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Guest Post by Dave Juday, commodity market analyst and principal of The Juday Group

“Government mandates like RFS, subsidies, loan guarantees, and investments have not proven any better than the market for developing new energy resources – just much more costly.  It is time to let the market sort things out.”

KiOR, once the darling of the renewable energy world, reported in a filing with the Securities and Exchange Commission (SEC), that it has a net deficit of $629.3 million and said it expects to continue incurring losses for the foreseeable future.  The details of the filing are not shocking; in March of this year KiOR released a statement that it had “substantial doubts about our ability to continue as a going concern.”

KiOR Chart 2011 - 2014

KiOR’s problems have repercussions beyond just shareholders and employees.  This isn’t just another high-tech start-up in the renewable fuels world. KiOR was considered the next great thing since sliced bread and in many ways was the cornerstone of advanced renewable fuels policy.  Following is short re-cap of the KiOR story. [click to continue…]

Post image for Are Fossil Fuels the Past, Renewables the Future?

Prussian military theorist Carl von Clausewitz famously defined war as “the mere continuation of policy [politics] by other means.” An unstated implication of this oft-quoted maxim is that politics is a continuation of war by non-military means.

What is the optimal way to win wars, political or military? Chinese general Sun Tzu said that “supreme excellence” in the art of war “consists in breaking the enemy’s resistance without fighting.” Unsurprisingly, throughout history, political combatants often try to inculcate the belief that the future is already written, tomorrow belongs to them, hence, resistance is futile.

This psyops component of warfare explains one of the standard tropes of green rhetoric. Fossil fuels are belittled as outmoded energies destined for history’s dustbin whereas wind, solar, and biofuels – sources requiring Soviet-style production quota and other policy privileges to capture significant market share — are hailed as technologies of tomorrow.

Consider two recent examples.

In a speech to the League of Conservation Voters declaring opposition to a proposed coal export terminal, Oregon Gov. John Kitzhaber stated:

First, it is time to once and for all to say NO to coal exports from the Pacific Northwest. It is time to say Yes to national and state energy policies that will transform our economy and our communities into a future that can sustain the next generation. . . . The future for Oregon and the West Coast does not lie in 19th century energy sources.

Yesterday, the Illinois Commerce Commission hosted a stakeholder meeting on EPA’s proposed guidelines to reduce carbon dioxide (CO2) emissions from existing power plants. Rebecca Stanfield of the Natural Resources Defense Council reportedly characterized “jockeying” by coal and nuclear interests as a “sideshow.” Climatewire (paywall protected) quotes her saying:

This is about leading the energy economy of the future, not about looking in the rearview mirror at the resources that powered the past.

The real “sideshow,” however, is you-are-obsolete rhetoric, which distracts public attention from the merits of competing energy technologies and, thus, from the costs and limitations of renewable energy. Whatever their date of origin, all energy technologies undergo continual modification and innovation. What matters is their value to consumers today and the foreseeable future, not when they first deployed at commercial scale.

Besides, people who live in glass houses shouldn’t throw stones. It’s not just coal-based power that got its start in the 19th century. So did renewables, especially hydropower and wind. [click to continue…]

Post image for Can Natural Variability Save Climate Models?

Climate scientists Patrick Michaels and Chip Knappenberger have a blockbuster post on the Cato Institute blog. They claim to have uncovered a “clear example of IPCC ideology trumping fact.”

As is widely known, global mean surface temperature (GMST) has not increased over the past 13-plus years, contributing to a growing divergence between global warming predictions and observations.

Christy McKnider data v models

Figure source: John Christy and Robert McKnider

While acknowledging there are “differences” between modeled and observed temperatures for “periods as short as 10 to 15 years,” the IPCC’s 2013 Fifth Assessment Report (AR5) claims models and observations “agree” over the 62-year period from 1951 to 2012 (Summary for Policymakers, p. 15). Moreover, the IPCC has “very high confidence” the models’ long-term GMST trends are “consistent with observations” (Chapter 9, p. 769). The chart below illustrates “model response error” during two 15-year periods and the longer 62-year period.

