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Pure Energy

Book Review: Big Coal

Big Coal: The Dirty Secret Behind America's Energy Future by Jeff Goodell

One of the triumphs of modern life is our ability to distance ourselves from the simple facts of our own existence. – Jeff Goodell

Big Coal by Jeff Goodell is a book I have had on my reading list for a long time, but I only got around to reading it during my recent trip to Europe. It has taken me a very long time to finish this review for a number of reasons, but one is that I had a hard time deciding what to write. Normally, when I read a book I will dog-ear the pages that I want to revisit either because 1). There was something significant that I did not know; or 2). I want to reference a particular point in the book review. By the time I finished reading this book, I probably had 50 pages dog-eared.

My introduction to Jeff Goodell came a couple of years ago when he was writing an article for Rolling Stone about ethanol. He contacted me and we talked a few times, I got to know him a bit, and he published a pretty scathing article during the early days of the ethanol euphoria. For more on that episode, see Rolling Stone Article, Jeff Goodell Debates the Rolling Stone Article on CNBC, or Bob Dinneen Responds to Rolling Stone.

I wish I could write like Goodell. I really enjoy his writing style. I sometimes disagree with particular points, but in Big Coal he makes a very compelling argument that we don’t come close to paying the societal costs of coal usage when we pay our electric bill.

Even though we don’t often see it, coal is a part of daily life for most of us. It produces a great deal of our electricity. But we don’t spend a lot of time thinking about the implications. As Goodell notes on the first page, “We love our hamburgers, but we’ve never seen the inside of a slaughterhouse.” Isn’t that the truth? I have always imagined the number of people who would become vegetarians if they ever saw the inner workings of a slaughterhouse.

When we fuel up our cars, we don’t think (much) about the ramifications of our oil dependence. When we flip a light switch, we do not associate that with the coal-driven mountaintop removals in West Virginia. In this book, Goodell thrusts those associations right in your face.

The book is divided into three parts: Extraction, conversion to power, and the resulting emissions. He covers the history of the industry, tells the stories of the people in and around the business, and while most of the book is based on U.S.-happenings, he does spend a chapter on China.

I would imagine the coal industry was none too pleased with Big Coal, because it paints a really ugly picture of the industry.  Goodell contrasts the coal industry with the individuals whose lives have been negatively impacted by coal in one way or another. He details corruption and politics that allowed the industry to delay implementation of pollution control equipment. And on a big picture level, he argues that continued usage of coal poses a serious threat to the earth’s climate.

This book will leave you shaking your head, wondering why we use coal at all if the overall picture is as troublesome as Goodell suggests. I found myself wondering as well, which was actually what led to my post on the cost of various energy sources. There at the top of the list for the cheapest source of energy was Powder River Basin coal, which is why we continue to heavily use coal despite the issues Goodell spells out.

We humans aren’t very good at willingly making sacrifices today in order to potentially improve the situation a few years down the line. We want instant gratification and coal fits the bill. (I would argue this is also why the U.S. is so deeply in debt and our personal savings rate is so low.)

I noted in my book review of Crude World that Peter Maass didn’t present a balanced picture of the oil industry; it was all bad. His book was intended to highlight the negative aspect of our oil dependency. Big Coal is the same in that respect. It is hard to argue that coal hasn’t improved the lives of a great many people around the world, and I know a number of people who would argue that these improvements outweigh the negatives. Further, it is fair to say that the coal industry has come a long way in cleaning up their emission profile over the past few decades.

But it is clear which side of that argument Goodell would come down on. To be honest, I come down on that side as well. I would like to see us limit our coal consumption and boost electricity generation from other resources. I know a great number of people who feel this way, but coal is like oil in that replacing it will likely entail economic sacrifices that individuals don’t like to make. Coal produces half of the electricity in the U.S., and I would have a hard time arguing that anything – outside of nuclear power – can scale up and take on the role that coal currently plays.

The realist in me thinks that we will eventually use up all of our coal, as will China, Australia, India, and all of the other major coal producers. This is primarily why I sit out the debates on climate change; I can’t realistically envision anything that will get the world to collectively NOT burn up all the coal. In an energy-constrained future, prices will rise and people who feel morally opposed to coal will suddenly find their moral fiber weakening as high energy prices bite into their budgets.

I don’t discount that renewable energy can eventually make a bigger impact (I hope so, because that’s what I am doing for a living), but it is starting from a very small basis compared to electricity generated from coal. While coal produces about half of the electricity in the U.S., renewables other than hydropower account for only about 3.5% (per the EIA).

So I think Big Coal will continue to be a very big part of our lives for many years to come – although with a strong political commitment the nuclear option could put a dent in our coal dependence.

March 9, 2010 Posted by | book review, coal, Jeff Goodell, nuclear energy | 142 Comments

Electrifying the USPS

I usually scan the energy headlines each morning, but had somehow missed the stories on the recently introduced bills to electrify the U.S. Postal Service fleet:

U.S. Postal Service to test a repurposed electric vehicle fleet

Rep. Gerald E. Connolly (D-Va.) introduced a bill Friday that would pay for 109,500 electric vehicles, though the cost of that program isn’t known yet. “This, to me, would be a very productive thing and . . . likely to produce jobs and revitalize an industry,” Connolly said.

In December, Rep. José E. Serrano (D-N.Y.) announced an “e-Drive” bill that would give $2 billion to the Energy Department and Postal Service to convert 20,000 mail trucks into electric vehicles.

I have always liked the idea of electric cars. I have written a number of essays around that theme, primarily because electric vehicles could in theory be adequate replacements for internal combustion engines as supplies of fossil fuels deplete. Imagine that our electric grid eventually moves more toward renewable energy, and electric vehicles could be a much greener solution than the majority of the vehicles we have on the road today.

But note that I use words like “theory” and “imagine” to describe this idealistic future. I firmly believe that we need to have a look at the data from time to time to make sure that our idealism isn’t in direct contrast to reality. Unfortunately, in this case it might be.

