Here is the background. According to its website, USCAP is “a group of businesses and leading environmental organizations that have come together to call on the federal government to quickly enact strong national legislation to require significant reductions of greenhouse gas emissions.” Others of a less charitable bent would characterize them as central headquarters of the U.S. Climate-Industrial Complex, a group of corporate rent-seekers (the bootleggers), made whole by the environmental scaremongers (the Baptists) hell-bent on slapping the United States into a carbon rationing scheme.

Members of USCAP include AES, Alcoa, Alstom, Boston Scientific Corporation, Chrysler, Deere & Company, The Dow Chemical Company, Duke Energy, DuPont, Environmental Defense Fund (EDF), Exelon Corporation, Ford Motor Company, FPL Group, General Electric (GE), General Motors Corporation, Honeywell, Johnson & Johnson, Natural Resources Defense Council (NRDC), The Nature Conservancy, NRG Energy, PepsiCo, Pew Center on Global Climate Change, PG&E Corporation, PNM Resources, Rio Tinto, Shell, Siemens Corporation, and the World Resources Institute (WRI).

It doesn’t take a great deal of analysis to see who hopes to get what from cap-and-trade. The environmental posse– EDF, NRDC, Nature Conservancy, Pew Center, and WRI–get their ultimate dream: control of the U.S. economy by environmental bureaucrats who can determine who gets to buy carbon permits, who gets to sell them, how many can be bought overseas, who gets to slurp from the giant trough of government permit sales, and so on.

It’s not much harder to figure out what the corporations get, whether it’s simply “green” bragging rights to use in commercials (PepsiCo), or the hope to sell subsidized hybrid cars (Ford and GM), or the chance to sell new thermostats to millions of houses and businesses (Honeywell), to build nuclear plants, windmills, or solar farms (GE, Exelon), or to get in early in the hopes of getting free permits from the government (coal, oil, and other high GHG emitters). Again, a sober comparison of social costs and benefits should get these ‘greenwashers’ to bolt.

Three groups that used to be on that list which you won’t find mentioned at USCAP’s website are Caterpillar Inc., BP America, and ConocoPhillips which have made a relatively quiet exit, stage left. While the media isn’t covering this with the mad intensity that it covered Apple’s departure from the U.S. Chamber of Commerce (Google: “Apple leaves Chamber,” 1.8 million hits), it is no less a ground-shaking event. When you have major companies like BP America and Caterpillar bailing on the idea of cap-and-trade, you can assume that the writing is on the wall for the concept.

Despite the bravado of Senators Lindsey Graham, Joe Lieberman, and John Kerry, prevailing wisdom suggests that Nancy Pelosi couldn’t get the votes to pass Waxman-Markey again, much less anything comparable. And with Scott Brown in the Senate, and the 2010 elections looking something like a nightmare for Democrats, the probabilities of seeing an aggressive climate bill with a cap-and-trade element before the mid-term elections are slim to none. Depending on how those midterms go, the probability could easily drop to zero.

Inevitably NOT?

So much for the argument that all of us have heard for many, many years. Get out in front of the issue…. Get your seat at the table…. It’s coming…. It’s inevitable…. The choice is cap-and-trade or a carbon tax….

Well, that has not happened even with Democratic political control. And pragmatic corporate America–even BP, which started the intra-industry civil war on the carbon question back in May 1997–is having second thoughts. But the Obama Administration sees PR value is promoting the mirage. Reported E&E News (sub. req.):

In comments to reporters at a State Department press briefing, Todd Stern, the chief U.S. international climate envoy, said businesses are together on the idea of addressing the climate issue.

“Whatever the ups and downs of this process at any particular moment, there is only one direction that this process can go, which is in the direction of action to reduce emissions,” Stern said. “Whether it’s sooner or later, it’s coming. Businesses get that.”

Really?

Still, opponents of bad climate policy are hardly out of the woods. EPA is still plugging ahead on its own plan to take control of the commanding heights of the economy, while various plotters in Congress are looking for a backdoor into greenhouse gas control through energy legislation. But emboldened by the scientific controversies that have fortuitouosly spilled into the public domain and the political death of global CO2 mitigation in Copenhagen, new voices and institutions are coming forth to right the wrongs of a futile, ignoble crusade.

Even Al Gore isn’t talking about climate change much any more: the newest commercials from his “Repower America” initiative talk all about clean energy and jobs, but climate change isn’t seen on the main page of the site, and solving “the climate crisis” has dropped to the third reason why we should switch to clean energy.

Let’s hope that BP and ConocoPhillips donate enough fuel to Caterpillar to bury cap-and-trade so deeply it can’t re-emerge. But, stay ready. Like a vampire, cap-and-trade won’t really be dead until it’s been staked through the heart, decapitated, cremated, and had its ashes scattered over running water. That a good start on that may be the fracturing and fraying of the unholly business alliance that in the U.S. can be traced back to …. Ken Lay and Enron.

UPDATE: 2/18/10

Add another two companies to the exodus roll: Xerox has copied BP America, ConocoPhillips, and Caterpillar Inc. in bailing out on the Climate Action Partnership. So has Marsh, an “insurance broker” according to Investor’s Business Daily. The US Chamber of Commerce, undoubtedly still peevish over the massive fuss that the mainstream media made over Apple’s high-profile defection over the Chamber’s climate change stance, observes that “USCAP’s Tuesday press release “misled the public by failing to disclose” that Xerox and Marsh had left too.”

None of this is surprising, of course. As E&E reporter Joel Kirkland observed (subs. required), “The decisions by BP, Conoco and Caterpillar [and now Xerox and Marsh, ed.] underscore the difficulty in keeping broad business coalitions together in such a turbulent political and economic environment. The direction of energy and climate policy is in flux in the Senate. The Democrats’ loss of a 60-vote, filibuster-proof Senate majority, a 10 percent unemployment rate across much of the nation and the unclear path for climate legislation all could factor into shifting positions in the weeks and months ahead, sources said yesterday.”

“It’s the natural consequence of evolving strategies,” said Adele Morris, the policy director for climate and energy economics at the Brookings Institution.” Adele’s right, but there are also more prosaic reasons, as the E&E article points out:

For ConocoPhillips and BP, the reason for leaving U.S. CAP has to do with natural gas and the extent to which oil refineries get the short end of the stick in the House climate bill passed in June. Conoco said in a statement that by not renewing its membership, it can “better focus its efforts on ensuring fair and equitable treatment of the transportation sector” and concentrate on securing natural gas’s role in any future energy and climate policy.

“House climate legislation and Senate proposals to date have disadvantaged the transportation sector and its consumers, left domestic refineries unfairly penalized versus international competition, and ignored the critical role that natural gas can play in reducing GHG emissions,” said Conoco Chairman and CEO Jim Mulva.

No matter how you look at it, the trend is obvious. CAPs declining corporate membership is leaving behind little more than environmental groups and corporations engaged in blatant rent-seeking, perhaps because their businesses are not sustainable without federal largess and mandates to force some of their non-market-worthy goods onto the market.

Editor note: This post from one year ago is reprinted for its continuing relevance to the climate-change debate. The “bootleggers” are hard at work in the post-Enron era with nearly 150 companies, lead by Exelon Corp., Entergy Corp., and Constellation Energy Group Inc., buying 30-second television spots running from today through President Obama’s State of the Union address on Wednesday. 

The climate-change public policy debate might be thought of as a straightforward morality play. In one corner, we have the good guys laboring mightily against all odds to save the planet from rampant consumerism, human short-sightedness, and corporate greed. In the other corner, we have the bad guys, laboring mightily to preserve their profits by stoking materialism, economic selfishness, and fear of big government. Behind the curtains of this morality play, however, is a fascinating dance between the “good guys” (the Baptists) and “bad guys” (the bootleggers) to pass some form of mutually beneficial prohibition.

