solution works for very long and usually creates trouble. Imagine if we had been able to implement those “expert” solutions of the 1970s.

We used to talk about peak oil back in the old days. That is a meaningless concept. Turns out, however, peak gasoline makes a lot of sense.