Study: Electric cars not as green as you think

The environmental benefits of electric cars are being questioned in Germany by a surprising actor: the green movement. But those risks don’t apply in the U.S., the American electric-car lobby asserts.

Today, the German plants that deliver marginal electricity are fueled by coal. That is the main problem, according to the study. The research adds that to produce the same amount of energy, coal emits more carbon dioxide than even gasoline.

“The irony is that you don’t need a lot more electricity for electric cars,” Raddatz, said. “But the problem is that if they cause these peaks, we would have to have power plants that would be ready to start (as) the massive charging starts.”

An electric car with a lithium ion battery powered by electricity from an old coal power plant could emit more than 200g of carbon dioxide per km, compared with current average gasoline car of 160g of carbon dioxide per km in Europe, according to the study. The European Union goal for 2020 is 95g of carbon dioxide per km.

I have been thinking about this a lot, as I have recently seen some electric car/combustion engine comparisons in a report that is about to come out. I won’t divulge much about the report, but when it comes out I will link to it. But I will provide a quote from the soon-to-be-released report:

New Zealand energy consultant Steve Goldthorpe estimates that if the entire New Zealand vehicle fleet were replaced with electric cars, the amount of electricity New Zealand needed to generate to power this fleet would be increased by about 60%. Only a small percentage of this electricity could be produced sustainably; the balance would probably have to be generated by burning coal.

I think this is where idealism clashes with reality. As I pointed out in The Nuclear Comeback, over the previous 10 years electricity demand increased by an average of 66 million megawatt hours per year. That is without adding electric cars to the mix. The growth rate for renewable energy over the past 5 years or so has only been about 10 million megawatt hours (although last year saw an impressive 20 million). Still, this is a far cry from just keeping up with normal demand growth.

So the idealistic side of me sees renewable electricity continuing to grow, and powering a fleet of green electric cars. The side of me that looks at the data says that in reality, a rapid ramp-up of electric cars will have to be driven by non-renewables because renewable energy growth won’t be able to keep up. I wouldn’t personally have a problem with a nuclear-driven electric fleet, but I don’t think that’s the vision many have for future electric vehicles.

I am not factoring in the possibility that conservation of electricity can help close that gap. On that I remain hopeful, but our history is one of ever increasing consumption.

March 5, 2010 Posted by | electric cars, electricity, electricity usage, nuclear energy, renewable energy | 1 Comment

Book Review – Power of the People

I will finish up my long-promised concluding post in the recent series on ethanol and oil imports. I have been traveling for ten days, and inadvertently left all of my graphics for that post on another computer. I am back home now, and will try to tidy it up and post it in the next few days.

On the long plane ride back to Hawaii, I read Power of the People: America’s New Electricity Choices. I picked this book up at the 2009 Solar Tour – Pikes Peak Region, which I visited on my trip to Colorado. My new job has me getting more involved in the electricity sector, and I thought this would be a book that would help push me up the learning curve. A short description of the book:

America is as addicted to electricity as it is to oil. Our electricity usage increases every year, yet we still use the same transmission grid that was constructed in the middle of the last century. The grid is stretched to the limit, creating the potential of future black-outs like the one that brought the Northeast to its knees in 2003. Meanwhile, some of our most abundant and affordable generating fuels have become major culprits in global warming.

Power of the People explores in a nontechnical, conversational way some of the clean, green, 21st-century technologies that are available and how and why we should plug them into our national grid. This important essay explores our failure as a country to adopt these “no regrets” technologies and policies as swiftly as the rest of the world, and why it matters for the future of every American.

The author, Carol Sue Tombari, works for the National Renewable Energy Lab (NREL). Despite trying, I can’t find out what her exact position or qualifications are. Here biography says:

Carol Sue Tombari has specialized in energy and environmental policy and programs for more than 25 years. She directed the State of Texas’s energy efficiency and renewable energy programs, served as natural resources advisor to the lieutenant governor, and helped found the National Association of State Energy Officials.

In addition, she was appointed to federal advisory posts by two Federal Secretaries of Energy, chairing a Congressional advisory committee on the subject of renewable energy joint ventures and serving on the U.S. Department of Energy’s (USDOE) State Energy Advisory Board. Tombari is employed at the USDOE’s National Renewable Energy Laboratory, where she works on local and rural economic development. Ultimately, it is her love for the next generation that continues to drive her work to protect the future of our planet and the lives of those yet to come.

While I found myself learning more about the sector, many things she said left me puzzled. For instance, she claimed that the U.S. uses more energy per GDP than anyone else in the world. This is exactly the opposite of Jeff Rubin’s claim in Why Your World Is About to Get a Whole Lot Smaller. Rubin claimed that countries like China use a lot more energy per GDP, which was the basis of his argument that carbon tariffs could work in favor of countries like the U.S., who are more energy efficient at producing GDP. In fact, if you look at the EIA data on energy usage per dollar of GDP, you can see that the U.S. is on the low end of the scale. According to the EIA data, China, compared to the U.S., uses about four times the amount of energy per dollar of GDP. (Thanks to reader Clee for that reference).

The book is pretty anti-nuclear, and makes the claim that renewables are “considerably more affordable” than nuclear power. She seems to rely on Amory Lovins and Tom Friedman for these sorts of claims. The book is pretty realistic about coal, however, concluding that we will be relying on coal for a good many years. She did claim, though, that there have been no major technological innovations in coal-fired central station power plants since the 1950’s. I don’t consider that accurate, as Integrated Gasification Combined Cycle (IGCC) seems like a dramatic improvement in the efficiency of the usage of coal for power production. Several of these IGCC plants will be coming online in the U.S. over the next decade, and a number have already been built in China. (You can see some of the plants that have been completed or are in progress around the world here).