The emergence of the bootlegger and Baptist coalition in climate change politics has never been more obvious than last week, when the United States Climate Action Partnership (USCAP – a coalition of big business and big environmental groups) put forward its plan to reduce greenhouse gas emissions by 80 percent below 2005 levels by 2050 through a mandatory, economy-wide cap-and-trade program. While this is somewhat less ambitious than President Obama’s proposal (an 80 percent reduction over that same time period relative to 1990 levels), the real give-away about what’s going on can be found in the proposed emissions standards for new coal-fired power plants. To wit:

• any such facility permitted after Jan. 1, 2015, could not emit more than half of the carbon dioxide emissions now considered normal for coal-fired power plants; and

• any newly permitted coal-fired power plant today would have to have the ability to be retrofitted to meet that standard.

This, dear readers, is little but a replay of the old-source/new-source standards incorporated in the Clean Air Act (CAA), which likewise established tough emissions standards for future power plants but much lighter rules for plants currently in operation. The best review of what happened then and why is the classic Clean Coal/Dirty Air, pointedly subtitled How the Clean Air Act Became a Multibillion-Dollar Bail-Out for High-Sulfur Coal Producers and What Should Be Done about It (Yale University Press, 1981). The authors, Bruce Ackerman and William Hassler, were environmentalists with sterling credentials who simply could not stomach the deal necessary to bring the business community into the pro-CAA camp. Alas, their whistle-blowing operation gained so little attention and had such little impact that, today, environmentalists cannot discuss the Clean Air Act without making the sign of the cross and whispering in awed reverence.

Today’s version of Bruce Ackerman is Joe Romm, another environmentalist with sterling credentials who cannot stomach the Baptists’ betrayal-in-the-making. Joe’s main concern, however, isn’t the old-source/new-source distinction—it’s the lack of ambition with regards to emission controls and the invitation to use carbon offsets (like planting trees or paying Chinese companies to reduce emissions) that seems to bug him the most. Well, he certainly has a point on both counts. Obama’s campaign promises call for significantly larger emissions reductions than this, and the carbon offset market has proven ripe with fraud and make-believe emission reductions. Still, it is good to know that there are at least a few environmentalists who are uninterested in gaining a slot on some corporate board or securing some lucrative consulting contract somewhere down the road.

Why should a libertarian skeptic about the dangers of climate change applaud environmental absolutism in this case? Several reasons.

First, the bifurcated old-source/new-source regulation makes no economic sense whatsoever. It distorts the power market by artificially advantaging older plants relative to newer plants. It spawns a huge legislative/legal-industry to fight over old-source/new-source distinctions until the end of time, creating substantial deadweight losses. It creates huge, unearned windfalls for politically clever corporations and thus encourages future market-rigging mischief. It would be far, far better to settle on one standard and apply it across the board to old sources and new sources alike.

Second, without corporate support, the climate change alarmists will get nowhere. Consider, for instance, the latest report out of the Pew Research Center for the People and the Press, finding that climate change is the least important issue of the 20 issues they asked about in their recent public opinion survey. While I would be surprised if that prevented the adoption of some sort of climate change bill in this or the next Congress, still, without corporate support that bill would likely be rendered economically toothless, with loopholes and timetables delaying serious emissions reductions until some time relatively far into the future. I am unaware of any significant environmental initiative that was successfully signed into law that didn’t manage to scare-up significant, widespread corporate support.

Third, there is a virtue in political honesty. If politicians want to argue for laws that will seriously reduce anthropogenic greenhouse gas emissions, then let’s have an honest discussion about the costs and benefits of those proposed laws. Symbolically potent gestures that are more empty than real feed the public belief in free lunches. While one could argue that it’s better to get an empty gesture than a real one, when the latter has far more costs than the former, I can’t believe that any good will come from a culture of political dishonesty and voter illusion.

“No, I have to do this my way. You tell me what you know, and I’ll confirm. I’ll keep you in the right direction if I can, but that’s all. Just… follow the money.”

- Deep Throat to Bob Woodward, All The President’s Men (1976).

Yesterday’s post at MasterResource presented seven areas where the American Clean Energy and Security Act of 2009 (H.R. 2454, aka Waxman-Markey) bribed segments of the electric utility industry into support. So it should come as no surprise that there are specific companies and technologies that are well positioned to gain quick, big bucks by its legislative requirements should climate legislation become law  in its current form.

I have discussed carbon legislation with many of these companies that publicly declare their concern about anthropogenic climate change yet privately see this as the greatest money-making opportunity of their lifetimes. The Bootleggers and Baptist model of government intervention is in clear evidence. Adam Smith must be turning over in his grave given the enormous “invisible handout” that Waxman–Markey provides to a select few in the electricity generation market.

Five Link Chain

In “Federal Actions Will Greatly Affect the Viability of Carbon Capture and Storage as a Key Mitigation Option,” released September 30, 2008, the GAO found that a key technological barrier to carbon capture and storage (CCS) deployment was a lack of experience in capturing significant amounts of CO2 from commercial-scale power plants. The significant cost of retrofitting existing plants, which it deemed “the single-largest source of CO2 emissions in the U.S.,” also hampered deployment. The GAO also found that both the EPA and DOE had yet to comprehensively tackle the full range of issues that would require resolution for large-scale deployment. The GAO was spot-on in their conclusions.

The development of alternative CCS technologies designed to retrofit existing coal-fired plants must at some point converge into a commercially reliable supply chain consisting of five separate, equally important and interdependent steps: capture, compression, transportation and pumping, injection into geologic structures, and long-term storage and monitoring of CO₂ sites. Each of these technologies can be likened to an individual link in a chain.

The many hands that wrote H.R. 2454 forgot that the entire CCS process is only as strong as the chain’s weakest link. The failure of one technology to mature coincident with the other technologies necessarily causes a chain failure. Given that a 500-MW coal-fired plant produces about 3.5 million tons of CO₂ per year, the complexities of such an operation on a national level for hundreds of coal-fired plants defies description.

A Washington Times article in January that pointed out that H.R. 2454 includes an exemption for plants that are now under construction and pointed specifically at Duke Energy’s Cliffside Plant and Edwardsport IGCC project in Indiana. The Washington Times also noted that Duke had a strong role in shaping H.R. 2454 because it helped draft the US-CAP blueprint that provided the basis for H.R. 2454 cap-and-trade system design.

US-CAP counts General Electric and Conoco Phillips (which together account for over 90% of the IGCC project designs in the U.S.), major coal-fired utility Duke Energy, one of the nation’s largest nuclear utilities Exelon, and the three largest equipment manufacturers in the power generation space with GE, Siemens and Alstom, among their membership

Focus on “Capture” Technologies

In this post, we examine only the “post-combustion capture” link of the CO₂ supply chain. It’s an appropriate place to begin given that many vendors and utilities are hyper-focused on this first, very capital-intensive (expensive) link.

Another important point: Each of the carbon-capture processes described is a proprietary technology. There are many competitive advantages for a particular utility to develop an early relationship with a specific vendor, including joint ownership of the intellectual property and the technical knowledge base that is developed during pilot testing. These early relationships will form an insurmountable obstacle to later equipment-vendor market entrants and other utilities that don’t have the financial wherewithal or support of their state’s utility commission to spend the tens of millions of dollars for a long-term pilot test. That market lead will only lengthen with the financial benefits that will flow to early adopters as described in my earlier post. Expect to see a large number of licensing and cross-licensing relationships between vendors and utilities in the future when (if) CO₂ capture technologies mature. One utility co-owning technology and licensing it to others is an untapped revenue stream that several utilities are now exploring.

Plethora of Pilot Plants

The CO₂ post-combustion capture processes are extremely difficult given the very high volumes of low pressure exhaust gas from a plant that contact impurities that can inhibit the chemical processes. The low pressure gas requires significant auxiliary compression load to raise its pressure for processing. Also, once the CO₂ has been removed, it must also be liquefied and compressed to pipeline pressures (up to 2,000 psi) for transportation. Pilot plants are designed to confirm the engineering designs, the effectiveness of the process on a particular stack gas, and to estimate the auxiliary loads required to run the carbon capture process (estimates today run from 20% to 35%) which is another significant drawback to current CCS designs.

