Posts from — July 2009

“Waxman-Markey … seeks a first in economic history: rationing without scarcity or price inflation. [It] allows generous ‘offsets’ so that carbon-based energy does not, in fact, become scarce. The bill does, however, contain a multitude of new regulations, product-efficiency mandates, and spending programs that will require extensive managerial attention from both the public and private sectors, though to much less effect than promised.”

- Steven F. Hayward and Kenneth P. Green, July 2009

The Waxman-Markey energy bill passed by the House of Representatives is a great illustration of how the government can take an idea that sounds good in theory – emission trading – and turn it into a nightmarish piece of legislation that is larded with pork; perverted by special-interest horse-trading; and will most likely be not only ineffective, but will produce perverse and negative consequences for both the economy and the environment.

As my colleague Steven Hayward and I point out in our most recent AEI Environment and Energy Outlook:

• The Waxman-Markey legislation will do for climate change what Sarbanes-Oxley did for financial regulation: establish a big new bureaucracy that imposes substantial costs on the economy.
• The legislation enumerates six hundred tasks the EPA must perform and gives other agencies significant administrative roles.
• The last time GHG emissions were at the Waxman-Markey target for 2050 was 1910.
• The liberal use of “offsets” in the bill suggests that even if Waxman-Markey works perfectly, fossil fuel emissions will be reduced by no more than 50 percent [versus 83 percent).
• Countries such as Grenada and Belize have per-capita emissions close to the Waxman-Markey 2050 levels.
• The legislation is a giveaway to the people environmentalists claim are destroying the planet.
• Waxman-Markey is unrealistic and will not fix the problem.

Unfortunately, the Senate is using Waxman-Markey as its launching point for crafting their own legislation. As Steve Hayward jokes, given that Waxman-Markey gives away 85% of the emission permits, and given that the Senate hasn’t started its own horse-trading and buy-offs yet, by the time this is all done, the government might give away 150% of the the available permits. But there is nothing funny about a 1,428-page bill that has been likened to an energy road to serfdom.

The devil is in the details, as it is often said. Waxman-Markey’s devil is monstrously big, and it begins qualitatively, not only quantitatively,  by setting up the machinery of control that would politicize energy for an open-ended future. Watering down a bad bill is not good enough.

A death announcement last week in the Houston Chronicle caught my eye. I never met the late Stephen Simon, but what I read made me realize that the quiet heroes and heroines of free-market capitalism need to be saluted now and then. For they are the wealth creators and real philanthropists versus the political system’s wealth redistributionists and wealth destroyers.

Here is the essence of this man. An engineer. More than 40 years with a major energy company in a variety of advancing positions at home and abroad. Successful. Private sector philanthropist with his time and money.

And through it all, a ”heroic capitalist” in the Smith-Smiles-Rand tradition (see Part I of my Capitalism at Work). A practitioner of Principled Entrepreneurship ™.

Think of what Julian Simon would have said about Stephen Simon (no relation): He created more than he consumed to leave us resource richer. And he used that wealth to create still more wealth and advance civil society.

Finally, think of Mr. Simon and his company when you think about the names that made the news at the once rival of ExxonMobil, the late Enron. (Enron’s Ken Lay, in fact, joined Exxon two years before Simon as a corporate economist before going to Washington for various assignments and never really getting politics out of his blood.)

The obituary follows: [Read more →]

In quick succession, the Obama administration has dealt a near-death blow to new civilian nuclear reactors in the U.S.

First, the Yucca Mountain Project, a waste storage facility in Nevada, was “zeroed-out” of the 2009 budget. Second, the administration has just ended U.S. participation in a new nuclear fuel recycling project, one that would extract more energy from existing fission energy sources, and reduce sharply the high level nuclear waste from nuclear power.

Presiding over both of these decisions–that effectively terminate the feasibility of new nuclear power plants for the U.S.–is Dr. Steven Chu, Secretary of Energy, Nobel Laureate in Physics, and former director of the Lawrence Berkeley Energy Laboratory.