There were some things I found annoying about the book. For instance, it had no graphs. However, on a number of occasions the author said “picture a graph in which the Y axis represents one variable, and the X axis another variable.” Why not just show a graph? Or if for some reason you are limited to no graphics, find another way to make the point.

There were some calculations that just didn’t make sense to me. For instance, she once calculated the required size of a PV system to run a household in Phoenix “if PV cells were 100% efficient.” Why not just do the actual calculation with typical PV efficiencies? She also commented that NREL had done a calculation in which they concluded that “100 square miles that constitute the Nevada Test Site” covered in PV arrays could meet the needs of the entire U.S. (without addressing storage). I did a similar calculation in which I tentatively came up with an area of about 100 miles by 100 miles. So I wonder if she didn’t mean that the NREL calculation concluded that a 100 mile square (10,000 square miles) would suffice.

She also spent a good deal of time talking about how a terrorist could bring down the transportation system or the electrical grid. I don’t think those are the kinds of ideas we want to plant in people’s heads.

One thing that isn’t clear to me is just how utilities benefit from efficiency improvements of their customers. She spent some time discussing various utility programs to improve the efficiency of the end user so they don’t have to construct new power plants. But utilities make their money selling electricity, don’t they? If customers improve efficiency, they just means they are selling less electricity to that customer. But there is apparently something to this model that I don’t fully understand, because I know that utilities are always pushing for – and even subsidizing – these sorts of programs. In Hawaii, the utility will pay for part of a solar hot water installation. So how do they benefit? Perhaps the utilities are compensated by various governments for pushing these efficiency programs. Otherwise, it seems that as consumers become more efficient, the utilities would have to charge more money for the electricity.

One other thing that was discussed – but that has always puzzled me – is the economic multiplier theory. She gave one example about how the benefits of a local Midwestern project ended up contributing three times the income generation to the local economy. Now I can see how a multiplier should work in theory. Pay a guy $100 in salary, and then he pays his taxes and turns around and spends that $100 in the local economy. That merchant then pays his taxes and spends some of it in the local economy, such that the initial $100 supports more than $100 in taxes and spending. In practice, it seems like if it really worked that way, we would subsidize everything. Why would we want to get any autos from Japan? Subsidize U.S. consumers for 50% of the cost of a domestic car, and then let the local multiplier give back 3-4 times that amount to the local community. But in reality, I don’t quite think it works out that way.

In summary, while it seems like I found a lot to nit-pick in the book, I did find a lot of useful information in there. Even the things I found puzzling caused me to think and to do additional research, which was helpful. The author spends a lot of time laying out the present situation with respect to electricity, and talking about the changes that need to happen. The author is peak oil aware, citing Matt Simmons and Tom Whipple (among others) with respect to a projected future energy crunch. I think the anti-nuclear stance was misguided, and I think she overestimates the ability of renewables to fill in for growing demand and the phase-out of older coal-fired power plants. In my view, it is hard to imagine how we are going to get by without building more nukes in the next few decades.

October 11, 2009 Posted by | book review, electricity, electricity usage, nuclear energy, solar power | 86 Comments

Vinod Khosla at Milken Institute: Part III

This will be the conclusion of Vinod Khosla’s (VK) recent lengthy interview at the Milken Institute 2009 Global Conference. The interview was conducted by Elizabeth Corcoran (EC) of Forbes and can be viewed here.

In Part I, VK discussed the role of government money, capital intensity of renewable projects, and some of his solar investments. In Part II, VK discussed butanol, cellulosic ethanol, nuclear power, and cap and trade. Here in Part III, VK discusses his beef with electric cars, has lots to say about Black Swans, discusses his problems with nuclear in more detail, talks about green jobs, sugarcane ethanol, and weighs in on indirect land use issues for biofuels.

EC (39:00): Let’s get to those electric cars. You don’t like the Prius.

VK: Let me be clear, and I am going to sneak in my Black Swan. I do drive a hybrid, but not a Prius. I drive a Lexus hybrid. Hybrids are an uneconomic way to reduce carbon dioxide. If you go to hybrids or electric cars, your cost of carbon reduction is about $100/ton. If you have 10 ways of reducing carbon at $50/ton, why would you spend $100? My beef is not with hybrids; we are investing in hybrid batteries; there is a good market and we can make money at it. But do I believe it’s going to solve the climate change problem? No. (RR: None of the things that have been discussed are going to significantly rein in carbon emissions.) Save yourself the five grand, and instead paint your roof white. You will save more carbon that way.

(RR: He cited this paper by Art Rosenfeld at Lawrence Berkeley Lab: “White Roofs Cool the World, Directly Offset CO2 and Delay Global Warming“).

EC (41:10): Shai Agassi – a long time entrepreneur in Silicon Valley – has a very different approach to batteries. Are you involved in the work he is doing? Does that only work in small countries?

VK: You know, Shai has a very intriguing start-up. (RR: EC interrupts to explain that Shai is developing stations where you can go and exchange batteries for electric cars; he owns the battery and you own the car. See more explanation here.) I mentioned earlier about diversity of opinion; I am glad he is trying it and I am cheering him on. If I can help him I will. It is important to try some of these experiments. He has a particularly clever way to do something that does have a shot at working.

I want to add my Black Swan theory here. Most of you have probably read the Black Swan, or heard about it. The financial crisis is a negative Black Swan. I am a true believer that technology provides positive Black Swans. (RR: VK explains the concept of the Black Swan. Here is a link to the book at Amazon, which I have read and found to be very good). We will redefine energy because of the Black Swans of technology.

(RR: VK then explains his problem with electric cars, and says lithium ion batteries are too expensive, are limited by electrochemistry, and will be for a long time. I would say that while VK seems to have a clear picture in his head on the issues with batteries, he suffers from a blind spot about similar limitations of cellulosic biomass. He then cites all of his investments into different areas, and concludes that sheer numbers mean something is going to work.)

