Weathervane

Feb03

Cutting Fossil Fuel Subsides to Cut Emissions

President Obama’s FY 2011 budget proposal puts the kibosh on some $39 billion in tax breaks for oil and coal companies over the next 10 years. The president seems to be taking a step in the direction of making good on last year’s G20 agreement to phase out subsidies for fossil fuels.

The connection between a fossil fuel phase-out and global emissions reductions is undeniable, according to RFF Senior Fellow Ray Kopp. He explains in that in order to meet worldwide emissions reductions, fossil fuel consumption will have to be curtailed. One way to encourage using less, reducing subsidies on fossil fuel costs, he says:

Fossil energy subsidies hamper all government efforts to increase energy conservation, provide a viable market for renewable energy sources, and accelerate the transition to a low carbon economy. The OECD estimates that removal of the $300 billion of consumer subsidies would reduce carbon dioxide emissions by 13 percent in 2050.

Of course, removal of the subsidies is easier said than done. Consumer energy subsidies are very popular among the groups receiving them and therefore politically difficult to dismantle. Moreover, they are seen as government support for poor households. It is arguable whether a significant portion of these subsidies (for example gasoline) target very low-income households; but, in some countries the only link households have to the monetary based market world is through the purchase of fossil fuels. In these cases the fossil markets provide governments with a mechanism for income support—perhaps the only mechanism.

A U.S. proposal to end fossil fuel subsidies to oil, diesel and gas “in the medium term” was accepted by world leaders at a G-20 summit in Pittsburgh in September. While no deadline was set, the action by the G-20 to end subsidies is clearly a step in the right direction, but the political hurdles and issue of poor household income support must be addressed and overcome.

Read Kopp’s entire post, “Fossil Subsidies: Yet Another Call for Getting Prices Right” here. Raymond J. Kopp is a senior fellow and director of Resources for the Future’s Climate Policy Program.

Published: Feb-03-10 | 0 Comments

Feb02

2011 Energy Funding Forecast: Sunny, Breezy with a Chance of Nuclear

Obama Administration, Congress, Subsidies, Oil, Renewables

Given the scope of problems associated with climate change—economic, environmental, foreign and domestic concerns, to name a few—it seems virtually every federal department plays some part in President Barack Obama’s policy response. Here’s a look at where climate and energy issues have cropped up in the president’s FY 2011 budget proposal.

Environmental Protection Agency

Even in the absence of accounting for a federal cap and trade program—a move some see as an acknowledgement of cap and trade’s demise—the budget throws some $44 million toward the EPA’s efforts to regulate greenhouse gases under the Clean Air Act. Moreover, it seeks to help states do the same.

The Office of Management and Budget sums up the EPA’s climate change mitigation requests:

$21 million—an increase of $4 million from 2010—to implement the Mandatory Greenhouse Gas Reporting Rule and ensure the availability of high-quality emissions data.

$56 million—including $43 million in new funding—for the EPA and states to address climate change effectively through regulatory initiatives to control greenhouse gas emissions

$25 million to aid states in permitting activities for greenhouse gas (GHG) emissions under the New Source Review and Title V operating permits programs

$7 million to develop New Source Performance Standards (NSPS) to control GHG emissions from major stationary sources

$6 million in new funding to implement the 2010 light duty vehicle rule and to develop regulations for large mobile sources

$5 million to develop guidance regarding the best available practices and technologies to control GHG emissions under permitting programs

Department of Energy

The DOE’s budget requests underscore a strong political will to wean the U.S. economy off fossil sources (and make good on G20 commitments) by cutting $36 billion worth of fuel subsidies and shift renewable energy sources with requests for investment in wind and solar energy research.

But, perhaps most notably, the proposal makes a strong statement about U.S. nuclear power, guaranteeing $55 billion in loan funding to build new nuclear power plants and recording a departmental goal to “Commit (conditionally) to loan guarantees for two nuclear power facilities to add new low-carbon emission capacity of at least 3,800 megawatts during 2010.” Reaction to the news has been predictably mixed. (And—I assume since he didn’t address the budget directly—predictably satirical from Stephen Colbert.)

OMB breaks down DOE requests further:

$36 billion in new loan authority – for a total of $54.5 billion – to expand support for DOE loan guarantees for nuclear power facilities.

$500 million in credit subsidy to support $3 billion to $5 billion in loan guarantees for innovative energy efficiency and renewable energy projects.

$144 million for research, development, and demonstration activities to modernize the grid including smart-grid technologies that will spur the transition to a smarter, more efficient, secure and reliable electric system, resulting in energy- and cost-saving choices for consumers, reduced emissions, and growth of renewable energy sources.