In no particular order, here is my top ten most interesting carbon capture projects that are either currently operating, under construction, or under contract. The first five projects are in the U.S. while the second five are in the EU and are generally further along than those in the U.S. (I include the EU projects to show that the major carbon capture vendors are global companies with interests in the U.S.)

You may notice that General Electric is conspicuous by its absence. GE announced an alliance with Schlumberger to “accelerate the use of cleaner coal technology” because of their “geologic storage expertise and capabilities for site selection, characterization and qualification.” However, GE’s expertise is focused more on IGCC technology where the CO₂ separation is part of the syngas production process, a pre-combustion technology. However, GE is the preferred supplier for a majority of the IGCC projects announced in the U.S. to date.

This list is purely coal-fired post-combustion CO₂ capture projects.

1. AEP + Alstom

Paris-based Alstom and American Electric Power (AEP), one of the largest electric utilities in the U.S., have signed an agreement to bring Alstom’s chilled ammonia process for CO₂ capture to full commercial scale by 2011. The project will be implemented in two phases. In phase one, Alstom and AEP will jointly develop a 30-MW (equivalent) product validation plant that will capture more than 100,000 tons of CO₂ per year from the flue gas of AEP’s 1,300-MW Mountaineer Plant in New Haven, West Virginia. Notably, the captured CO₂ will be sequestered in deep saline aquifers at the site. This pilot project is scheduled to start up at the end of 2009 and operate for at least 12 to 18 months.

In phase two, Alstom will design, build, and add the first commercial-scale (up to 200-MW) CO₂ capture system to one of the 450-MW coal-fired units at AEP’s Northeastern Station in Oologah, Oklahoma by late 2011. If the system captures about 1.5 million tons of CO₂ a year, Alstom will consider the accomplishment a successful validation of the chilled ammonia separation technology. The CO₂ captured at Northeastern Station will be used for enhanced oil recovery.

There’s no doubt that Alstom is the big player in the carbon capture market; the company continues to fund an extensive R&D program whose target is to make a CO₂ capture system commercially available before the end of 2011. The evolution of Alstom’s business development plans for its chilled ammonia systems has been transparent from the start:

· A 5-MW (equivalent) pilot plant with EPRI and We Energies.

· A 5-MW demonstration plant for E.ON in Sweden.

· A 40-MW (equivalent) product validation facility for Statoil in Norway, profiled later.

· A 5-MW (equivalent) CO₂-capturing demo plant being built at E.ON’s Karlshamn Power Plant in southern Sweden  

2. Southern Company + MHI + EPRI

A public-private partnership that includes the DOE, Mitsubishi Heavy Industries (MHI), the Electric Power Research Institute (EPRI), and Southern Co., one of the largest electric utilities in the U.S. and generating 68% of their electricity from coal, is planning the largest start-to-end coal-fired demonstration of MHI’s amine solvent carbon capture technology at an existing Alabama coal-fired unit by 2011.

If the project comes to fruition, between 100,000 and 150,000 tons of CO₂ per year—the equivalent of emissions from 25 MW of the plant’s generating capacity—would be captured from Alabama Power’s Plant Barry near Mobile, Ala., Southern Co.
The CO₂ will be supplied to the Department of Energy’s (DOE) Southeast Regional Carbon Sequestration Partnership (SECARB), which will transport it by pipeline from the plant and store it in a deep geologic formation within the area of the Citronelle Oil Field, about 10 miles from the plant, operated by Denbury Resources. The Southern States Energy Board is leading the SECARB effort.

The CO₂ capture technology to be used in this project, called “KM-CDR,” was jointly developed by MHI and the Kansai Electric Power Co. It deploys an advanced amine-based solvent that reacts readily with CO₂ in flue gas before being separated and compressed so that it is ready for pipeline transport.

The MHI process reportedly offers improved performance and lower cost than other existing capture technologies. The process has been demonstrated at smaller scale at J-POWER’s coal-fired Matsushima Power Station in Nagasaki, Japan, and is currently being deployed commercially on natural gas–fired systems in Malaysia, Japan, India, and Abu Dhabi.

3. First Energy + Powerspan

FirstEnergy Corp commissioned a 1-MW slipstream pilot test at their R.E. Burger Plant in Shadyside, Ohio in December 2008 using ECO₂ technology from Powerspan. The pilot plant is designed to capture 20 tons per day of CO₂ at a 90% capture rate. The pilot system is expected to run through 2009.  

4. E.ON + Siemens

Global energy powerhouse Siemens is developing a post-combustion carbon capture partnership with Powerspan based on their ECO₂ technology.

Siemens is also developing their proprietary POSTCAP Technology, based on solvent amino acid salt formulations, that will be ready for a demonstration project in July 2010. The site is unspecified. Siemens is now starting up a small pilot plant at an E.ON coal plant in Germany testing this technology on a slip stream of only 150 Nm³/hr. Development plans call for the commissioning of a full scale CCS demo plant in 2013.

5. E.ON + MHI

Germany’s E.ON selected a CO₂-capture technology developed by Mitsubishi Heavy Industries (MHI) for its application to the UK government’s CCS demonstration competition. MHI and partner Foster Wheeler Energy will carry out the pre-front-end engineering design of a CO₂ capture plant planned for a 1,600-MW supercritical pressure coal-fired power station slated for E.ON UK’s Kingsnorth Power Station in Kent. E.ON plans to separate, recover, and compress the CO₂ from the coal-fired flue gas and to store it within a depleted gas reservoir in the southern North Sea in collaboration with Tullow Oil plc, a UK oil company.

E.ON subsidiary E.ON U.S. owns Louisville Gas & Electric and Kentucky Utilities Company.

6. Statoil + Alstom

Alstom has signed an EPC contract with Norwegian state-owned energy company StatoilHydro on behalf of the partners of the European CO₂ Technology Centre Mongstad (TCM) for a chilled ammonia (carbonate) CO₂ capture plant at TCM in Norway. The demonstration plant, due to begin operations in 2011, will be the first one of its kind using this technology to treat flue gas from a gas-fired power plant.

StatoilHydro is the operator of the project and has signed the EPC contract on behalf of the TCM’s three partners: Gassnova SF, StatoilHydro ASA, and A/S Norske Shell. Alstom’s chilled ammonia post-combustion technology is expected to capture CO₂ from the flue gases of a combined heat and power plant at Mongstad. It will also treat flue gases from a petroleum processing plant at the nearby Mongstad refinery, which has a CO₂ output equal to that of a coal-fired power plant. The test results will consequently be of relevance to both gas- and coal-fired power plants, according to Alstom.
The demonstration TCM facility at Mongstad is being designed to capture up to 100,000 metric tons of CO₂. Alstom’s chilled ammonia technology will have the capacity to capture 80,000 metric tons per year, the company said. The facility will test amine technology as well as carbonate technology.

7. Duke Energy + Unspecified

Duke Energy’s Cliffside coal-fired project was issued an air permit by the North Carolina Department of Environmental and Natural Resources Division for an 800 MW advanced clean-coal power plant, located about 50 miles west of Charlotte. Duke, also one of the largest utilities in the U.S., made headlines when it voluntarily requested higher emission air quality permit standards for the plant than legally required. The original cost of the project was estimated at $1.8 billion which included CCS of 1.8 million tons of CO₂ per year—about half of the total CO₂ production which qualifies the plant under ACES. Completion of the project is scheduled in the 2012 time frame. The carbon capture technology is unspecified although testing of a “chilled ammonia” process is ongoing, which most likely means Alstom will be the supplier. Fully carbon-neutral operations set for 2018.