VK: The chance that each approach will succeed is small. The chance that all of them will cumulatively fail is vanishingly small. Mark my words: Vanishingly small, and that’s why we will have unsubsidized market competitiveness with fossil fuels. And the fossil fuel guys won’t know what hit them. I don’t see how by 2030 oil can compete. That’s why I think by 2030 oil will go to $30, because it will be the alternative cost of marginal technologies.

(RR: I think he truly believes this. Yet it shows a failure to grasp issues of scale, biomass density, logistical challenges, and much more. If it were merely a numbers game, we could solve any technology problem by just throwing enough money at it. But there are fundamental issues here regarding biomass that will never – mark my words – never allow it to be produced for $30/bbl. Sugarcane ethanol, yes, can be produced for that in Brazil. But you will never turn cellulosic biomass into a liquid fuel, at scale, for $30/bbl – for the same kinds of fundamental limitations VK mentions for batteries.)

EC (47:40): So by 2030, what will be the primary fuel?

VK: I have a paper on my website that postulates about a technology race between biofuels and batteries. Whichever one makes the most rapid progress will get the larger percentage of the total passenger miles driven in the world.

EC (48:30): Does government risk factor in? There has been a cautionary tale in biodiesel, where there has been great interest, lots of money pumped in, and yet due in part to vagaries of how the environmentalists and government regulations have crashed into each other, you have got more than 100 biodiesel fuels (RR: Biodiesel plants, I presume?) around the country, none of which are producing fuel.

VK: You know, that’s true, but you also have bankrupt financial companies. Look, failure is the natural mechanism of capitalism. But you are right. There is government risk. But we fixed a lot of that last week when the Low-Carbon Fuel Standard passed. It will force the right decisions looking back.

EC (50:18): There have been many technologies – and Kleiner invested in many early on – where the technology, the marketplace, and the government were not in sync. And the technology dies.

VK: I think that’s the wrong way to look at it. Any start-up has risks. It has technology risks, market risks, it has financial risks. It has other risks; it has people risks and management risks. What you are doing as an active investor is balancing those risks. What we are tending to do is increase technology risk so we can reduce market risk. We will generally take on more market risks, have a bigger jump, and a larger probability of failing at the technology such that when we enter the market we have a larger competitive advantage.

EC (51:30): What are you hearing from the limited partners, the people who invest with you? Is there a tolerance for that sort of risk?

VK: Absolutely. My impression is venture capital has gone too far away from real technology risk. The limited partners are thirsting for more technology risk. The limited partners tell me that the earlier stage they can get in on the technology risk, the better they like it.

EC (53:25): I am going to open it up to questions in a minute, but one more question from me. Let’s go back to nuclear for a minute. Aren’t there Black Swans in the nuclear industry? (RR: I was thinking the same thing earlier; Black Swans only appear to have been considered by VK in very specific situations. A positive Black Swan is going to make some of his technologies successful, but he seems to discount any positive Black Swans from other sectors).

VK: There probably are. In fact, Bill Gates is funding one. The problem with nuclear, I think, is different. Because of the NRC it takes 20 years to build one. And I have to give them $100 million to approve every step of the process. The problem with nuclear is that the innovation cycle is very long. If I am building a nuclear plant, I think of something, 20 years later I build something and see how it performs. If I am building a solar thermal plant, six months later I change my manufacturing line. I can even do it half way through building a power plant.

EC (54:40): And if you are building an ethanol plant, two or three years later it’s ready.

VK: Yeah, though every six months people plan on changing the bug in their plant. Every six months you change the bug. Keep evolving it, improve the efficiency. The cycle of innovation – how long it takes – is a really important metric for judging how effective a technology will be in getting to market.

EC (55:20): OK, good. First question.

Q1 from audience (55:30): My question is on nuclear. You said you weren’t interested in building, but how about the services component, i.e., servicing the waste and so forth?

VK: I think it’s a limited investment opportunity. I don’t think it’s an explosive opportunity. (RR: I suppose that depends on whether critical mass is reached.)

Q2 (56:10): What about superconductivity?

VK: It’s an interesting area, I just haven’t seen the pace of innovation. Sometimes it’s self-fulfilling. If you are not interested, nobody funds it, then nothing happens. I would love to see a breakthrough in room temperature superconductivity. (RR: He then said Kleiner invested in a couple of companies in the late 80’s; he mentioned American Superconductor).

Q3 (57:20): With respect to cellulosic ethanol, this question of indirect land use that has ended up in the standards; do you think that will continue?

VK: It’s a fairly complex issue; the science is very uncertain. I think it is figured into the California Low Carbon Fuel Standard. The end result is a reasonable compromise. It’s also something that is fairly uncertain right now. I think the California Air Resources Board (CARB) came up with something that’s a reasonable answer on indirect land use impacts. The corn ethanol guys wanted to have zero. They didn’t get that, so they are now complaining in Washington. I think CARB could have phased it in more slowly because the numbers are so uncertain, so I would not agree 100% with CARB. But I would agree 90% with them.

Q4 (59:10): That’s corn. How about cellulosic?

VK: I think cellulosic should be measured the same way, but I think the impact will be fairly small, and over time it has the potential to be the biggest opportunity to sequester carbon in the soil. I don’t want to get into the details – there are papers on my website about this – but it is possible to change agronomy practices to raise biomass and sequester carbon at the same time. It is the annual crops, where you till up the soil ever year, that you have a problem. Perennial crops, and sugarcane is such a crop, you have a much better chance. Also, a lot of cellulosic crops can be grown without a lot of water and on marginal lands.

EC (60:20): So the amount of land we would need, if we were to truly replace gasoline, how much land would we need?

VK: Under optimistic scenarios we need zero land in this country to replace all of the gasoline in this country. (RR: He referred to this paper – Where Will Biomass Come From? – on his website for a detailed explanation). Look, this is really important. We can’t do linear extrapolation of the past. (RR: Because it doesn’t give the desired answer). If we do, we are sure to fail. We have to do things a new way. The best way to predict the future is to invent it, not extrapolate the past. (RR: Audience starts to applaud). And this is a fundamental difference.