Models vs Observations IPCC AR5 Box 9.2

In each panel, red hatching shows observed temperatures as compiled by the UK Hadley Center; the gray bars show GMST trend distribution from 114 climate models. IPCC AR5, Chapter 9, Box 9.2.

Panel (c) appears to depict a close match between simulations and observations. But when Michaels and Knappenberger unpack the information incorporated in the graphic, they find that 90 out of 108 models hind-cast more warming than actually occurred.

IPCC Model Simulated and Observed Temperatures 1951-2012 Disaggregated by Michaels and Knappenberger

Okay, that makes IPCC’s “very high confidence” seem misplaced, but why is Michaels and Knappenberger’s column a blockbuster? Because of what they show next.  [click to continue…]

Post image for Do Greens Oppose Keystone XL Because It Would Increase Gas Prices or Lower Them? Yes!

High gasoline prices are unpopular in America. For green politicians and activists, public anger over high gas prices has long been both a challenge and an opportunity.

It’s a challenge because greens advocate carbon taxes and cap-and-trade, which are designed to jack up gas prices, and biofuel mandates, which have the unintended (although not unforeseen) consequence of inflating fuel costs.

It’s an opportunity because angry people want someone to blame, predisposing many to believe green propaganda that oil companies collude to “manipulate” markets, “gouge” consumers, and amass “obscene” profits. The Federal Trade Commission’s most recent major investigation found no evidence of such skullduggery, BTW.

Since the only logic behind the anti-KXL campaign is political, we should not be surprised that greens denounce the pipeline both because it will increase gas prices — and because it will lower them!

For years green activists told us that, in addition to wrecking the climate system, the KXL will — horror of horrors — increase Midwest gasoline prices. Department of Energy analyst Carmine DiFiglio handily debunked that theory. It’s not my purpose to review the issue here. The point rather is that Tom Steyer, Bill McKibben, Sen. Ed Markey, Carl Pope, NRDC, and other prominent Keystone foes warn that the pipeline will raise gas prices — as if they consider that a very bad thing.

This week, however, Keystone opponents are abuzz about a new study warning that the KXL could be ‘worse than we thought’ because it could increase global oil supply and, thereby, lower gasoline prices. Lower prices = more consumption = more carbon dioxide (CO2) emissions.

Specifically, the authors, Peter Erikson and Michael Lazarus of the Stockholm Environment Institute, estimate that if all 830,000 barrels per day (bpd) of oil flowing through the pipeline is additional oil in the global supply, KXL would lower global oil prices by $6 per barrel (see chart below). Consumption would then increase by an additional 0.6 barrels for every barrel produced, which in turn would increase global carbon dioxide-equivalent (CO2e) emissions by 110 million metric tons per year. That’s about four times the emissions increase (27.4 tons) in the high-end scenario of the State Department’s January 2014 Final Supplemental Environmental Impact Statement (FSEIS).

Erikson and Lazarus, Keystone XL Impact on Oil Supply & Prices

Erikson and Lazarus begin and end their study by quoting President Obama’s announcement that the decisive question for him is whether the KXL would “significantly exacerbate the problem of carbon pollution.” They fault State’s FSEIS for ignoring the KXL’s potential impacts on global petroleum supply and prices. They obviously hope their study influences Obama’s decision.

It does not deserve to. The authors acknowledge having no “new insights” on how much additional oil sands extraction KXL would induce. More importantly, even if KXL did increase incremental emissions by 110 million tons annually, it would still not “significantly exacerbate” the alleged problem of carbon “pollution.”

[click to continue…]

Cooler Heads Digest 8 August 2014

Post image for Is British Columbia’s Carbon Tax a Model for the U.S.?

To persuade Americans — especially conservatives and libertarians — that a carbon tax can “work” (reduce emissions) without harming the economy, some proponents tout British Columbia’s carbon tax, enacted in May 2008. How relevant is British Columbia’s (BC) experience to environmental and tax policy debates in the U.S.? Is BC’s carbon tax a model for the U.S.?

BC’s Carbon Tax Act imposes a tax on all fossil fuels based on their carbon dioxide-equivalent (CO2e) emissions. The carbon tax started at (CAD)$10/ton CO2e in July 2008 and increased each year by $5/ton until reaching $30/ton in July 2012.