8. Basin Electric Power Cooperative + PowerSpan

The U.S. Department of Agriculture announced earlier this month it would loan up to $300 million to Basin Electric Power Cooperative’s demonstration project to capture carbon dioxide at its Antelope Valley Station near Beulah, N.D.

The Antelope Valley Station is located adjacent to the Great Plains Synfuels Plant, the only commercial-scale coal gasification plant in the U.S. and what Basin Electric said is home to the largest carbon capture project in the world. More than three million tons of carbon dioxide are captured annually at this plant and piped to Canada for use in enhanced oil recovery.

Basin Electric anticipates that the demonstration project being developed at Antelope Valley would capture about a million tons of CO₂ per year from a portion of the plant’s exhaust stream and send it to oil fields along the pipeline being used by the Synfuels Plant. The carbon capture-portion of the project is estimated to cost about $350 million to $400 million. Along with the USDA’s loan, the consumer-owned regional cooperative on Jan. 15 applied for a $100 million loan under the U.S. Energy Department’s Clean Coal Power Initiative. Basin Electric also anticipates that it will be able to develop revenue from carbon dioxide sales for enhanced oil recovery.

Basin Electric is working with Powerspan Corp., a technology provider, to capture emissions of CO2 from a conventional coal-fired power plant. The technology is now being tested on a pilot basis, and based on results of those tests, would be expanded to a demonstration project at the Antelope Valley Station.

9. Vattenfall + Proprietary Technology

On September 9 last year, Sweden’s Vattenfall inaugurated the world’s first demonstration plant that connects CCS technology in a full-chain working system. The inauguration of the pilot plant at Schwarze Pumpe in Germany, which underwent 10 years of testing, was a milestone that marked its move from the laboratory to reality, Vattenfall said.

Vattenfall spent two and a half years and €70 million ($100.5 million) building the plant alongside the 1,600-MW coal-fired Schwarze Pumpe power plant in north Germany. The pilot plant, which will use oxyfuel technology to capture the CO₂, is expected to consume 12 MW of electricity and 30 MW equivalent of thermal power.

The demonstration will capture up to 100,000 tons of CO₂, compress it, and sequester it about 10,000 feet underground at a depleted gas field in Altmark, some 125 miles from the site. The initial pilot program will run for three years. Thereafter, Vattenfall plans to make the plant available for other tests and hopes it will be in operation for at least 10 years.

10. PGE Elektrownia Belchatow S.A. + Alstom

Alstom and Polish utility PGE Elektrownia Belchatow S.A. and Alstom are jointly developing and implementing a CCS plant at the 4,440-MW Belchatow power plant in Poland—Europe’s largest conventional power station. The plant supplies 20% of the Poland’s electricity needs.

In the first phase of the Polish project, Alstom will design and construct a pilot carbon capture plant at the existing Unit 12 of the coal-fired Belchatow power plant. The company expects the demonstration could capture approximately 100,000 tons per year of CO₂ using Alstom’s advanced amine technology. The pilot will be jointly operated by Alstom and Elektrownia Belchatow and is expected to be operational by mid-2011.

During the second phase, Alstom and PGE plan to build a larger CCS project to capture CO₂ produced by the new 858-MW, lignite-fired unit currently being built by Alstom for Elektrownia Be?chatów that will be in service by 2015.

Conclusion

So there you have it. I would welcome comments to this point identifying any other nuances of H.R. where we might “follow the money” to particular ‘winning’ technologies and companies.

“I expect all the bad consequences from the chambers of Commerce and manufacturers establishing in different parts of this country, which your Grace seems to foresee…. The regulations of Commerce are commonly dictated by those who are most interested to deceive and impose upon the Public.”

- Adam Smith, 1785 letter. In The Correspondence of Adam Smith. (1)

The American Clean Energy and Security Act of 2009 (H.R. 2454, aka Waxman–Markey) was narrowly adopted by the House of Representatives on June 26. As has become standard practice, few legislators were familiar with the final 1,428-page bill, given all the horse-trading hours before the final vote.

Waxman–Markey was a low point in the political process, but what made passage possible was worse: highly organized support from some quarters of the electric utility industry and a lack of protestation from much of the rest.

Some industry parties believe that their lobbyists successfully watered down an extremely disruptive legislative draft to the point that the final was merely distasteful. But compared to killing the bill, which could have been done had the industry been so minded, getting “a seat at the table” resulted in passage.

I remember when ”getting a seat” in legislative negotiations included infiltrating and defeating bad proposals. Today, it means ensuring your company gets a piece of the political pork. Such “rent-seeking” substitutes political capitalism for principled free-market capitalism and leaves virtually all of us poorer.

There are a variety of sections buried in the 1,428-page Waxman–Markey climate bill that clearly benefit a select few electric utilities. My post tomorrow will discuss which vendors and electric utilities are best positioned to greatly benefit by these legislative requirements should they become law.

The Winners (at our Expense)

A new study by the Energy Information Administration (EIA), Energy Market and Economic Impacts of H.R. 2454, reveals several very interesting, perhaps unintended, consequences that Waxman–Markey will have on the electric power industry. Requested by Chairman Henry A. Waxman of the Energy and Commerce Committee and Chairman Edward J. Markey of the Energy and Environment Subcommittee, the study integrated H.R. 2454’s provisions into their Reference Case 2030 of the National Energy Modeling System (NEMS) that was used to produce EIA’s Annual Energy Outlook 2009. (The year 2030 is the limit of NEMS analytic reach into the future.) Waxman–Markey extends out to the year 2050.

One of the key conclusions reached by EIA analysts was that the electricity sector of the economy will account for between 80% and 88% of the total energy-related CO₂ emissions reductions through 2030.

Section 782 (page 863) of H.R. 2454 allocates the power generation industry only 43.75% of the emission allowances for the years 2012–2013, decreasing to 35% by 2016, and 7% by 2029. In essence, the power industry carbon reduction potential is considered the “low hanging fruit” where further reductions, after perhaps 2020, come at a much greater price because carbon reductions must then be extracted from other segments of the economy that are more difficult to track and control. There are about 1,470 coal plants in the U.S., and their emissions and location are reasonably well defined.

Given the heavier burden the electric utility business will carry in carbon reductions (assuming approval of similar legislation by the Senate (highly uncertain at this juncture) in the early years, the industry silence can only be interpreted as acquiescence once important changes and modifications to the H.R. 2454 discussion draft were completed.

Seven Payouts

Will this EIA study force the electricity industry to sharpen their negotiating strategy if and when the Senate ever takes up H.R. 2454? Was there a quid pro quo with the electricity industry? Here’s my view of seven possible intended consequences of Waxman–Markey that may explain the silence from electricity industry executives.

1. H.R. 2454 adds industry entry barriers. Deregulation of the energy markets over the past decade has led to a thriving merchant power industry, most of which are gas-fired combined cycle plants. Every independent system operator in the U.S. relies heavily on merchant generators to meet their daily electricity demand forecasts. Many of these merchant plants are conventional coal-fired steam plants, and more are in the active development queue. The price of constructing that next-generation merchant plant just went up because the price of allowance must now be factored into the plant’s pro forma.

H.R. 2454 requires that major U.S. sources of emissions obtain an allowance for each ton of carbon or its equivalent emitted into the atmosphere. EPA estimates that in 2005 dollars, these allowances will cost $13 in 2015 and increase to $26–27 by 2030. These allowance price estimates are consistent with estimates by the Congressional Budget Office. According to CBO, allowance prices in 2005 dollars will be $16 in 2015 and increase to $36 by 2030. The EIA report also states the “the lower prices in the range [of the price of allowances] occur in cases where technological options such as CCS and adoption of new nuclear power plants can be deployed on a large scale before 2030 at relatively low costs.” Therefore I believe that that price point of these allowance are surely understated in the coming years under the H.R. 2454 legislation.