Q5 (61:22): Is the lack of seed capital – especially in Europe – a bottleneck, and how do we reengineer this so that funds are available?

VK: Lack of seed investment in Europe may be a problem for the Europeans, but it’s an opportunity for us. Let me give you an example. I ran into a guy who was a senior director of research at Exxon, who had moved to Europe – Amsterdam – and was struggling with a new idea to make fuel from biomass. He wasn’t producing ethanol. He called me, and said “Nobody in Europe understands me. I have been looking for money for two years.” He had been begging and borrowing space at various labs and universities to do his research. He said that he thought we had it all wrong, that instead of turning biomass into ethanol you should turn it into crude oil. This is exactly the same thing nature does; all crude oil comes from biomass. He said the only problem with nature is that it takes millions of years. He said he could do it in minutes. Now that’s a seed idea. I would have guessed that there was less than a 10% chance that he was going to be able to pull this off. It didn’t take very much for me to write him a check, because if he is right it’s transformative. He moved to Houston and went to work.

I like to joke that I am the only Indian in-sourcing jobs. We have in-sourced three technology companies: One from New Zealand, one from Amsterdam, and one from Australia. The same thing happened with the solar thermal technology in Australia. We funded it and they moved to Palo Alto. Every news channel in Australia carried that story. What was the story? “Why isn’t Australia funding this?”

EC (64:40): Are you seeing more competition at the seed level from other venture capitalists?

VK: It’s starting to increase, but not that much. That’s why we love the seed opportunities. They are the most promising opportunities anywhere. (RR: He then mentioned that the company in Houston is KiOR, which I mentioned previously in Vinod Khosla Scoops Me. Incidentally, VK e-mailed me after I posted that essay and we exchanged several e-mails over KiOR and some of his other ventures.) Nobody wanted to invest in the Internet until the Netscape idea. After Netscape, everybody was interested.

EC (65:40): You have said that you like being a seed investor. Do you think there are enough investors at the 2nd and 3rd tier? These companies are going to need more than just you at that point.

VK: You don’t know for sure, but we see increasing interest. If you see one or two successful IPOs, the amount of money will increase dramatically. Wall Street bounces between fear and greed; we are in a fear cycle.

Q6 (66:40): What are those Ph.D. students looking into right now? In 2005, I did an informal survey at UC Berkeley. Nobody in the engineering department – graduate students or professors – were interested in energy. We did an informal survey in 2006 and suddenly more than 50% were interested in working in energy. That’s why I am very bullish with respect to the new crops of Ph.D. students coming out. It’s the number one choice. Number one used to be nanotechnology, genetics, computer science; it’s now material science, it’s chemical engineering, it’s all kinds of fundamental processes. What I have noticed is physics, chemistry, biology are becoming a lot more important, and that will drive transformation in energy over the next 20-25 years. (RR: I guess I was way ahead of my time since I studied biomass to energy in graduate school at Texas A&M in the early 90’s).

Q7 (68:00): I agree with your urgency about climate change, but it’s interesting to think about other countries, who already realize that we have already baked in about two degrees C in terms of the thermal momentum of the earth. Is there a technology opportunity in adaptation to climate change?

VK: I haven’t spent enough time on adaptation. It’s unfortunate that the people who have the least are the most impacted, like Bangladesh. But there is an interesting area that I have avoided, called geoengineering. I have just been asked to speak at a geoengineering conference, and I haven’t decided. It is a touchy subject; to engineer the climate of this planet. Some people think we have to do it, others think there will be too many unintended consequences. I subscribe to that view.

EC: We will take two more questions.

Q8 (70:22): Could you talk about job creation?

VK: Most of the studies say that job creation per dollar invested is higher for renewable technologies; higher than dollars invested in fossil fuel technologies. I don’t know why that is, but all of the data seem to indicate that this is in fact true.

Q9 (71:52): Do you think Brazil has a chance with sugar ethanol?

VK: Sugarcane ethanol, under the Low Carbon Fuel Standard, comes out looking reasonably good. But, having said that, I think sugar is too valuable a commodity to use. We will get to things other than sugarcane as our source of fuel. I suspect sugarcane will be more lasting than corn ethanol, but even that will be a passing phase. In the end, non-food technologies are likely to be the source of our fuels. Partly because the politics are right; more importantly because the science is right. I evaluate biofuels on one metric: How many miles can you drive per acre? With most food crops, you can get to 10,000 miles driven per acre. Cellulosic technology offers the opportunity to go 100,000 miles on an acre, and then land becomes a non-issue. (RR: Two words: Net energy). Now we promised to take one last question.

Q10 (73:30): A lot of these new technologies are going require someone to install all of this. Are there plans to look at human capital opportunties?

VK: There are clearly opportunities in services. We are not funding them because, partly because I am a techie nerd; I like the technology and everyone should do something they have fun at. But there are clearly opportunities, and others are doing it. Thank you all very much.

May 4, 2009 Posted by | batteries, biomass, Black Swan, cellulosic ethanol, electric cars, Nassim Nicholas Taleb, nuclear energy, Prius, Vinod Khosla | 48 Comments

Vinod Khosla at Milken Institute: Part III

This will be the conclusion of Vinod Khosla’s (VK) recent lengthy interview at the Milken Institute 2009 Global Conference. The interview was conducted by Elizabeth Corcoran (EC) of Forbes and can be viewed here.

In Part I, VK discussed the role of government money, capital intensity of renewable projects, and some of his solar investments. In Part II, VK discussed butanol, cellulosic ethanol, nuclear power, and cap and trade. Here in Part III, VK discusses his beef with electric cars, has lots to say about Black Swans, discusses his problems with nuclear in more detail, talks about green jobs, sugarcane ethanol, and weighs in on indirect land use issues for biofuels.

EC (39:00): Let’s get to those electric cars. You don’t like the Prius.