$4.7 billion in clean energy technology investments at DOE, including:

Nearly $2.4 billion, an increase of $113 million, for energy efficiency and renewable energy programs including $302 million for solar energy, $220 million for biofuels and biomass R&D, $325 million for advanced vehicle technologies, and $231 million for energy efficient building technologies.

$545 million for advanced coal climate change technologies to focus resources to develop carbon capture technologies with broad applications to advanced coal power systems, existing power plants, and industrial sources.

$300 million for the Advanced Research Projects Agency–Energy to accelerate game-changing energy technologies in need of rapid and flexible experimentation or engineering.

$793 million for clean energy activities and civilian nuclear energy programs, including research and development and infrastructure programs. The budget includes a new cross-cutting research program to address technology needs for all aspects of nuclear energy production.

Department of State

In conjunction with U.S. Agency for International Development (USAID) and the Treasury Department, the State Department put forth a budget that will provide developing nations $1.4 billion in FY 2011 to address climate change.

A drop in the bucket toward $100 billion a year by 2020, the proposal would concentrate international efforts on adaptation, energy development, and ecosystem management programs to improve agricultural practices and support carbon sequestration and storage. Combined with last year’s final tally of about $1.0 billion, even meeting the U.S.’ share of the $30 billion by 2012 pledge in the Copenhagen Accord (likely to be about 25 percent) will require a substantial increase in FY 2012 or some creative accounting.

Other notable requests, via OMB:

The Department of Transportation: $530 million as part of the President’s Partnership for Sustainable Communities to help State and local governments invest in sustainable transportation infrastructure that integrates with housing development and other critical investments.

The Department of the Interior: $73 million—a $14 million increase—to build agency capacity to review and permit renewable energy projects on federal lands. DOI has set a goal to permit at least 9,000 megawatts of new solar, wind, and geothermal electricity generation capacity on DOI-managed lands by the end of 2011.

So where does it go from here?

The road from proposed budget to actual budget runs directly through Congress; more specifically it runs through a process outlined in this interactive graphic. (And, while we’re on the subject, NYT has this really cool graphic illustrating funding request sizes. I love alternative ways to illustrate governmental functions. I was a huge fan of School House Rock as a kid.)

The process of hearings and congressional consideration got underway in earnest today with Treasury Secretary Timothy Geithner testifying before the Senate Budget Committee and OMB Director Peter Orszag testifying before the House Budget Committee.

Tiffany Clements is managing editor of Weathervane.

Published: Feb-02-10 | 0 Comments

Dec21

Carbon’s Costly Paradox

CO2, Renewables, Oil

If the domestic and international policy debates of 2009 have taught us anything, it’s that shifting the world’s economies to energy sources that are both abundant and carbon-friendly presents countless challenges. Not the least of which is cost.

According to RFF Senior Fellow Joel Darmstadter, the following image—originally appearing in the Fall 2006 edition of Resources Magazine and updated for a forthcoming report entitled, "Toward a New National Energy Policy: Assessing the Options"—offers a useful illustration of just how costly, under present conditions, a low-carbon economy could be. Joel takes it from here:

See Larger

Imagine a downward-sloping line from the upper-left quadrant to the lower-right quadrant and you’ll appreciate the paradox conveyed by the accompanying figure: liquids that are CO₂-friendly are widely judged to be costly; those that seem competitive with crude oil are CO₂-intensive.

The vertical and horizontal ranges of each bar reflect uncertainty about, respectively, cost and emissions. (Note that, while most discussion of global warming centers on CO₂, the figure covers all greenhouse gases; these sum to about a 1.2 multiple of CO₂ alone.)

Cost and emission data for alternatives to crude oil are estimated to roughly approximate 2008-2009 conditions. The $70-$90 per barrel range of crude oil prices is intended to reflect the situation prevailing towards the end of 2009 rather than the much higher projected level and range of those inflation-adjusted prices by DOE’s Energy Information Administration for the year 2030. Emissions (for both crude oil and its alternatives) are calculated on a lifecycle (“well-to-wheel”) basis—spanning extraction or production at one end to utilization and combustion at the final-demand stage.

Technological advance that could spur a clustering of various fuel options in the “clean-and-cheap” bottom-left area is obviously a desirable, though for now, still elusive goal.

Joel Darmstadter is a senior fellow at Resources for the Future. Since joining RFF in 1966, his research has centered on energy resources and policy.