In contrast to the crowing of Senator Harry Reid about “killing” the Yucca Mountain Waste storage project, Dr. Chu described nuclear fuel recycling as an essential element of nuclear power for the U.S., and noted that storage of the type proposed for Yucca Mountain would be necessary for a few more years. In a 2009 interview with MIT’s Technology Review, for example, Dr. Chu specifically touted fast neutron (breeder) reactors and hybrid fission-fusion plants as good routes for future nuclear power technology.

In earlier interviews, Dr. Chu had called nuclear energy a vital component of the U.S. energy mix and restated his desire to see the share of nuclear power rise above its current level of 20% of electricity generation. “Nuclear has to be a necessary part of the portfolio, said Chu prior to his confirmation as Energy Secretary. In line with that view, license applications will be sought by investor-owned utilities for 35 new nuclear power plants over the next several years.

In comparison to a technological sure thing, Chu has noted that “making solar cheap will require ‘transformative technologies’, equivalent to the discovery of the transistor,” something that the billions spent on solar energy have so far failed to create. [Read more →]

As I posted last week, conventionally sized nuclear power (?750–1,250 MW) is dramatically uncompetitive with coal- and gas-fired electricity generation in light of the huge increase in construction costs recently estimated by various utilities. A typical new coal-fired plant may cost on the order of $2,000/MW compared to new nuclear estimated to cost as much as four or five times more. The lower operating costs of nuclear compared to fossil-fired plants cannot erase this capital-cost premium.

Micro-nuclear, with capacity in the 5–100 MW range, while exciting as a new technology, is no panacea. Actual installed costs are yet to be published. But operating cost estimates of less than ten cents a kilowatt-hour have drawn attention to the designs. But are the scale economies in construction, operations, maintenance, and the fuel cycle considered in these preliminary estimates? Small may be beautiful, but a push for decentralizing small nuclear power generators takes our eye off the prize: financing and constructing needed utility-scale nuclear power projects, as well as coal- and gas-fired plants.

Introduction

The resurgence of interest in nuclear power closely followed the introduction of new intrinsically safe Generation III reactor designs such as the Evolutionary Power Reactor (EPR) from AREVA, Westinghouse’s AP-1000, and General Electric’s Enhanced Simplified Boiler Water Reactor or ESBWR. All three are utility-scale designs that range in size up 1,600 MW. The EPR and ESBWR are under active review by U.S. Nuclear Regulatory Commission (NRC) and are expected to be licensed mid-2011 and the end of 2010, respectively. The AP1000 has submitted a design certification amendment that is also scheduled to be completed by the end of 2010.

Perhaps the prime motivator for the nuclear renaissance are the provisions of the Energy Policy Act of 2005 that provide loan guarantees of up 80% of a project’s cost and provides tax credits of 1.8 cents per kilowatt-hour for 6,000 MW from new nuclear power plants for the first eight years of operation—up to about $18 billion in incentives. (Other EPAct incentives are listed in an appendix at the end of the post.) The new NRC combined operating license process also promises to shorten the plant certification process although how much time will be trimmed from this time-intensive process remains to be seen.

There are currently 17 proposals for 26 reactors in licensing hearings before the NRC and more applications are expected. However, the U.S. remains far behind the world in constructing new projects. 45 reactors now under construction world-wide, although 22 of them have encountered delays. The first Generation III+ reactor under construction is AREVA’s EPR at TVO’s Oikiluoto Nuclear Plant in Finland. Also, EDF’s unit 3 at their Flamanville plant in France began construction in 2007 for a scheduled 2012 startup. Two additional EPRs are scheduled to begin construction in China this year.

