Category — Energy Policy

“[D]emagogues and bad economists are presenting half-truths. They are speaking only of the immediate effect of a proposed policy or its effect upon a single group…. [The correction is] showing that the proposed policy would also have longer and less desirable effects, or that it could benefit one group only at the expense of all other groups.”

- Henry Hazlitt, Economics in One Lesson, p. 6.

There are many analyses of the President’s address to the nation last night. As last year, Obama has opened himself up to ridicule and parody (see what MasterResource did).

For this year, in what could well be his last such speech, MasterResource presents timeless logic to unmask the fallacies spewed by our quick-fix, anti-market commander-in-chief.

“Green jobs’? The government-created ones for industrial windpower and for on-grid solar power?

Enter Henry Hazlitt, whose Economics in One Lesson, first published in 1946 and last revised in 1988 (Hazlitt died in 1993), exposes the fallacy of government-as-jobs-creator.

This excerpt is from chapter 1, “The Lesson,” of Hazlitt’s classic of 2oth century economic literature.

———————————————-

Economics is haunted by more fallacies than any other study known to man. This is no accident. The inherent difficulties of the subject would be great enough in any case, but they are multiplied a thousandfold by a factor that is insignificant in, say, physics, mathematics, or medicine — the special pleading of selfish interests. [Read more →]

Editor note: This three-part series began with A Free Market Energy Vision (Part I: Worldview) and continued with Energy for a Free Society: The ‘American Energy Act’ (Part II: Real World Reform).

In their essay on energy policy for the 111th Congress, Jerry Taylor and Peter Van Doren of the libertarian Cato Institute offered nine priorities to move the United States from energy statism to free energy markets.

But there are more areas of pro-private pro-market exchange reform on the federal level. I offer four–perhaps readers can add more in comments.

Nine Policy Recommendations (Cato)

Congress should:

• Open up public lands currently off limits to the oil and gas industry in the outer continental shelf and the Arctic National Wildlife Refuge (ANWR) for exploration and drilling,
• Repeal Corporate Average Fuel Efficiency (CAFE) standards along with all other energy conservation mandates,
• Repeal subsidies for all energy industries including oil, gas, coal, nuclear, and renewable energies of all kinds,
• Repeal fuel consumption mandates for ethanol and resist prospective consumption mandates for other renewable energies,
• Eliminate all targeted public energy research and development programs and replace them with a generalized tax credit for private research and development undertakings,
• Transfer the maintenance of the nuclear weapons stockpile from the Department of Energy to the Department of Defense and privatize the national laboratories,
• Sell the oil from the Strategic Petroleum Reserve and shut the program down,
• Eliminate the Department of Energy and all its programs, and
• Refuse appeals to impose new taxes and/or regulations on energy producers and manufacturers.

More Recommendations

I would add these priorities: [Read more →]

House Energy and Commerce Committee members Henry Waxman (D-Calif.) and Bobby Rush (D-Ill.) have requested a climate-science hearing in light of a just-released report from the National Academy of Sciences (NAS). This report, “America’s Climate Choices,” however, presents no new science.

Instead, as climate scientist Chip Knappenberger explains below, the NAS document lays out a strategy for manufacturing a crisis by exaggerating the climate threat and artificially raising fossil-fuel prices in an effort to compel American’s to emit less greenhouse gases.

Congress has heard all of this before and has been unmoved to pass legislation which will raise the price of living and doing business in America by taxing our primary energies–Editor.

Plentiful and inexpensive fossil fuels are the preferred energy source, whether it be to run your car, heat your home, or generate electricity. Oil, gas, and coal are relatively safe, readily portable, fairly efficient, and relatively energy dense. While fossil fuels perhaps are not the perfect energy source, they do go a long way towards meeting our current needs, and the infrastructure (and know how) is in place to allow for rapid expansion into the future. So, all in all, fossil fuels are pretty darn good now–and as far as the eye can see.

Hydrocarbon supplies are not depleting–just the opposite. New technologies (such as those used for hydraulic fracturing, tar sands, and deepwater drilling) are expanding our ability to retrieve fossil fuels from the earth, As a consequence, the supply is keeping up with the growing demand and more—a demand driven not only a growing population of humans, but a growing number of existing humans who are wanting more energy to improve their standard of living. Julian Simon lives!

But the final report from a just-completed investigative effort from the National Academy of Sciences (NAS) seeks to interrupt and reverse the natural improvement of human ingenuity applied to the master resource. Theirs is a manufactured crisis—and one that elevates concerns over climate change above energy reality and concern over the energy-dependent economy.