Given the EPA/CBO allowance price predictions, what would the allowances cost a newly conceived merchant plant under H.R. 2454? A 500 MW coal-fired plant releases on the order of 3.5 million tons of CO₂ into the atmosphere each year so the price of purchasing the necessary allowances in just a few years could easily add $75 million dollars to the plant’s price tag. Perhaps a lot more.

Here’s the rub. Existing electricity generators will receive allowances without cost under H.R. 2454, a company wishing to enter the electricity market space would have to purchase allowances on the open market in order to receive a permit to construct the plant. The only option would be to bare the costs of capturing and sequestrating some portion or all of the CO₂. In either case, the costs of entering the electricity market become exorbitant effectively putting a “closed for business” sign on the industry door. New independently-owned coal-fired plant will never compete with fully-amortized coal plants. An existing fleet of base-load plants, regardless of their age, is a valuable asset. With a full compliment of allowances, those assets become priceless.

 2. The distribution of allowances picks favorites. H.R. 2454 defines the allowance allocations across the economy as described above. Waxman–Markey also defines the distribution of allowances within the electricity industry as a 50-50 split based on historical emissions and retails sales of electricity. In 2008, nuclear power furnished 19.6% of the electricity used in the U.S. and therefore will lay claim to about 20% of the 50% or 10% of the allowances provided to the entire electricity industry industry. Allowances will be valuable if a utility needs to continue burning coal to make electricity in their regions. For utilities with a lot of nuclear generation, these allowances are a gift.

During a recent investor conference call, John Rowe, chairman and chief executive of Exelon, described his firm as:

“the best-positioned company in our industry to deal with a carbon-constrained world. Our carbon density, measured in tons of CO2 per megawatt hour, is the lowest of all the generating companies.”

Investment analysts at Bernstein Research project that Exelon’s stock price could reach $59 next year from its current price of about $45. That means that Exelon’s stock price could possibly increase over 30% should climate legislation become effective.

3. Hold onto your assets. Ever wonder why must utilities have avoided decommissioning aged and uneconomic coal-fired power plants? Going forward, the value of the allowances generated by closing the doors on plants built in the 1920s through the 1950s could be significant. Meanwhile, the challenge for utilities with these older plants is to justify their existence until carbon legislation becomes law. For some utilities, the value of the allowances and emissions offsets for future projects will exceed the value of the old plant. Don’t look for many older fossil-fueled power plants to retire any time soon.

4. Investment in the future. At the EPA and CBO projected allowance prices, the total annual value of the allowances created under the legislation ranges from roughly $70 to $80 billion in 2015 to $90 to $120 billion in 2030. Using allocations of those revenues as defined in the legislation, about $60 billion for carbon capture and storage (CCS) technologies will be made available through 2030. The investments in carbon capture and sequestration include $10 billion generated through a small “wires charge” on electricity generated through fossil fuels. Investments continue after 2025, with 5% of allowances being devoted to 5% to carbon capture and sequestration and 1.5% to research and development.

Given the fewer fossil-fueled plants that are likely to be built in the future under H.R. 2454, equipment vendors, utilities, consulting organizations, universities, and so on are realigning their organizations so as to be prepared to compete for the funds. Other than defense department programs, these programs would surely become the biggest and longest contracts in the U.S.

5. Early adopter bonus. H.R. 2454 provides monetary support to early adopters of CCS technologies. Power plants totaling up to 72 GW MW, with individual plants rated at least 200 MW, are eligible for allowance grants when retrofitting their plants with CCS systems that capture at least 50% of the CO₂.

That may sound like a lot of plants, but there is mroe than 336 GW of coal-fired plants in the U.S., 62 GW of petroleum-fired, 449 GW of natural gas-fired for a total of 847 GW, or right at 85% of the nation’s total installed power generation capacity that qualify.

I believe these early adopter bonuses will quickly be swept up by those utilities that that have a solid balance sheet and are now actively investing in the development of CCS technologies. To the strong will go the bonuses.

6. A new club in town. Section 114 of H.R. 2454 directs the forming of the Carbon Storage Research Corporation (CSRC) that would provide monetary support for the deployment of CCS projects. CSRC would issue grants and assistance to support the demonstration of five commercial-scale CCS projects and other pilot-scale projects otherwise not eligible for funding. CSRC is authorized to adjust an assessment on fossil fuel-based electricity so the corporation generates $1.0 to $1.1 billion annually. Initial assessment rates are ¢0.043/kWh for coal, ¢0.022/kWh for natural gas, and ¢0.032/kWh for oil.

CSRC would be organized as an affiliate of the Electric Power Research Institute (EPRI) and must consult with Edison Electric Institution, American Public Power Association, and National Rural Electric Cooperative Association to appoint board members. Under the rules specified by H.R. 2454, the CSRC leadership must be elected by these groups including a group of owners/operators of fossil fuel-based power plants that collectively represent at least 20% of the electricity generation in the U.S. These organizations are expected to conduct a referendum among themselves with voting rights proportional to the amount of electricity generated. I think it’s reasonable to expect that many of the larger utilities in the U.S., especially those early adopters, will be well represented on this board.

7.  Midwest ratepayers hit hard.  The Midwest Climate Coalition–made up of 15 Midwest utilities, including Wisconsin Energy Corp. of Milwaukee and Alliant Energy Corp. of Madison–are lobbying hard to correct the penalties that HR 2454 applies to states that rely of low-cost coal-fired generation and the credits that will flow to utilities that rely on nuclear and other less carbon intensive generation. “We’re concerned that, under the current formula, Midwestern states would be subsidizing the customers of other utilities in some Western and Eastern states,” said Brian Manthey, spokesman for Wisconsin Energy (Milwaukee Journal Sentinel, August 22).

Alliant Energy Corp Chairman Bill Harvey was quoted in that same article:

“Utilities that are smaller and rely more heavily on fossil fuels would face a severe shortfall the first year of the program, and the shortfalls would only get worse with every following year. That is simply unfair and is bad public policy.”

 Harvey went on to say that CCS projects will add hundreds of millions of dollars to the cost of generation electricity beginning in 2012. Harvey is one of just a hand-full of industry executives that have been vocal about the real cost of Waxman–Markey to ratepayers, both in the real cost of electricity to ratepayers but the flow of cash from coal-fired utilities to those that rely of nuclear power.

Dan Reidinger, a spokesman for the Edison Electric Institute, said H.R. 2454 was “designed to be fair, recognizing the facts that costs for all customers will go up under a climate policy.” Reidinger also noted that the formula has considerable support, despite concerns raised by some companies, because it give credit to companies that have already moved to invest in cleaner sources of energy production.

EEI speaks for its public utility members, not for merchant power producers. Wind generation in the U.S. was just 1.2% of total generation in 2008, with only a fraction of those plants owned by utilities. Nuclear generation was 19.6% last year with almost all of the 104 nuclear plants owned or controlled by utilities. You make the call.

Naming Names–Tomorrow

My next post will review the status of interesting CCS projects and review which companies, utilities, and vendors that are expected to benefit most from the H.R. 2454. None of this is very pretty, but perhaps an open discussion of what happened behind closed doors well past the average American’s bedtime will better inform a debate that is about to see the white light of day.

——————————

(1) Adam Smith, 1785 letter. In The Correspondence of Adam Smith. 1974. 2nd ed., 1985. Edited by E. C. Mossner and I. S. Ross. Indianapolis: LibertyPress, 1987, p. 286.

“We can push solar, and that’s great. But somebody’s got to pay for it. You can’t have those who can barely afford their energy bills subsidizing it.”

- Texas Rep. Sylvester Turner, quoted in the Houston Chronicle

The Houston Democrat made a national statement, not just statewide one, in reference to proposed legislation to surcharge ratepayers to subsidize solar roofs. Such sentiment beat back a well-funded effort by national environmental pressure groups and the solar industry. Has the decade-old Enron-launched artificial stimulus to uneconomic, unreliable renewables reached its apogee? Might existing and planned renewable programs enacted at the expense of ratepayers and taxpayers be reconsidered by the Public Utility Commission of Texas and the 82nd Texas Legislature in 2011?