VK: Let me be clear, and I am going to sneak in my Black Swan. I do drive a hybrid, but not a Prius. I drive a Lexus hybrid. Hybrids are an uneconomic way to reduce carbon dioxide. If you go to hybrids or electric cars, your cost of carbon reduction is about $100/ton. If you have 10 ways of reducing carbon at $50/ton, why would you spend $100? My beef is not with hybrids; we are investing in hybrid batteries; there is a good market and we can make money at it. But do I believe it’s going to solve the climate change problem? No. (RR: None of the things that have been discussed are going to significantly rein in carbon emissions.) Save yourself the five grand, and instead paint your roof white. You will save more carbon that way.

(RR: He cited this paper by Art Rosenfeld at Lawrence Berkeley Lab: “White Roofs Cool the World, Directly Offset CO2 and Delay Global Warming“).

EC (41:10): Shai Agassi – a long time entrepreneur in Silicon Valley – has a very different approach to batteries. Are you involved in the work he is doing? Does that only work in small countries?

VK: You know, Shai has a very intriguing start-up. (RR: EC interrupts to explain that Shai is developing stations where you can go and exchange batteries for electric cars; he owns the battery and you own the car. See more explanation here.) I mentioned earlier about diversity of opinion; I am glad he is trying it and I am cheering him on. If I can help him I will. It is important to try some of these experiments. He has a particularly clever way to do something that does have a shot at working.

I want to add my Black Swan theory here. Most of you have probably read the Black Swan, or heard about it. The financial crisis is a negative Black Swan. I am a true believer that technology provides positive Black Swans. (RR: VK explains the concept of the Black Swan. Here is a link to the book at Amazon, which I have read and found to be very good). We will redefine energy because of the Black Swans of technology.

(RR: VK then explains his problem with electric cars, and says lithium ion batteries are too expensive, are limited by electrochemistry, and will be for a long time. I would say that while VK seems to have a clear picture in his head on the issues with batteries, he suffers from a blind spot about similar limitations of cellulosic biomass. He then cites all of his investments into different areas, and concludes that sheer numbers mean something is going to work.)

VK: The chance that each approach will succeed is small. The chance that all of them will cumulatively fail is vanishingly small. Mark my words: Vanishingly small, and that’s why we will have unsubsidized market competitiveness with fossil fuels. And the fossil fuel guys won’t know what hit them. I don’t see how by 2030 oil can compete. That’s why I think by 2030 oil will go to $30, because it will be the alternative cost of marginal technologies.

(RR: I think he truly believes this. Yet it shows a failure to grasp issues of scale, biomass density, logistical challenges, and much more. If it were merely a numbers game, we could solve any technology problem by just throwing enough money at it. But there are fundamental issues here regarding biomass that will never – mark my words – never allow it to be produced for $30/bbl. Sugarcane ethanol, yes, can be produced for that in Brazil. But you will never turn cellulosic biomass into a liquid fuel, at scale, for $30/bbl – for the same kinds of fundamental limitations VK mentions for batteries.)

EC (47:40): So by 2030, what will be the primary fuel?

VK: I have a paper on my website that postulates about a technology race between biofuels and batteries. Whichever one makes the most rapid progress will get the larger percentage of the total passenger miles driven in the world.

EC (48:30): Does government risk factor in? There has been a cautionary tale in biodiesel, where there has been great interest, lots of money pumped in, and yet due in part to vagaries of how the environmentalists and government regulations have crashed into each other, you have got more than 100 biodiesel fuels (RR: Biodiesel plants, I presume?) around the country, none of which are producing fuel.

VK: You know, that’s true, but you also have bankrupt financial companies. Look, failure is the natural mechanism of capitalism. But you are right. There is government risk. But we fixed a lot of that last week when the Low-Carbon Fuel Standard passed. It will force the right decisions looking back.

EC (50:18): There have been many technologies – and Kleiner invested in many early on – where the technology, the marketplace, and the government were not in sync. And the technology dies.

VK: I think that’s the wrong way to look at it. Any start-up has risks. It has technology risks, market risks, it has financial risks. It has other risks; it has people risks and management risks. What you are doing as an active investor is balancing those risks. What we are tending to do is increase technology risk so we can reduce market risk. We will generally take on more market risks, have a bigger jump, and a larger probability of failing at the technology such that when we enter the market we have a larger competitive advantage.

EC (51:30): What are you hearing from the limited partners, the people who invest with you? Is there a tolerance for that sort of risk?

VK: Absolutely. My impression is venture capital has gone too far away from real technology risk. The limited partners are thirsting for more technology risk. The limited partners tell me that the earlier stage they can get in on the technology risk, the better they like it.

EC (53:25): I am going to open it up to questions in a minute, but one more question from me. Let’s go back to nuclear for a minute. Aren’t there Black Swans in the nuclear industry? (RR: I was thinking the same thing earlier; Black Swans only appear to have been considered by VK in very specific situations. A positive Black Swan is going to make some of his technologies successful, but he seems to discount any positive Black Swans from other sectors).

VK: There probably are. In fact, Bill Gates is funding one. The problem with nuclear, I think, is different. Because of the NRC it takes 20 years to build one. And I have to give them $100 million to approve every step of the process. The problem with nuclear is that the innovation cycle is very long. If I am building a nuclear plant, I think of something, 20 years later I build something and see how it performs. If I am building a solar thermal plant, six months later I change my manufacturing line. I can even do it half way through building a power plant.

EC (54:40): And if you are building an ethanol plant, two or three years later it’s ready.

VK: Yeah, though every six months people plan on changing the bug in their plant. Every six months you change the bug. Keep evolving it, improve the efficiency. The cycle of innovation – how long it takes – is a really important metric for judging how effective a technology will be in getting to market.

EC (55:20): OK, good. First question.

Q1 from audience (55:30): My question is on nuclear. You said you weren’t interested in building, but how about the services component, i.e., servicing the waste and so forth?