There are other forms of crisis however, such as that posed by an existing (or perceived) threat. From such crises, new technologies can emerge faster than they would have otherwise. Take the atomic bomb or the space race as an example.

For fossil fuels, the potential for a threat-based crisis arises from their role in climate change and the possible risks to our health and welfare there from. Alas (for some anyway), climate change does not carry the same sense of threat as, say that of a foreign enemy with its sights set on U.S. soil. So the notion of a climate crisis, either now or in the near future, has been slow to (widely) catch on.

The NAS Strategy

A committee assembled by the National Academy of Sciences (NAS), seeks to remedy that situation. [Read more →]

Bridging the gap between the insightful analyses at MasterResource and what emanates from the halls of government remains a challenge. No matter how clear the issue might be to those who follow this and similar logic-based web sites, the formulation of public policy seems to rely on overt political calculation and tailored science in the service of a political objective.

Free market logic needs to reach beyond our own “choir of believers.” And this means improving our penetration with the general media, a challenge indeed.

In Hoodwinking the Nation, Julian Simon noted that even after he had so convincingly debunked the “vanishing farm land” scam, and the U.S. Department of Agriculture reversed its original position, the press largely ignored the correction. Simon ruefully noted “false bad news” sells.

In the case of the official position of Virginia, as documented in the 2010 Virginia Energy Plan, one sees the 2007 plan scripted under a Democratic Governor carried forward under a proclaimed conservative Republican governorship. The tax carve outs for renewable energy interests continue under the guise of the “all of the above” energy sourcing mantra of Governor McDonnell.

Special interests find favor no matter the administration. The 2007 “Virginia Re-regulation” of utilities legislation illustrates the success of the regulated to shape legislation on their terms. Now the same core of Virginia utility producers have been given “enhanced rates of return” in the renewables market, and other taxpayer funded incentives. Wind farms are promoted as job building enterprises.

The VA Scientists and Engineers for Energy and Environment (VA-SEEE) has sought to have the Commonwealth identify the source of their science data, if any, used to formulate public policy. The vast majority of ranking state officials are lawyers by training.

My letter published in the Richmond Times Dispatch, on Christmas Day, is an attempt to educate the public, and call the Commonwealth to task on the use ( or misuse) of taxpayer funds to the benefit of corporate interests. It is perhaps a quixotic effort confined to the publication limit of 350 words or so. However, as the Tea Party movement has demonstrated, it is only by direct public involvement and engagement that the political class will take notice, no matter what the topic, be it energy, climate, or health care. [Read more →]

Yesterday’s election clearly demonstrates that the American people reject President Obama’s handling of the economy.  Just as the 2008 elections were interpreted as a repudiation of President Bush’s agenda (particularly with respect to foreign policy), the 2010 mid-term election shows that America does not support President Obama’s domestic priorities.

Specific to energy and the environment, one clear message from the election is that cap-and-trade, top-down, command-and-control regulations are a losing argument with the voters.  Candidates who voted for cap-and-trade, with few exceptions, ran away from that vote.  Voters understand that cap-and-trade is a national energy tax.

With respect to energy policy, the election results will likely yield a modest and marginal improvement.  While it will certainly not be the “environmental doomsday” that the national environmental lobby claims, unless the Republicans have truly changed their stripes, it will also not be the dramatic improvement that some predict or hope.

The Good
With the Republicans in charge of the House and a narrowly-controlled Democratic Senate, massive new federal programs like cap-and-trade appear to be off the table for now.   The biggest improvement we can expect is that the new Republican leadership in the House will carry out the necessary job of conducting oversight hearings and trying to rein in an out-of-control Obama Administration, whose goal from day one has been to fundamentally transform America.

Hopefully, the new Republican majority in the House will provide a counterweight to the Obama administration’s goal of making coal, oil, and natural gas more expensive and more difficult to produce domestically.  In the past, Republicans have not exactly been paragons of the free-market, so it is as important as ever to continue to hold Congress and the administration accountable whenever they move towards government intervention in energy markets.

The Not-So-Good
One doesn’t have to think back long to remember what previous Republican majorities have delivered—policies such as the ethanol mandate, subsidies for inefficient and unreliable energy sources, and moratoria on oil and gas exploration and development, just to name a few. 