Background

The Texas Legislature, which meets every two years, fell to Enron and environmental lobbyists back in 1999 when the nation’s strictest renewable energy mandate was passed and signed into law by then Gov. George W. Bush. In 2005, the renewable quota was increased again, making Texas the national leader in industrial wind parks–and energy liabilities parading as assets (see here).

So not surprisingly, the national environmental movement and the national renewable business lobby targeted the 81st Legislative Session for major new mandates at the expense of the relatively unorganized consumers and taxpayers. The  opportunity was to increase the renewable mandate a third time–but require non-wind renewables to make Texas the solar capital of the nation (as wind). There were so many solar lobbyists  that the 81st was nicknamed the “solar session.”

Some 69 solar and other renewable-energy bills were teed up by the special interests, and virtually all failed. “This has been a disappointing session,” admitted Luke Metzger, director of Environment Texas. The rejected bills would have: 

• Increased the renewable quota by 1,500 MW, with solar (rather than wind) targeted for a “Emerging Technology Renewable Standard”;
• Created a $500 million solar incentive program; and
• Forced utilities and retail electric providers to pay consumers “fair buyback rates” for excess electricity generation from renewable energy.

Cost-inflating energy-efficiency mandates were defeated as well that would have:

• Raised the state’s minimum residential and commercial building codes from 2001 to 2009 standards;
• Increased utility efficiency goals;
• Adopted appliance efficiency standards for a variety of products, including pool pumps;
• Required performance energy efficiency building standards for state buildings, including universities and public schools.

To be clear, to the extent that consumers wish to voluntarily invest in energy efficiency, they can do so. To the extent that consumers wish to erect solar panels, they can–unless prohibited by their homeowner associations.  Mandates or ratepayer cross-subsidies–where some involuntarily pay for the actions of others–is wholly another issue.

A Failed Effort by “Bootleggers and Baptists”

The Sierra Club, Environmental Defense Fund, and  Public Citizen, among other state and national groups, were camped in Austin. The solar industry was out in force, led by Enron-ex John Berger, CEO of Standard Renewable Energy. (Berger is also involved in Repower Texas, the Al Gore project that kicked off here in Houston last week.)

The solar lobby threw everything they had into the effort, including a television advertising campaign described in this press release by Environmental Texas:

TV Ad Campaign to Build Support for Solar Power in Texas State Legislature

Three leading Texas environmental organizations announced a new television advertising campaign today aimed at getting the Texas Legislature to support measures to make Texas a world solar leader. The commercials will run for a week in the Abilene, Dallas/Fort Worth, Tyler/Longview, and Wichita Falls viewing areas and call on the Legislature to support incentives to install solar panels on the equivalent of a half-million Texas rooftops by 2020. The ad can be viewed here.

“Texas has the right stuff to be a world leader in solar power, producing clean energy that will create tens of thousands of jobs and reduce pollution” said Environment Texas Director Luke Metzger. “But with other states moving aggressively to court the solar industry, we have a narrow window of opportunity to act. The Legislature should invest in making Texas the Silicon Valley of solar energy.”

Environmental Defense Fund Regional Director Jim Marston added, “To ensure that Texas gets the green collar jobs we deserve from solar power, we need to show national leadership. We did that with our original wind renewable portfolio standard, saving Texans money along the way, and we can do the same if we have a renewable portfolio standard for solar power now.”

“Texas needs a statewide rebate program to make it easier for homeowners and businesses to go solar,” said Tom “Smitty” Smith, Director of Public Citizen’s Texas office. “This will kick start a solar industry in Texas that will be a major economic driver for the next century and beyond.”

But, as Greenwire (June 1) reported:

Efforts in Texas to create incentives for solar power production died in the Legislature this weekend, dashing industry hopes that the huge, sunny state would see a surge in demand for panels.

Texas legislators could not agree on solar incentives, with last-minute maneuvering this weekend preventing the passage of $500 million in solar rebates. Measures that would have changed the state’s renewable portfolio standard to create extra requirements for solar, biomass and geothermal power had failed earlier.

Solar appeared to be on such a roll that the flood of bills in the Legislature led some to dub it the “solar session.” But the cost of the proposed rebates — although just 20 cents per month on homeowners’ bills — had worried some lawmakers. A separate measure that would have made it harder for homeowners associations to ban solar panels also failed.

The only solar legislation that passed was a measure to let homeowners finance their solar installations with help from the local government, and pay back the cost via extra property taxes over 20 years….

Reported Kate Galbraith in a blog for the New York Times:

Texas’s efforts to create incentives for solar power production are dead, dashing the industry’s hopes that the huge, sunny state would see a surge in demand for panels.

Legislators in Texas could not agree on solar incentives that were expected to spur the industry.

Last-minute maneuvering this weekend at the end of the state legislative session prevented the appropriation of $500 million for solar rebates. Efforts to change Texas’s renewable portfolio standard to create extra requirements for solar, biomass and geothermal power had failed earlier.

Solar had previously appeared to be on a roll, and so many bills flooded the state legislature this session that it was sometimes called the “solar session.”

“Is that how hope dies? With a whimper and a bang of a gavel?” wrote one disappointed environmentalist on Twitter.

Texas leads the nation in producing wind power but it is not even in the top ten for producing electricity from the sun, despite being the second-most populous state. (California, with the largest population, is the solar leader.) …

John Berger, the chief executive of Standard Renewable Energy, a Houston-based solar installer, said in an e-mail message that the failure of the solar legislation would have a “bad impact” on the state. He had previously told Green Inc. that the rebates could provide a major boost for business, as had another Texas installer, Meridian Solar.

A number of manufacturers, including Suntech Power and SunPower, have been watching Texas’s solar moves and evaluating the state as a possible site of manufacturing plants. Whether the legislative failure would affect their decisions was unclear, but Mr. Metzger was pessimistic.

“Texas will lose out on major opportunities for solar manufacturing,” he predicted.

Already this spring, a Texas solar start-up announced plans to move its headquarters to New Mexico and also open a manufacturing plant near Albuquerque, citing better incentives there.

The legislature in Texas, like a handful of other states, meets only every two years. So unless the governor calls a special session, solar incentives will not be considered again until 2011.

In  a previous MasterResource post, “A Texas-Sized Energy Problem: Republicans, Democrats, and ‘Baptists & Bootleggers’ Running Wild in the Lone Star State (Obama sends his thanks),” I speculated:

As reported by Russell Gold in yesterday’s Wall Street Journal, Texas, which has the strictest renewable energy mandate in the country, is about to increase its quota for the third time. Now the wind capital of the U.S., Texas’s new law would make the state the leader in solar power as well. Expensive and intermittent, wind- and solar-forcing will work only to increase electricity rates for captive consumers and reduce reliability on the grid. Taxpayers are on the hook as well.

After all, the whole solar industry was putting everything they had into it, as were environmentalists such as Ken Kramer (director of the Lone Star Chapter of the Sierra Club); Jim Marston (director of the Texas regional offices of Environmental Defense Fund); and Tom “Smitty” Smith (director of the Texas office of Public Citizen). Their Earth Day opinion-page editorial in the Houston Chronicle boldly opined:

Texas citizens get it…. State legislators can get it too. This session, they have an opportunity and responsibility to save us even more money on our electricity bills, create thousands of green jobs and reduce pollution across the state. Our representatives now have less than six weeks to pass the best of nearly 100 bills that have been introduced on clean power and green jobs. These energy efficiency and renewable energy bills set the stage for rebuilding, repowering and renewing our state’s economy during tough times. They will build a sustainable future for Texas.

Well no, the Texas legislature didn’t “get it” (a Jeff Skilling term from the Enron era), and Texas citizens are just fine without higher bills.