BC’s carbon tax is revenue-neutral — that is, all revenues must be used to reduce other taxes. In 2012/2013, the policy was actually revenue-negative because the tax reduced motor fuel sales more than forecast, hence raised less revenue than forecast. The carbon tax generated $1,120 million in revenues while the government decreased business and personal taxes by $1,380 million, yielding a net tax reduction of $260 million.

Writing last year in The American Conservative, my friend, R Street Institute economist Andrew Moylan described BC’s carbon tax as a success story — one that U.S. policymakers should emulate:

Early returns on the policy are quite positive. A recent study found that the province’s gross domestic product growth has outpaced the rest of Canada, while its corporate income tax rate has been reduced to among the lowest anywhere in the G8 countries. Despite concerns that it might grow government, the tax has stayed revenue neutral and enjoys broad public support. Polling of business and community leaders by the Pembina Institute found 64 percent believe the tax has been a positive move.

I find this general line of argument unpersuasive for reasons both small and large. [click to continue…]

a bombThe Clean Air Act employs a “belt and suspenders” approach to mitigating air pollution, such that regulation begets further regulation.

In late 2009, for example, EPA determined that greenhouse gas emissions from automobiles “endangered” public health and welfare. As a consequence, the agency was compelled to regulate cars and trucks under the Clean Air Act. However, the agency’s responsibilities didn’t end there! Clean Air Act §165 requires that all new, “major” stationary sources of conventional pollution to achieve “best available control technology” for all pollutants subject to regulation under the statute. As such, EPA’s greenhouse gas rules for automobiles triggered greenhouse gas rules for stationary sources.

This redundant approach to regulating perhaps makes sense for conventional pollution, of the sort that Congress had in mind when it wrote the Clean Air Act in 1970, but it’s an irresponsible course for greenhouse gases, which are ubiquitous and for which there are no market-ready control technologies.

Simply put, the agency risks biting off more than it can chew. By starting down a path of climate regulation, the agency is accruing unmet responsibilities to control GHGs. This wouldn’t be a problem if the agency had the discretion to manage its own resources, but, alas, that’s not the case, because the Clean Air Act empowers environmental special interests to sue to force the agency to meet its non-discretionary duties.

Yesterday, another domino fell, when a coalition of green groups notified EPA of their intention to sue in order to force the agency to promulgate greenhouse gas standards for the aviation sector. Clean Air Act §231(a)(2)(A) requires EPA to determine whether emissions of a given pollutant may reasonably be anticipated to endanger public health or welfare. If such a determination is made in the affirmative, the agency must adopt standards to limit those emissions.

In fact, the Obama administration doesn’t want to subject the sector to regulations; to this end, it is proceeding with international negotiations. But I don’t see how they can avoid it. If greenhouse gases from cars “endanger” public health, then how could it be possible that emissions from airplanes don’t do the same?

All of these regulations—for cars, for plans, for new stationary sources—are tiddlywinks relative to the ever-present threat that environmental groups will sue to compel a Clean Air Act National Ambient Air Quality Standard for greenhouse gases. Under §108(a), EPA must set a greenhouse gases NAAQS if

  1. The agency determines that GHGs may reasonably be anticipated to endanger public health or welfare;
  2. The pollutant in question is emitted by a variety of stationary and mobile sources.

[click to continue…]

Last Friday, 12 Attorneys General filed a lawsuit challenging EPA’s recently proposed greenhouse gas regulations for existing power plants, known as the Clean Power Plan. Putting aside the significant procedural and jurisdictional matters attendant to the case, the meat and potatoes of the AGs’ complaint is that 1990 amendments to the Clean Air Act prohibit EPA from issuing the rule.

In response to a reporter’s query, NRDC’s David Doniger called the lawsuit “laughable.” And in a follow up post for NRDC’s blog, Doniger used the modifier “lame” to describe the litigation’s substantive allegations regarding the 1990 Clean Air Act Amendments.

In reality, however, it is Doniger’s comments that are “lame.” They’re actually worse than lame; they’re the epitome of legal cynicism. This is because NRDC used to make the same argument that is now being advanced by the States. Simply put: NRDC used to argue that EPA doesn’t have the authority to issue the Clean Power Plan. Talk about your all-time flip-flops!