In recent weeks, leading Republicans have already pushed for a federal renewable electricity mandate, a carbon tax, utility price caps, a tax on oil imports, and a newer, larger ethanol mandate.  Unfortunately, many Republicans, it seems, are willing to compromise free market principles for the sake of political expediency. [Read more →]

My post last week evaluated the claim that wind generation can save money for power pool customers.  It was found that the supposed savings could be realized only if the elephant in the room – the above-market feed-in tariff – was ignored.  In other words, consumer payments for electricity from a power pool was half of the story; the real price had to include the consumer-qua-taxpayer funding of the feed-in-tariff (FIT).

And with this two-part scheme, games are played. Wind generators can bid a low price into the pool only to receive a higher FIT, which gives them an incentive to underbid. This might reduce the pool price but not overall cost to Germans for electricity.

Investing in New Generation: What Makes Sense?

If a generation resource is a good investment for its developers then it must return a profit to them.  In a normal electricity market this profit comes from supplying a segment of the demand (peak, intermediate/cycling, baseload) from a plant that is efficient technically and financially.

For existing plants and determinations of electricity costs in the here and now we can figure out the average cost of supplying electricity by calculating the weighted average cost of supply for each time period in the market every day.  If the addition of one generation source raises this weighted average without improving service quality or reliability, then it is not economical and would generally not be chosen in a well-functioning market.

But what about the future?  Electricity suppliers must invest large sums in new generation plants with the expectation that these plants will meet demand at the least cost.  This cannot be known with certainty, and mistakes are made all the time, especially when government policy and rent-seeking drive investment choices.

Transmission network operators – those in charge of the “natural monopoly” part of the power business – try to reduce the risk attendant to future supply by figuring out the least costly way to supply power and energy to their customers in the future, including the wires to transmit the electricity.  They have to take account of a long list of considerations: investment cost, fuel supply, emissions and licensing regulation, proximity to existing load centers and transmission nodes, transmission congestion – you get the idea.

The transmission system operator also has to pay attention to public policy – renewable energy mandates (“portfolio standards”), federal tax incentives (producer tax credits for wind and solar), feed-in tariffs, powerful politicians who do not want their vistas impaired – in a host of ways that directly impact their views of an optimal future generating system.

What Does the Wise Transmission Operator Do?

A wise investor in generation will first figure out what is economic to build? what are the physical constraints on the system? and finally, what limitations will public policy put on otherwise least cost generation choices?

A Case Study of “Germania”[i]

Let us imagine that we have a rather large and wealthy country to play with, one that currently has about 129 GW of installed generation capacity.  Further, we can imagine that this wealthy country, responding to its powerful environmental movement, has decided to

(i) phase out nuclear power;

(ii) limit future coal power-plant operations;

(iii) build a lot (a lot!) of wind generation plants; and

(iv) bring in most of its gas supply from Russia at prices linked directly to refined oil products and crude (i.e., high and volatile). [Read more →]

Part 1 of this series explored the historical context of the U.S. nuclear waste storage policy. Part II and Part III looked at the failed Salt Vault and Yucca Mountain projects, respectively. Part IV reviewed the legal and political fallout from the Yucca Mountain failure.  In this final post, we review the past failed attempts to reprocess nuclear fuel in the U.S. and examine the global state-of-the-art reprocessing plants now operating or under construction.

Reprocessing and Recycling in the U.S.

The reprocessing of nuclear fuel first began in the U.S. in January 1943. The Bismuth Phosphate Precipitation Process was used for recovering macroscopic quantities of plutonium. The REDuction-OXidation (REDOX) process was the first successful solvent extraction process to recover both uranium and plutonium; it was further refined into the Plutonium and URanium EXtraction (PUREX) process, which has become the most common and fully commercialized liquid-liquid extraction process for the treatment of spent nuclear fuel (SNF).

In order to support a self-sufficient commercial nuclear power industry in the 1960s, the Atomic Energy Commission (AEC, circa 1946 to 1974)—the predecessor regulatory agency to the NRC (1974 to present) and the Department of Energy (circa 1977 to present)—encouraged the transfer of nuclear fuel reprocessing from the federal government to private industry. The three privately owned reprocessing plants constructed were the Western New York Nuclear Service Center (West Valley, N.Y.), Midwest Fuel Recovery Plant (Morris, Ill.), and the Barnwell Nuclear Fuel Plant (Barnwell, S.C.). [Read more →]

Part I of this series reviewed the historical context of the U.S. nuclear waste storage policy. Part II and Part III historically reviewed the ill-fated Salt Vault and Yucca Mountain projects, respectively.  This post reviews the legal and political fallout from the Yucca Mountain failure, and Part V tomorrow will explore failed attempts to reprocess nuclear fuel in the U.S. and examine the global state-of-the-art reprocessing plants now operating or under construction.