 The Good Guys

Two pro-freedom groups, the Texas Public Policy Foundation and the Texas chapter for Americans for Prosperity, were carrying the flag for consumers on a variety of issues, only one being energy. They were spread thin and were no match for the environmental lobby and the 500+ member Texas Renewable Energy Industries Association. The Texas Association of Manufacturers, however, while conflicted by the “green jobs” argument for subsidized solar, acted in the end as a consumer and for consumers.

The energy interventionist coalition is looking ahead to the 82nd session in 2011. But so are pro-consumer, pro-taxpayer, pro-free market groups who realized that they dodged a bullet this year. The battle is finally joined.

Appendix: Summary from Environment Texas

“Texas Legislature Advances Clean Power and Green Jobs, but Loses Steam in Political Wranglings”

(Austin)  Senate and House members from both political parties showed unprecedented support for developing more renewable energy and energy efficiency in Texas by filing a large number of clean power, green jobs bills in the 81st Texas State Legislature. A number of major bills passed either the House or the Senate. Ultimately, political disagreements over other issues and over the size and extent of the programs delayed and killed most of these excellent legislative initiatives. 

Environmental groups Sierra Club, SEED, Public Citizen, Environmental Defense Fund, and Environment Texas applaud the passage of some clean energy, green jobs legislation and view the Legislature as having laid ample groundwork for the future.

“The fact that both the House and the Senate passed major legislation on energy efficiency and renewable power with bipartisan agreement shows that Texas leaders are willing and able to develop clean power and green jobs for our state,” noted Cyrus Reed, Conservation Director of the Lone Star Chapter of the Sierra Club. “Nevertheless, leaders were distracted by undue influence from industry interests and by the Voter ID debate which hampered passage of clean energy bills and other more vital areas of legislation.”

“Texas is moving more slowly than a melting glacier toward developing global warming policy.  Rather than implementing already available energy efficiency and distributed energy solutions, Texas’ response to global warming is to develop futuristic industrial-sized solutions. As a result the state has legislation pending that may develop standards for large scale carbon sequestration projects and provide incentives to get companies to develop the technologies,” said Tom “Smitty” Smith, Director of Public Citizen’s Texas office. “On the positive side, the state has passed a study to develop a series of ‘no regrets’ solutions to global warming that the State can achieve at no cost.  Also, the Texas House, especially the House Committee on Environmental Regulation, should be applauded for their more open leadership style this session which lead to far more reasoned and less ideological bills being developed in the committee.”

Clean Power, Green Energy Bills that passed both bodies and will go to the Governor (as this release goes to press):

• Green fleets legislation to promote low emissions and plug-in hybrid vehicles for fleets of major State Agencies (HB 432);

• Legislation allowing cities to create financial districts to loan money for renewable power and energy efficiency (HB 1937).

• Legislation setting a ‘no regrets’ strategy for greenhouse gas reduction in the State;  a study of the state’s energy use to find ways to reduce our emissions and save money at the same time (SB 184)

• A coordinated green jobs strategy including funds allocated for child care programs, vocational training initiatives, energy efficiency measures, the Weatherization Assistance Program (WAP), and/or any other recovery funds (passed as a Rider to Article 12).

• Green fee bill passed allowing governing board of public colleges and universities to institute an environmental service fee once approved by student body election.

“This has been a disappointing session,” said Luke Metzger, Director of Environment Texas. “However, with the passage of HB 1937, we can start the ball rolling on developing Texas’ solar future, working with local communities one at a time to start financing solar and energy efficiency projects.”

Factors which prevented bills with bipartisan support from making it across the finish line:

• The issue of Voter ID, which put many major efficiency and renewable bills too far down the calendar for consideration in the House;

• A disagreement over the germaneness and concern over the possible costs to low-income residents of adding the solar incentive bill (SB 545) to the surplus electricity bill (HB 1234), which led Representative Turner to ultimately kill consideration of the bill on the House floor;

• The election of a new Speaker and the naming of new Committee Chairman understandable led to some delays in getting the committees up and running to begin to consider bills;

• Disagreement between House and Senate on size and scope of goals set by solar and energy efficiency bills (SB 545 & 546);

• Disagreement over the potential costs and benefits of the Renewable Portfolio Standard (SB 541);

• Opposition from the Texas Manufacturers Association, the Governor and many utilities against the Renewable Portfolio Standard.

“We were happy to find some new allies this session including certain members of the legislature and some electric utilities that said they supported renewable energy and energy efficiency legislation,” said Jim Marston, Director of Texas Regional Office of Environmental Defense Fund.  “Sadly, some of the electric companies talked a good game, but their support evaporated when opposed by their affiliated retail electric providers or others in the industry. In the end, the Association of Electric Companies of Texas reverted to representing the interests of the regressive elements of their membership harming the ability of Texas to participate successfully in the new energy economy.

“Moreover, the Texas Association of Manufacturers (TAM) while acknowledging that an expanded renewable portfolio standard was the way to bring clean technology jobs to Texas, distributed false cost information about solar legislation that was repudiated by the PUC and others.  The bottom line, TAM fought legislation that would have brought new manufacturing jobs to Texas,” said Marston.

Nuclear Bills Blocked

Environmental groups blocked bad bills that would have removed citizen rights to contest permits and would have promoted nuclear power in the State which many view as a financial drain from investment in truly clean energy.  

“Nuclear power is expensive, consumes vast quantities of water, comes with serious security and health risks and creates radioactive waste, for which there is no good storage solution. We were happy to block two bad bills this session that were designed to benefit proposed nuclear reactors in Texas” said Karen Hadden, Director of the Sustainable Energy and Economic Development Coalition.

The nuclear bills that were blocked:

• Fast tracked water permits for nuclear power plants and cut out contested case hearings (HB 2721 was left pending in House Environmental Regulation Committee)

• Subsidies for proposed nuclear power plants in the form of tax rebates (HB 4525 passed the House and was blocked in the Senate.)

“Representative Flynn’s bill would have fast-tracked water permits for nuclear plants, an outrageous attempt in a time of statewide drought,” said Hadden. “It would also have denied citizens an opportunity to contest issuance of the permits through hearings, an assault on democratic process. The other bad bill that we defeated would have given massive subsidies to nuclear power in the form of tax rebates.”

Miscellany

• A good bill to address the Compact Loophole for the Andrews County Low-Level Radioactive Waste Dump bill, HB 3423 Lon Burnam did not get out of Committee.

• Environmental groups *blocked a bad provision that would have fast tracked water permits for “clean coal” plants in the final version of HB 469 and added cleaner emissions standards for those plants.

• HB 821 passed, requiring television manufacturers that sell televisions in Texas to make free and convenient recycling available.  Texas Campaign for the Environment successfully advocated for this bill.

· Sen. Ellis used a threatened filibuster last night to kill HB 3827 which would have allowed oil companies to evade liability for MTBE water contamination;

· SB 2169 Sets up an interagency working group, co-chaired by the Texas Commission on Environmental Quality, the Texas Department of State Health Services, the Texas Department of Transportation with other agencies to discuss smart growth and make recommendations for developing the state in a sustainable way.

· An amendment to HB 300 creates a certification program for environmental coordinators in Texas Department of Transportation district offices.  This bill is still in conference committee as this release goes to press.

“As it concludes, environmentalists can view this legislative session with some hopefulness – the Legislature is definitely involved and interested in clean energy and green jobs and did move these issues forward.  But there is also some sadness – an opportunity to move significantly forward on clean energy was lost,” Cyrus Reed added. “Jobs that could have been created, and new sources of clean energy that could have been advanced in Texas were delayed this Session.”

“Texas is the nation’s leader in wind energy thanks to our long-term commitment to bolstering renewable energy sources and diversifying the state’s energy portfolio.”