The technical and financial challenges of building the first of any new complex plant design are many. The price of the first EPR plant is no exception—it has risen from an estimated $4.2 billion to about $8 billion and the in-service date has slipped over 18 months to June 2012. Also, the first two plants using the AP-1000 reactor technology began construction in April with the two-unit Sanmen plant in China. The first reactor is scheduled to begin operation in 2013 and the second in 2014. [Read more →]

At the G8 summit held in L’Aquila Italy last week, the G8 nations came up with a climate master plan aimed at keeping the total rise in global temperatures (above pre-industrial conditions) at a value of 2ºC or less. A cursory reading of the plan makes it seem as if the G8 nation’s are reaching out to the rest of world by agreeing to take on the harshest emissions cuts themselves, leaving the world’s developing nations with only a bit of mop-up duty in order to make all the final numbers work out. The opposite is true.

A close look at how the plan must actually work reveals a great semantics play by the G8. They know that they alone do not hold the power to substantially alter the projected course of future global warming through their emissions reductions. The real power is held by the developing nations of the world that want to develop, not accede to the rich countries’ notion of environmental sustainability. And no silver bullets have emerged in recent decades to effectively substitute for fossil-fuel-driven development, just as a seminal Science article several years ago explained and warned (1).

In an effort to entice the developing world to think differently about the problem, the G8 countries have devised a plan to reduce global carbon dioxide emissions which makes it seem as if they (the G8) are going to do most of the work and, therefore, it wouldn’t seem too much to ask of the developing countries to just help out a little to achieve the ultimate goal of keeping the earth’s average temperature to within 2ºC of its pre-industrial value.

Here is how the G8 described the plan that came out of its meeting in Italy: [Read more →]

[Editor note: Pierre Desrochers, who guest posts with us for the first time, is Associate Professor of Geography at the University of Toronto.]

Paul Ehrlich’s best-seller The Population Bomb  turned 40 last year. The latest issue of the peer-reviewed (and somewhat iconoclastic) Electronic Journal of Sustainable Development is devoted to the book, its impact, and the validity of its main message. It features contributions by both Paul and Anne Ehrlich, who mostly stand by their original analysis, and some of their critics who challenge their basic premise and supportive evidence.

Despite a now widespread popular perception that The Population Bomb was a pioneering work, it originally drew little attention. In fact, it was just the latest in a long line of books, reports, essays and pamphlets on the population issue published in post-World War II America.

Ehrlich’s success, it turns out, owed more to his alarmist rhetoric and a lucky break on Johnny Carson’s “The Tonight Show “ (on which he would eventually appear several times) than to any original insight or idea.

The real roots of what is sometimes referred to as modern “neo- Malthusian ecology” in the United States long predates the Stanford’s biologist contribution. It can be ultimately traced back, at least in terms of reaching a large popular audience, including a young Paul Ehrlich himself, to two now largely forgotten best-sellers published in 1948: Fairfield Osborn’s Our Plundered Planet and William Vogt’s Road to Survival. [Read more →]

[Editor note: This piece, written during the BTU tax debate by Julian Simon (1932–1998), is reproduced for its relevance for today's energy debate]

As the fight intensifies about an energy tax in the budget bill, some cool heads ought to reexamine the underlying belief that it is good for us to “conserve energy.” We see that belief in headlines such as “The High Cost of Cheaper Energy,” and Washington Post editorials like “A Totally Free Market Leads to Over-Consumption.”

Conservation Isn’t Necessary or Good

Some people simply believe that it is ipso facto a good thing to use less energy and have less economic growth. As Paul Ehrlich put it, “Giving society cheap abundant energy is . . . like giving an idiot child a machine gun.” Other backers of the bill seek not only to preserve the supply of energy but also to return to a “simpler life” (for others, of course, not for themselves) because it will make us better human beings. As Amory Lovins puts it, “If nuclear power were clean, safe, economic, assured of ample fuel . . . it would still be unattractive.”

Perhaps most common are those who somehow believe that there is an economic rationale for “saving” energy. That unstated and unanalyzed belief is seen in columnist Jim Hoagland’s statement, “A rejection of energy taxes would send a message down the national spinal cord that America can still afford to use more of and pay less for the least efficient fuels.”