Published: Dec-21-09 | 0 Comments

Dec15

U.S. Dependence on Foreign Oil to Decline Despite Increased Consumption

Obama Administration, Renewables, Oil

Richard Newell, Administrator of the U.S. Energy Information Administration (EIA), and former Senior Fellow at RFF, released EIA’s Annual Energy Outlook 2010 Monday at the Johns Hopkins University School of Advanced International Studies, Global Energy and Environment Initiative in Washington.

The study projects that U.S. primary energy consumption will grow a moderate 14 percent by 2035, but fossil fuel use will decline from 84 percent to 78 percent. Currently, the United States consumes 19 million barrels per day of fossil and biofuels. EIA anticipates an increase to 22 million barrels per day in 2035 with all additional growth from biofuels like ethanol and not petroleum-based liquids. This bodes well for the domestic renewable energy sector. Reliance on imported foreign liquids is expected to decline from 57 percent of total U.S. consumption today to 45 percent in 2035.

The annual report builds on EIA’s statistical, economic, and analytical knowledge to create independent projections of U.S. energy consumption and production over the next 25 years. The 2010 Outlook evaluates current laws and regulations within the energy sector, technologies that are commercial or expected to become commercial in the next decade, and global supply and demand prices to support their study.

Newell says energy efficiency, alternative fuels, and higher prices, “curb energy consumption growth and shift the energy mix toward renewable fuels.” However, without new government policies which encourage a move toward alternative energy, “fossil fuels would still provide about 78 percent of all energy used in 2035.” Environmentally speaking, the report states that without new emissions reduction policies carbon dioxide from the energy sector will grow at 0.3 percent per year, mostly due to electric power and transportation.

The 2010 Outlook is released at an important moment for international energy policy negotiations. The EIA provides a view of the future where government regulations, markets, and environmental considerations can reduce the overall dependence on oil without a decrease in domestic consumption.

Aysha Ghadiali is a Research Associate at Resources for the Future.

Published: Dec-15-09 | 0 Comments

Nov24

The Intersection of Autos and Policy

Cash for Clunkers, Oil, United States

U.S. auto policy is in the midst of a revival of relevance in the wake of Cash for Clunkers and with the nation watching the Obama administration’s handling of GM. Recently, RFF’s Weekly Policy Commentary series set out to examine key components of other U.S. auto policies.

In this November 13 commentary, RFF fellow Shanjun Li took a closer look at the popularity of hybrid vehicles among U.S. consumers. He writes:

Today, hybrids represent roughly three percent of new car sales because of—or perhaps in spite of—federal subsidies, which are due to expire across the board in 2010.

The evidence to support the success of those subsidies is somewhat mixed. For example, in the two years since federal subsidies for the most popular hybrid, the Toyota Prius, have ended, it has continued to gain market share. While most observers agree that federal subsidies were critical to gain market acceptance of what was then a brand-new technology, is that still true today? Or is what matters most the price at the pump?

And what of those prices at the pump?

In his November 20 commentary, Kenneth Small of the University of California at Irvine wondered if the time has come for a federal gas tax increase. According to Small, the convergence of three key factors—an infrastructure in need of updating, petroleum dependence and climate change, and budget deficits at both the state and federal level—may make the time right to raise gasoline and diesel taxes:

It’s rare that a single policy instrument can solve several problems at once. Rarer still that the political and economic motivations to address these problems converge; and almost unheard of that lessons of history lead to the same conclusion. We are in such a situation today with respect to taxes on motor vehicle fuels. It is time for a dramatic, permanent increase in these taxes.

Read Li’s What Motivates People to Buy Hybrids? and Small’s Triple Convergence toward a Higher Gasoline Tax plus nearly 40 additional commentaries at RFF’s Weekly Policy Commentary Energy and Climate page.

Published: Nov-24-09 | 0 Comments

Nov04

Oil Prices, Economic Stability and Climate Change

Oil, Congress

Oil Derrick image courtesy mvferguson2000 via Flickr While climate change is the primary reason for cutting American oil consumption, a second reason is nearly as urgent. Oil prices are inherently volatile and their violent swings repeatedly do serious damage to the American economy. This year is yet another example of this phenomenon.

The price of a barrel of oil has more than doubled since 2009 began, rising more than $40. Americans are now spending their money on oil at a rate approaching $300 billion a year more than 10 months ago. That is a number of the same general magnitude as President Obama’s recovery program enacted last February, which provides $787 billion in tax cuts and spending over several years. The difference is, of course, that the recovery money pushes toward economic growth while the increment in oil expenditures pulls in the opposite direction.