Ratepayers Pay to (Not) Play

1. View of the above-ground support structures and north and south portals at the now-defunct Yucca Mountain repository. Source: Department of Energy/Office of Civilian Radioactive Waste Management (DOE/OCRWM)

The nuclear industry is unique among energy producers in its contractual commitment to cover the full costs for managing its waste. The Nuclear Waste Policy Act (NWPA) of 1982 directed utilities to levy fees on electricity generated by nuclear power and to pay those fees into a federal Nuclear Waste Fund (NWF) that was to be used to develop and operate a national repository. In return for the payment of fees, the NWPA directed the federal government to accept ownership and begin disposing of the spent nuclear fuel (SNF) and other high-level waste (HLW) no later than January 31, 1998. Those fees included the cost of transporting SNF to the repository.

Since 1983, consumers of electricity from nuclear power plants have paid approximately $32 billion into the NWF. Consumers in Alabama and Georgia, for example, have sent more than $1 billion to the NWF and continue to contribute over $44 million a year. The current balance in the NWF exceeds approximately $22 billion, and consumers nationwide are contributing about an additional $750 million a year. The difference between total collections and the current balance is roughly equal to the approximately $9 billion already spent on preparing the Yucca Mountain site to date. [Read more →]

Part I explored the historical context of the U.S. nuclear waste storage policy, while Part II reviewed the 1960s Salt Vault project.

This post looks at the legislative history of the ill-fated Yucca Mountain repository and the formation of a committee to explore alternative storage sites (again). In Part IV, we will look at some of the legal and political repercussions of Yucca Mountain’s failure.  Finally, in Part V, we explore failed attempts to reprocess nuclear fuel in the U.S. and examine the global state-of-the-art reprocessing plants now operating or under construction.

The Retrievable Surface Storage Facility

The AEC announced plans (circa May/June 1972) to construct an engineered, at-grade Retrievable Surface Storage Facility (RSSF) to be used until a permanent geological repository would be available. The plan was to locate the RSSF at an AEC or federal site in the western U.S. However, the environmental impact statement (EIS) issued by the AEC in support of the RSSF concept drew intense criticism from the public and the Environmental Protection Agency (EPA). Both criticized the plan because of the possibility that economic factors could later dictate using the facility as a permanent repository, contrary to the planned interim use of the RSSF. In this instance, it was unacceptable to proceed with an interim storage system unless there were unambiguous assurances that a permanent repository would be developed.

In 1975, Dr. Robert Seamans—in one of his first acts as administrator of the Energy Research and Development Administration (ERDA)—withdrew the EIS associated with the RSSF and decided that a permanent waste repository should be given budget priority. ERDA was created to assume the responsibilities of the then-dissolved AEC that were not covered by the newly formed NRC. [Read more →]

Part I in this series reviewed the history of nuclear waste storage policy in the United States. This post reviews Project Salt Vault, an early attempt to solve the dilemma of storing spent nuclear fuel.   Part III will cover the history of Yucca Mountain.

Project Salt Vault

The primary objective of Project Salt Vault was to demonstrate the safety and feasibility of handling and storing high level nuclear waste (HLW) solids from power reactors in salt formations. The engineering and scientific objectives were to:

· Demonstrate waste-handling equipment and techniques required to handle packages containing HLW solids from the point of production to the disposal location.

· Determine the stability of salt formations under the combined effects of heat and radiation (approximately 4,000,000 curies of radioactive material, yielding up to 109 rads).

· Collect information on creep and plastic flow of salt needed for the design of an actual disposal facility.

· Monitor the site for radiolytic chemical reactions, if such should occur.

The demonstration site selected was the inactive Lyons, Kansas mine of the Carey Salt Co. The 1,020-foot deep salt mine had operated from 1890 to 1948 and had been kept open for possible future use. Preparations for the demonstration began in 1963, and the first radioactive material was placed in the mine in November 1965. The tests involved the emplacement of actual irradiated fuel assemblies from the Engineering Test Reactor (ETR) in Idaho. The ETR assemblies were chosen because of their availability on a dependable schedule and their relatively high radioactivity levels. [Read more →]