- Rick Perry, Texas Governor

“Our representatives [in the Texas Legislature] now have less than six weeks to pass the best of nearly 100 bills that have been introduced on clean power and green jobs. These energy efficiency and renewable energy bills set the stage for rebuilding, repowering and renewing our state’s economy during tough times. They will build a sustainable future for Texas.”

- Sierra Club, Environmental Defense Fund, Public Citizen

As reported by Russell Gold in yesterday’s Wall Street Journal, Texas, which has the strictest renewable energy mandate in the country, is about to increase its quota for the third time. Now the wind capital of the U.S., Texas’s new law would make the state the leader in solar power as well. Expensive and intermittent, wind- and solar-forcing will work only to increase electricity rates for captive consumers and reduce reliability on the grid. Taxpayers are on the hook as well.

In a 2008 study for the Texas Public Policy Foundation, “Texas Wind Energy: Past, Present, Future,” Drew Thornley concluded:

The distinction between wind and wind energy is critical. The wind itself is free, but wind energy is anything but. Cost estimates for wind-energy generation typically include only turbine construction and maintenance. Left out are many of wind energy’s costs—transmission, grid connection and management, and backup generation—that ultimately will be borne by Texas’ electric ratepayers. Direct subsidies, tax breaks, and increased production and ancillary costs associated with wind energy could cost Texas more than $4 billion per year and at least $60 billion through 2025.

How Did the Perverse Happen?

Government goes to those who show up. With utilities financially protected and not wanting to be labeled as anti-”green,” and principled taxpayer, consumer, and free-market groups virtually absent, the interventionists have taken over. Full-time environmental activists and lobbyists for rent-seeking private companies have virtually no opposition–a “Baptists and Bootleggers” scenario in the parlance of political economy.

How has Texas, which consumer choice made the leading oil and gas state, become the second most politicized energy state in the nation (after California)?

The regulatory spiral can be traced back  to Enron, which in 1999 spearheaded a provision in the state electricity restructuring law (Senate Bill 7, signed by governor George W. Bush) establishing a statewide renewable-energy mandate. Enron’s lobbyists had the special interest of Enron Wind Company, which is now part of General Electric, in mind.

It was a double win for the politically connected company. First, as the leading power marketer, and with its eyes on becoming the leading electriicty retailer as well, Enron coveted mandatory open-access of electricity in the state. Secondly, it needed a big market for its money-losing Enron Wind. Cloaking both corporate-welfare goals in the guise of a renewable mandate got media-worshipped environmental groups on board to help push SB 7 across the finish line.

The 1999/2005 Texas Mandates

The Texas Renewable Portfolio Standard was originally (SB7) for  2,000 megawatts of new qualifying capacity, but the 2005 Texas Legislature (SB 20 ) increased the mandate to 5,880 MW by 2015 and a target of 10,000 MW in 2025. Virtually all of this capacity has been wind power; the prospective (third) mandate would tack-on 3,000 of non-wind (read solar) renewable capacity.

The mechanics of the mandate are interesting. All electricity providers in the state–whether competitive retailers, municipal electric utilities, or electric cooperatives–must buy renewables based on the their market share of energy sales or utilize a Renewable Energy Credit trading program managed by the Electric Reliability Council of Texas (ERCOT). Thus, a utility in windy West Texas sells credits to those without access, such as a utility in wind-still South Texas.

SB7, by the way, also mandated that at least 10% of an investor-owned utility’s annual growth in electricity demand be met through energy efficiency programs each year–politicization on the demand side. Expect more increases as well given the current politicized setup.

The Problem in Miniature: Lobbyist Spiel

Three environmental lobbyists working the Texas Legislature penned an Earth Day editorial in the Houston Chronicle, “Enact Energy Laws to Clear Air, Create Jobs. They are:

• KEN KRAMER: director of the Lone Star Chapter of the Sierra Club
• JIM MARSTON: director of the Texas regional offices of Environmental Defense Fund
• TOM “SMITTY” SMITH: director of the Texas office of Public Citizen

Here is their something-for-nothing, everybody-wins, get-on-the-bandwagon editorial:

Texas citizens get it.

More of us than ever are mindful of switching off lights, weatherizing our homes and doing all that we can to save energy. State legislators can get it too. This session, they have an opportunity and responsibility to save us even more money on our electricity bills, create thousands of green jobs and reduce pollution across the state. Our representatives now have less than six weeks to pass the best of nearly 100 bills that have been introduced on clean power and green jobs. These energy efficiency and renewable energy bills set the stage for rebuilding, repowering and renewing our state’s economy during tough times. They will build a sustainable future for Texas.

The energy efficiency bills contain plans for helping Texas families by creating jobs while reducing consumption of electricity in our homes and buildings. When our homes and buildings are well-insulated and our appliances more efficient, we don’t need to burn wasteful and damaging amounts of dirty fossil fuels for electricity.

An additional benefit to creating Texas’ new clean energy economy is that we can clean up our air and address climate change at the same time. As we provide new jobs installing clean energy technologies, we can decrease the public health risks and costs associated with the impacts of burning coal.

Texas citizens began rising to the call for statewide energy efficiency when we voted with our consciences and our pocketbooks, replacing millions of our hot-burning, incandescent light bulbs with more efficient compact fluorescent light bulbs. Clearly, we were up to the challenge then and believe now that all of us can do more to help the Lone Star State.

For example, utilities can set more aggressive energy efficiency goals and put programs into place that will reduce the need to use so much electricity. The bills currently being considered in the Legislature require utilities to expand energy efficiency programs to meet 1 percent of peak electricity demand by the end of 2015 and 2 percent of peak electricity demand by 2020. While these goals may seem modest, meeting them would mean saving 1,176 megawatts of electricity — as much power as could be generated from two coal-fired power plants.

Utilities can also provide home energy audits that tell us how to increase our efficiency. Based on those audits, we can caulk or replace leaky windows, insulate our attics, repair our duct work, and install programmable thermostats, which allow us to preselect when we use our air conditioners, heaters and water heaters.

Cities can also help the energy efficiency cause by providing some up-front financing for energy-saving improvements. In addition, Texas will soon receive $327 million of federal stimulus funds for weatherization through the Texas Department of Housing & Community Affairs with reporting requirements on green job creation, energy savings and pollution reduction through the use of these funds.

These programs are good for Texas families. They’re good for the environment and they’re good for the economy. Study after study — including a report completed in December 2008 by the Public Utility Commission of Texas — shows that Texas can reduce its peak electricity demand and growth in electricity by 23 percent by implementing a variety of energy efficiency measures. The PUC study also found that every dollar spent by Texas on energy efficiency has a three-to-one payback.

But we need action now by Texas legislators to achieve energy efficiency’s full potential to meet our state’s energy challenges. This Legislature can and should continue the important work begun last session, when now-Speaker of the House Joe Straus led energy efficiency legislation.

Energy efficiency is the cheapest, quickest and cleanest way for Texas to meet its power needs. The Texas legislators who are championing these bills this session should be thanked for paving the way for a cleaner, sustainable future. We now call on all of our state legislators to swiftly move these bills out of committees and through floor debates to begin our sustainable future.

What about the costs of government energy-forcing? Instead of enlarging quota requirements, should Texas repeal mandates (these are not infant industries but mature ones that have promised viability for decades)? Blatantly anti-ratepayer, pro-corporate-welfare energy intervention in the post-Enron era deserves a reconsideration. As one study recently opined:

Over the past 10 years, Texas has become a leader in encouraging the development of renewable power. However, the aggressive build-out of wind power in West Texas is projected to
drive up transmission costs [$4.9 billion for starters] for all Texans and create new reliability challenges.

Governor Rick Perry, do you really want Texas to be an Obama energy state? Just because George W. Bush started the mess does not mean you have to complete it.

Where will this case study of political capitalism end?

Is it past time for free-market, consumerist, taxpayer-friendly parties to show up to the “green energy” orgy. Texas lawmakers need counter-education and pressure against the likes of Ken Kramer, Jim Marston, and Smitty Smith.