VK: I think it’s a limited investment opportunity. I don’t think it’s an explosive opportunity. (RR: I suppose that depends on whether critical mass is reached.)

Q2 (56:10): What about superconductivity?

VK: It’s an interesting area, I just haven’t seen the pace of innovation. Sometimes it’s self-fulfilling. If you are not interested, nobody funds it, then nothing happens. I would love to see a breakthrough in room temperature superconductivity. (RR: He then said Kleiner invested in a couple of companies in the late 80’s; he mentioned American Superconductor).

Q3 (57:20): With respect to cellulosic ethanol, this question of indirect land use that has ended up in the standards; do you think that will continue?

VK: It’s a fairly complex issue; the science is very uncertain. I think it is figured into the California Low Carbon Fuel Standard. The end result is a reasonable compromise. It’s also something that is fairly uncertain right now. I think the California Air Resources Board (CARB) came up with something that’s a reasonable answer on indirect land use impacts. The corn ethanol guys wanted to have zero. They didn’t get that, so they are now complaining in Washington. I think CARB could have phased it in more slowly because the numbers are so uncertain, so I would not agree 100% with CARB. But I would agree 90% with them.

Q4 (59:10): That’s corn. How about cellulosic?

VK: I think cellulosic should be measured the same way, but I think the impact will be fairly small, and over time it has the potential to be the biggest opportunity to sequester carbon in the soil. I don’t want to get into the details – there are papers on my website about this – but it is possible to change agronomy practices to raise biomass and sequester carbon at the same time. It is the annual crops, where you till up the soil ever year, that you have a problem. Perennial crops, and sugarcane is such a crop, you have a much better chance. Also, a lot of cellulosic crops can be grown without a lot of water and on marginal lands.

EC (60:20): So the amount of land we would need, if we were to truly replace gasoline, how much land would we need?

VK: Under optimistic scenarios we need zero land in this country to replace all of the gasoline in this country. (RR: He referred to this paper – Where Will Biomass Come From? – on his website for a detailed explanation). Look, this is really important. We can’t do linear extrapolation of the past. (RR: Because it doesn’t give the desired answer). If we do, we are sure to fail. We have to do things a new way. The best way to predict the future is to invent it, not extrapolate the past. (RR: Audience starts to applaud). And this is a fundamental difference.

Q5 (61:22): Is the lack of seed capital – especially in Europe – a bottleneck, and how do we reengineer this so that funds are available?

VK: Lack of seed investment in Europe may be a problem for the Europeans, but it’s an opportunity for us. Let me give you an example. I ran into a guy who was a senior director of research at Exxon, who had moved to Europe – Amsterdam – and was struggling with a new idea to make fuel from biomass. He wasn’t producing ethanol. He called me, and said “Nobody in Europe understands me. I have been looking for money for two years.” He had been begging and borrowing space at various labs and universities to do his research. He said that he thought we had it all wrong, that instead of turning biomass into ethanol you should turn it into crude oil. This is exactly the same thing nature does; all crude oil comes from biomass. He said the only problem with nature is that it takes millions of years. He said he could do it in minutes. Now that’s a seed idea. I would have guessed that there was less than a 10% chance that he was going to be able to pull this off. It didn’t take very much for me to write him a check, because if he is right it’s transformative. He moved to Houston and went to work.

I like to joke that I am the only Indian in-sourcing jobs. We have in-sourced three technology companies: One from New Zealand, one from Amsterdam, and one from Australia. The same thing happened with the solar thermal technology in Australia. We funded it and they moved to Palo Alto. Every news channel in Australia carried that story. What was the story? “Why isn’t Australia funding this?”

EC (64:40): Are you seeing more competition at the seed level from other venture capitalists?

VK: It’s starting to increase, but not that much. That’s why we love the seed opportunities. They are the most promising opportunities anywhere. (RR: He then mentioned that the company in Houston is KiOR, which I mentioned previously in Vinod Khosla Scoops Me. Incidentally, VK e-mailed me after I posted that essay and we exchanged several e-mails over KiOR and some of his other ventures.) Nobody wanted to invest in the Internet until the Netscape idea. After Netscape, everybody was interested.

EC (65:40): You have said that you like being a seed investor. Do you think there are enough investors at the 2nd and 3rd tier? These companies are going to need more than just you at that point.

VK: You don’t know for sure, but we see increasing interest. If you see one or two successful IPOs, the amount of money will increase dramatically. Wall Street bounces between fear and greed; we are in a fear cycle.

Q6 (66:40): What are those Ph.D. students looking into right now? In 2005, I did an informal survey at UC Berkeley. Nobody in the engineering department – graduate students or professors – were interested in energy. We did an informal survey in 2006 and suddenly more than 50% were interested in working in energy. That’s why I am very bullish with respect to the new crops of Ph.D. students coming out. It’s the number one choice. Number one used to be nanotechnology, genetics, computer science; it’s now material science, it’s chemical engineering, it’s all kinds of fundamental processes. What I have noticed is physics, chemistry, biology are becoming a lot more important, and that will drive transformation in energy over the next 20-25 years. (RR: I guess I was way ahead of my time since I studied biomass to energy in graduate school at Texas A&M in the early 90’s).

Q7 (68:00): I agree with your urgency about climate change, but it’s interesting to think about other countries, who already realize that we have already baked in about two degrees C in terms of the thermal momentum of the earth. Is there a technology opportunity in adaptation to climate change?

VK: I haven’t spent enough time on adaptation. It’s unfortunate that the people who have the least are the most impacted, like Bangladesh. But there is an interesting area that I have avoided, called geoengineering. I have just been asked to speak at a geoengineering conference, and I haven’t decided. It is a touchy subject; to engineer the climate of this planet. Some people think we have to do it, others think there will be too many unintended consequences. I subscribe to that view.

EC: We will take two more questions.

Q8 (70:22): Could you talk about job creation?