Economic strategists are watching with concern the data on consumer expenditures. One major item is the price of gasoline, which has gone up about 90 cents a gallon since last winter. Using Energy Information Administration 2008 figures, which put U.S. gasoline consumption at some 3.28 billion barrels, more than $100 billion a year is being spent to buy fuel rather than to create jobs as the administration had hoped.

Since more than half of the oil used in this country is imported, the price increase also is a factor in the country’s foreign trade deficits. Last February Americans spent $13.6 billion to import oil and oil products. In August they spent $22.4 billion to import a somewhat smaller amount. That differential represents about $100 billion a year of the United States’ current account deficit, which is now running about $400 billion a year.

In Congress, the senators who support legislation to slow climate change and reduce the use of fossil fuels are looking for allies among their colleagues who want to expand nuclear power. The senators might also look for help among those who want to protect the stability of the national economy. Failing that, the country will continue to live with the economic equivalent of a volcano that erupts at unpredictable intervals, with great damage to employment and to incomes.

More information on U.S. petroleum prices and consumption can be found at the Energy Information Administration’s website. For more on U.S. imports and exports, head over to the Bureau of Economic Analysis’s website.

J.W. Anderson is Resources for the Future’s journalist in residence.

Published: Nov-04-09 | 0 Comments

Oct20

Oil’s Part in the Financial Crisis

Oil

Oil Barrel image courtesy magnera via Flickr. Oil and oil revenues played a major part in last year’s financial crash and the deep recession that has followed. Their destructive impact deserves much closer attention than they have been given so far by governments working to prevent a repeat.

The conventional account of the financial disaster begins with loose mortgage lending and low interest rates made possible by a tide of incoming foreign investment generated by the United States’ deeply negative trade balance, most notably with China. That’s not wrong, but there’s a lot more to the origins of the current distress.

“Leading into 2006, the capital exiting Saudi Arabia and Kuwait alone matched the funds leaving China (approximately $200 billion per year),” Mahmoud A. El-Gamal and Amy Myers Jaffe recently wrote in this Foreign Policy article. “For five years, from 2003 to 2008, the Middle East’s massive petrodollar outflows, combined with excess liquidity due to low interest rates and a voracious appetite for credit risk, fueled bubbles in global financial markets, including real estate, credit derivatives, and ultimately commodity prices.”

OPEC’s net oil revenues in 2003 were a little under $240 billion, the U.S. Energy Information Administration has calculated. In 2008, it reported, they came to $970 billion. Some of those funds were invested at home. But some of them joined the flood of what bankers call hot money that roams the world looking for the maximum short-term returns.

The American mortgage market was an inviting target. But it appears that around 2006 and 2007 some money managers sensed a softening in real estate, and began to move into commodities—especially oil, the price of which was already rising steadily in response to growing demand from China and other developing economies.

Whether speculation contributed to the further rise in oil prices continues to be a matter of debate among economists. It is difficult to define speculation precisely and even more difficult to measure it.

But Mohsin S. Khan of the Peterson Institute for International Economics, in a paper released last summer, reviewed the evidence. He concluded, “While market fundamentals obviously played a role in the general run-up in the oil prices from 2003 on, it is fair to conclude by looking at a variety of indicators that speculation drove an oil price bubble in the first half of 2008. Absent speculative activities, the oil price would probably have been in the $80 to $90 a barrel range.”

In fact it reached $147 a barrel in July 2008, doing several kinds of damage to the world economy. In the United States it translated into gasoline that cost $4 per gallon. That was the coup de grace for two troubled automobile manufacturers, General Motors and Chrysler, which slid into bankruptcy a few months later. More broadly, a rise in oil prices has the same macroeconomic effect as a tax increase and, in this case, it powerfully reinforced other factors pushing the country into the deep recession that began in late 2007.

The cost of consuming oil is the point at which the Obama administration’s proposals for energy legislation to stabilize the climate intersect with its hopes for financial reform legislation to stabilize the economy. In both instances, the case for reducing oil use is stronger than ever. As El-Gamal and Jaffe observe, “Without a change, the next phase of the cycle could be catastrophic.”

John Anderson is Resources for the Future’s journalist in residence.

Published: Oct-20-09 | 2 Comments

Sep09

Can a Leaner Population Mean a Greener Fleet?

Oil, United States

Public health and energy are each at the center of their own policy debate and rarely have they been tied. But exploring the link between obesity and auto demand in the United States shows the two may share some common ground.

Empirical analysis in our report suggests the size of the average consumer’s waistband has a sizable effect on the fuel economy of new vehicles demanded, as the overweight and obese seek out larger, less-fuel efficient vehicles. My co-authors and I found a 10 percentage point increase in the rate of overweight and obesity among the population reduces the average MPG of new vehicles demanded by 2.5 percent; a 30-cent increase in gasoline prices would be necessary to offset that decline in overall fleet efficiency.