In a previous post, I explained the legislative backstory:

EPA’s  recently proposed climate rule for existing power plants is based on Clean Air Act §111(d). This provision authorizes the agency to prescribe “regulations” for “any air pollutant” from “any existing source” …

As originally enacted in 1970, §111(d) included an exclusion that prohibited EPA from prescribing §111(d) regulations for any hazardous air pollutant already regulated under §112 of the Clean Air Act. The idea behind this “§112 Exclusion” was to avoid duplicative regulation.

In 1990, Congress amended the Clean Air Act…The House of Representatives passed a bill that fundamentally changed the nature of the §112 exclusion. Before the 1990 Clean Air Act Amendments, the exclusion from 111(d) applied to hazardous air pollutants regulated under §112; under the House bill, this exclusion applied to §112 source categories (rather than §112 pollutants).

Unlike the House, the Senate bill left unchanged the pre-1990 §112 Exclusion. That is, the Senate version maintained a prohibition on EPA’s issuance of 111(d) regulations for §112 hazardous air pollutants. However, in order to harmonize the pre-1990 §112 Exclusion with the language of the 1990 Clean Air Act Amendments, the Senate passed a “conforming” amendment to 111(d). Thus, the Senate’s amendment was a ministerial change.

The Conference Committee adopted the House’s substantive amendment. Logically, the adoption of the House language rendered moot the Senate clerical language. However, the Conference Committee failed to remove the Senate’s conforming amendment. As a result, the Statutes at Large contain both the House’s substantive amendment and the Senate’s conforming amendment.

In a nutshell, the 1990 Clean Air Act Amendments contained two provisions that circumscribe EPA’s authority under §111(d)—one originating in the House and one in the Senate. The House version prohibits EPA from issuing §111(d) standards for source categories subject to §112, while the Senate version prohibits EPA from issuing §111(d) standards for pollutants subject to §112.*

This “§112 Exemption” is important because EPA in 2012 subjected power plants to §112 standards. Due to the fact that this source category—power plants—is now subject to §112, it is exempt from §111(d) standards, pursuant to the aforementioned House version of the “§112 Exemption.” That is, the Clean Power Plan is illegal if the House provision is given any meaning. To this end, the Attorneys General argue** that the House and Senate provisions can co-exist cogently, such that each retains its meaning. Thus read, the 1990 Clean Air Act Amendments prohibit EPA from issuing the Clean Power Plan.

According to Doniger, this legal reasoning is “lame.” Yet NRDC used to make the exact same argument! Seven years ago, NRDC opposed a Bush-era rule that would have regulated mercury pursuant to Clean Air Act §111(d), and, in this capacity, Doniger’s employer argued that EPA doesn’t have the authority to issue §111(d) regulations for power plants.

Don’t take my word for it! Below, I’ve reprinted this key paragraph from NRDC’s brief seeking to overturn the Bush-era rule:

EPA fails to refute Environmental Petitioners’ argument that the plain statutory reading that most readily ‘fit[s]… all parts into an harmonious whole’ prohibits EPA from setting § 111 standards for pollutants like mercury “emitted from a source category which is regulated under section 112” or included on the §112(b) list of pollutants... [Formatting added; internal citations omitted].

NRDC’s words speak for themselves. The organization argued before the D.C. Circuit Court of Appeals that EPA does not have the authority to establish §111(d) standards for pollutants like greenhouse gases, which are “emitted from a source category which is regulated under section 112.” This raises an important question: How can the AGs’ argument be “lame” if the NRDC used to make it?***

In a July 6th New York Times article, Cora Davenport reports that David Doniger was one of three NRDC lawyers who wrote the “blueprint” for EPA’s Clean Power Plan. It is “laughable” that the NRDC would write the “blueprint” for a regulation whose legality it used to contest. [click to continue…]

Two events last Wednesday morning demonstrate well the EPA’s dichotomous approach to collaboration: If you’re an environmental special interest that helped Obama get elected, EPA welcomes you with open arms; if you’re anybody else, EPA will spurn you.