The economic-saving rationale for an energy tax is not, however, widely accepted among economists whose business it supposedly is to understand such matters. I’d bet that the consensus of leading economists does not support the public belief in energy conservation. (I also repeat my public offer to wager a week’s pay that the price of any type of energy will be lower at any future date than now, which would prove that there is no impending shortage and then no basis for tax restraints on energy use.) [Read more →]

I don’t know much about global warming.  But I do know something about the dangers of precipitous action, especially when its advocates appear to be caught up in something akin to religious fervor.  My instincts run towards stop, take a deep breath, and be absolutely sure that you’re not about to put the world’s economy in a stranglehold just to please the people who despise modernity.

That’s why I was both heartened and disheartened when I read, some time ago, Dana Milbank’s Washington Sketch column in the Washington Post, “With All Due Respect, We’re Doomed.”  He gave an account of Al Gore’s testimony before the Senate Foreign Relations Committee, where apparently he was treated like a prophet.  Quoth the tongue-in-cheek Milbank:

The lawmakers gazed in awe at the figure before them.  The Goracle had seen the future, and he had come to tell them about it. 

What the Goracle saw in the future was not good:  temperature changes that would “bring a screeching halt to human civilization and threaten the fabric of life everywhere on the Earth–and that is within this century, if we don’t change.”

The chairman of the Senate Foreign Relations Committee, John Kerry (D. Mass.) appealed to hear more of the Goracle’s premonitions.  “Share with us, if you would, sort of the immediate vision that you see in this transformative process as we move into this new economy,” he beseeched.

The article is well worth reading in full, but you get the idea.  The bad news is that even Republicans on the Committee, like Sen. Bob Corker, treated Gore with a reverence ordinarily reserved for the likes of Isaiah and Ezekiel. That doesn’t bode well for those hoping to defeat cap-and-trade climate legislation in the Senate.

But there’s good news too: Milbank himself, a card-carrying member of the MSM, gets it. [Read more →]

Eighteen separate plants with 28 individual utility-scale nuclear projects are working their way through the Nuclear Regulatory Commission. Each share a common characteristic with their operating cousins built in the 1970’s and 1980’s: their actual construction price will be far more than today’s estimates–generally between $8,000 to $10,000/kW. (And as I will explain in a separate post next week, micro nuclear, such as designed 125 MW and 335 MW models, is no panacea with cost problems associated with first generation technology.)

Hoping to reduce the rate of construction cost increases, utilities today are using lump sum pricing and standardized designs to better manage the construction and completion risks. However, nuclear fuel price uncertainty–both purchase and disposal of spent fuel costs–may also push up future operating costs. Future nuclear fuel reprocessing is the answer everywhere but the U.S.

Long-cycle Production = Cost Inflation

The New York Times reported on January 18, 1984: “3/4 of [U.S.] reactors cost consumers at least double what was promised,” and “in 28% of cases, final cost was more than four times the estimate.” The developers of those plants were heavily criticized a quarter-century ago for their steeply rising cost of construction.

Today, the final construction costs are all but forgotten because of our fleet of 104 nuclear plants produce electricity for less than 2 cents/kWh and are this country’s most reliable electricity generators. But to the extent that long-cycled production still exists, the likelihood of significant cost inflation remains, unfortunately. [Read more →]

In response to my recent post about whether passenger trains save energy, a reader asked about the “life-cycle costs of both forms [rails vs. highways] of transportation.”

Such a life-cycle analysis was the focus of a study by researchers at UC (Berkeley), which I mentioned in the previous post (but incorrectly identified as UC Davis).

Their answer is that neither form of transportation is clearly superior to the other; it depends on such things as load factors. Japan’s bullet train from Tokyo to Osaka, which serves more than 60 million people in a 300-mile corridor, is probably more efficient than driving. But the same train from (say) Eugene, Oregon, to Seattle would probably be a huge waste of resources because it would not likely fill enough seats to justify the energy costs of construction.

The UC Berkeley study also demonstrates one of the perils of trying to do a life-cycle analysis. Such an analysis is extremely complicated, relies on an enormous number of assumptions, and one small error can completely cripple the results. [Read more →]