Click to Enlarge

Studies show that the ranks of the overweight and obese have grown at an alarming rate of 0.3 to 0.8 percentage points each year over the past three decades. Meanwhile, the percentage of light trucks—including passenger vans, SUVs, and pickup trucks—among all passenger vehicles in stock increased from about 16 percent in early 1970s to more than 40 percent in recent years. Largely due to this trend, motor gasoline consumption in the United Stated increased by 38 percent, from 6.6 million barrels a day in 1981 to more than 9 million barrels a day in 2007. If the prevalence of overweight and obesity has stayed at the 1981 level, the average fuel economy of new vehicles demanded would have been about 4.6 percent higher than that observed in 2005, according to our analysis.

The effect of our overweight population on vehicle fuel economy has potentially important implications for the policies that address the energy security and environmental problems associated with gasoline consumption. On one hand, while setting long-term policy goals to reduce gasoline consumption and CO₂ emissions, it could be helpful to take into consideration the growth of an increasingly-heavy population and its impact on vehicle demand. On the other hand, the findings from our study imply that local and national policies to prevent and decrease the incidence overweight and obesity could provide extra benefits in energy saving and environmental protection, in addition to the savings in health care costs.

Shanjun Li is a fellow at Resources for the Future. His research interests include empirical analysis of consumer behavior, estimation of strategic interactions among economic agents, evaluation of policy interventions, and structural modeling and estimation in microeconomics.

Published: Sep-09-09 | 0 Comments

Aug31

Monday's Reads

Adaptation, International, Oil, COP-15, Morning Reads

WaPo: A look at how proponents and opponents of U.S. climate legislation are digging in, preparing for a battle in the Senate.

NYT: Editorial calls Cash for Clunkers and similar rebate programs “a spectacularly inefficient way to implement environmental policy.“

NYT: Green Inc.’s Tom Zeller Jr. wonders if amidst all the uncertainty of climate change anybody really knows what adaptation will take (or how much it will cost).

WSJ: According to this op-ed the developing world’s demand for oil will trump technological advances and keep the fuel source relevant.

WSJ: A lighting consultant makes a case for preserving some incandescent light bulbs, despite strong pushes toward compact fluorescents.

NYT: It seems some LEED-certified buildings aren’t living up to their efficiency labels.

And finally, the 100 day mark on the countdown to Copenhagen has come and gone, but with 97 days until the world climate summit, check out the Guardian’s collection of user-generated messages to international negotiators.

Did we miss something today? Let us know, leave a comment or e-mail clements@rff.org.

Published: Aug-31-09 | 0 Comments

Aug11

Carbon Reductions and Canadian Oil Sands

CO2, COP-15, International, Obama Administration, Oil

Image Courtesy Manitoba Ag Day News Canadian Prime Minister Stephen Harper, Mexican President Felipe Calderón, and U.S. President Barack Obama emerged from a summit Monday in Guadalajara, Mexico with this set of trilateral climate policy goals. In the document, the North American leaders pledge to work together to set mid and long-term emissions reductions goals, share information on adaptation efforts, and offer support to Mexico’s proposed Green Fund.

And while the pledge marks a show of good faith—not unlike a memorandum of understanding that emerged from a U.S.-China economic summit last month—its underscores the tricky balance each nation must strike in aspiring to global cooperation while guarding its own interests.

Permits for a 1,000-mile long pipeline to carry oil from Alberta's oil sands to northwest Wisconsin could be approved by the U.S. State Department by the end of the month. If permits are approved and a pipeline constructed both nations will benefit from the reliable flow of oil and money between countries with a positive, long-standing relationship.

But while the supply of oil to be derived from the sands is massive, there is still debate about the environmental effects of its extraction and refining.

In a 2008 Weekly Policy Commentary RFF Senior Fellow Joel Darmstadter said the life cycle CO2 emissions of oil sands are about 20 percent greater than those involved in conventional crude oil processing. Citing a RAND Corporation study, Darmstadter said that the only real way oil sands can compete under a carbon-constrained regime will be with the successful implementation of carbon capture and sequestration. But while the trilateral agreement included a pledge for further research and a “carbon atlas” to locate major emissions sources and potential storage sites for captured carbon, the technology is still in its formative years.

So while he is pledging to reduce carbon emissions, some are wondering if President Obama can have energy security without compromising his environmental goals.

Tiffany Clements is managing editor of Weathervane.

Published: Aug-11-09 | 0 Comments