DOEThe first such event was a House Science, Space, and Technology Committee hearing on EPA’s regulatory regime for climate change. Panelists included Charles McConnell, who was assistant secretary for fossil energy at the Energy Department until early 2013. His office was responsible for facilitating federal assistance in the development of carbon capture and sequester (CCS) technology. In fact, EPA proposed to require CCS technology in its controversial carbon rule for new coal-fired power plants, the Carbon Pollution Standard. You’d think that the agency would welcome the Energy Department’s assistance, given that the EPA possesses no expertise in CCS technology. Alas, you’d be wrong. McConnell told the committee that “a true collaborative effort would have been far different from what I observed.” According to Mr. McConnell, EPA viewed the interagency process as a “box-checking exercise” and he called the agency’s attitude “disingenuous.”*

Thus, EPA rejected collaboration with a sister agency. Moreover, as I’ve long noted on this blog, Obama’s EPA has had an unprecedentedly poor relationship with States, which are supposed to be the agency’s partners under the cooperative federalism framework established by the Clean Air Act and other enabling statutes.  And it goes without saying that this EPA treats “dirty” industry with contempt. The upshot is that this EPA refuses to play nice with either the public or the private sector.

The second Wednesday event served to demonstrate that there’s at least one sector to which EPA is solicitous, and that’s environmental special interests. At 11:30 AM, the Senate Environment & Public Works minority staff released an informative new report, “Billionaire’s Club,” that neatly explains the web of elite political donors, green groups, and EPA political appointees that together have effectively seized the reins of policy-making at the agency. I found particularly edifying the EPW report’s section on the “revolving door” between environmental special interests and EPA, a subject that has been broached before on this blog.

Further evidence to this end—that of demonstrating regulatory capture of EPA by green special interests—is lent by a July 6th New York Times article, which reports that three lobbyists at the NRDC wrote the “blueprint” for EPA’s greenhouse gas regulations for existing power plants.   [click to continue…]

Cellulosic ethanol is a transportation “bio”fuel made from anything other than food. There was no cellulosic industry in the U.S. in 2007, when Congress decided to create one from scratch with the passage of the Energy Independence and Security Act. To this end, lawmakers simply mandated ever-increasing volumes of production, until 2022, when cellulosic ethanol is supposed to account for about 10% of the total market for transportation fuels.

In 2014, for example, the statutory mandate is 1.75 billion gallons. So how’s that working out for us?

No so well, according to Platts Senior Editor Herman Wang. In an interview in this Sunday’s Platts Energy Week with Bill Loveless, Mr. Wang estimates that the market has produced a paltry 50,000 gallons of cellulosic ethanol so far in 2014, or .003% of the requirement codified by law. Nor is there much hope of a production breakout in the second half of the year, as the industry is in total disarray, reports Mr. Wang.

This is an industry that has been billed a game changer in the U.S. transportation fuels sector, but reality has yet to catch up to the hype. Last year, there were signs this industry may be turning the corner. There was a company Kior that in March said it had generated its first renewable credits, called RINs…and in July, we had another company, Ineos Bio, say that they had produced there first commercial quantities. So things were looking up. Since then, it’s been bad news. Ineos bio has since said that it’s suffering what it called “unexpected startup problems.” And Kior had to shut down its facility due to finance problems…The EPA, which tracks biofuel production from month to month, just announced that in June, 0 gallons of cellulosic biofuels were produced. This is the second month in a row, there’s been no production.

In practice, EPA has been revising Congress’s impossible targets such that they become only somewhat less impossible. In 2011, for example, EPA revised the Congress’s 250 million gallon target to 6 million gallons, but, in fact, 0 gallons were produced. For 2012, Congress’s original target was greater than 500 million gallons but it was reduced down to 10.45 million gallons, which was still outrageous because the industry produced only 20,000. According to Mr. Wang, EPA revised the 2014 target to 17 million. This is, obviously, far higher than the 50,000 gallons that are likely to represent total production for 2014.

As I explain here, the absence of a breakthrough by the cellulosic industry presents a quintessential example of how the government is incapable of creating markets by command. This point is demonstrated visually in the graphic below, which plots the statutory requirements against EPA’s revised targets (which themselves are a proxy for actual production). As is readily evident, the gulf is widening between the congress’s command and reality. [click to continue…]