VK: Most of the studies say that job creation per dollar invested is higher for renewable technologies; higher than dollars invested in fossil fuel technologies. I don’t know why that is, but all of the data seem to indicate that this is in fact true.

Q9 (71:52): Do you think Brazil has a chance with sugar ethanol?

VK: Sugarcane ethanol, under the Low Carbon Fuel Standard, comes out looking reasonably good. But, having said that, I think sugar is too valuable a commodity to use. We will get to things other than sugarcane as our source of fuel. I suspect sugarcane will be more lasting than corn ethanol, but even that will be a passing phase. In the end, non-food technologies are likely to be the source of our fuels. Partly because the politics are right; more importantly because the science is right. I evaluate biofuels on one metric: How many miles can you drive per acre? With most food crops, you can get to 10,000 miles driven per acre. Cellulosic technology offers the opportunity to go 100,000 miles on an acre, and then land becomes a non-issue. (RR: Two words: Net energy). Now we promised to take one last question.

Q10 (73:30): A lot of these new technologies are going require someone to install all of this. Are there plans to look at human capital opportunties?

VK: There are clearly opportunities in services. We are not funding them because, partly because I am a techie nerd; I like the technology and everyone should do something they have fun at. But there are clearly opportunities, and others are doing it. Thank you all very much.

May 4, 2009 Posted by | batteries, biomass, Black Swan, cellulosic ethanol, electric cars, Nassim Nicholas Taleb, nuclear energy, Prius, Vinod Khosla | 28 Comments

Vinod Khosla at Milken Institute: Part II

This is a continuation of the previous post covering Vinod Khosla’s (VK) recent lengthy interview Milken Institute 2009 Global Conference. The interview was conducted by Elizabeth Corcoran (EC) of Forbes and can be viewed here.

In Part I, VK discussed the role of government money, capital intensity of renewable projects, and some of his solar investments. Part II picks up at the 13:40 mark of the 75 minute interview. In this section, VK covers his strategy for cutting poor performers from his portfolio, discusses butanol, suggests that cellulosic ethanol can replace oil, says nuclear power can’t compete without subsidies, says cap and trade is inevitable, talks efficiency and smart grid, and tells us that he is often wrong.

EC (13:40): In the past 90 days we have seen something like a billion dollars being put into solar investments – whether in the form of equity or debt. Is that stupid money?

VK: The people who are putting in gobs of money, behind people chasing First Solar at billion dollar valuations – I won’t say it’s stupid but it’s not something I would do with my money. (EC: That pretty much counts as stupid). A diversity of opinion is good. I am often wrong. (EC: Sometimes you are). You only need to be correct once in a while because in our business you only lose one time your money but you can make 100 times quite easily. I don’t have to be very right.

(RR: I would like to hear that during his next congressional testimony where he is trying to drive the direction of energy policy: “I am often wrong.” But this also gets to the heart of why I often object to what he is saying. If he uses his high level of influence to help put us down the wrong path on energy policy, then what are the consequences of being wrong? They could be severe.)

EC (14:38): How many companies do you currently have in your portfolio?

VK: Our clean tech portfolio has probably about 50 companies.

EC (14:50): And how many companies – again you have been at this 5 years or so – how many companies do you cut off at this point?

VK: Interestingly the companies we have cut off…when we started, we started with a different premise. I decided, you know in most venture capital there are plenty of angels. Angels spend half a million dollars, work with a university professor, develop the idea a little further. There are very few angels in clean tech. First, the start-ups are harder, because they are very science and technology-based. If you made money in real estate, you aren’t going to put new money into a waste heat system, for example. It’s harder to understand. (RR: That’s ironic.) So we decided in 2004 that I would spend a lot of my time on what we would call science experiments. So we have cut off perhaps four or five things.

EC (15:48): Which was the biggest disappointment?

VK: Let me just finish the thought. The ones we have cut off, we cut off relatively early. So, of the 10 science experiments we did, we cut off five of them with a million dollars invested. Who cares? The problem is when you invest $50 million and cut it off. That’s the problem. We have not had any large cut-offs – I am trying to think – in our clean tech portfolio. When we have invested a lot of money, there’s one or two places – well one we wrote off; one called Altra (RR: Altra is a corn ethanol producer that is on the ropes). There’s one place we actually decided to change the plan – Cilion – and made it capital neutral, so they don’t need a lot of cash. Got rid of the debt; the company is going fine, but sort of on the slow boat.

(RR: When Cilion was formed in 2006, they announced they would have 8 plants in operation by 2008 and achieve an energy return of better than twice that of gasoline. Here in 2009 they have zero plants in operation. The formation of the company included much fanfare, such as this quote from VK: “Cilion will be able to single-handedly produce all of the ethanol that the Governor has ordered for 2010 [900 million gallons], based on current consumption.” So far, they have proven to be nothing but a money pit. So what if California had counted on that ethanol? These are the dangers of having someone unduly influencing energy policy and being “often wrong.”)

EC (16:57): How about Hawaii Bio?

VK: Hawaii Bio was a tiny investment. It was sort of like – I don’t even remember – under a million bucks. It’s actually going pretty well. They have only spent, cumulatively, a few hundred thousand dollars in their whole life. The idea there was very simple, and it’s still valid. We teamed up with the three largest landowners in Hawaii; about 640,000 acres and said when the technology comes along – and all they are doing is looking for technology; they aren’t developing any technology of their own – that land will be a strategic asset for the fuels area in Hawaii. And so we have been talking to a lot of technology providers, spending very little money. We’ll tread water until the right technology comes along.

EC (18:03): Last fall you said project finance was not an area you want to be headed into. Talk a little bit about where you see cellulosic ethanol going, and isn’t that an area where you have been involved with project finance?

VK: It depends on what you call project finance. Cellulosic technology is something I am very interested in; I actually think it’s the only thing that can replace the oil; I am fairly confident that within the next 5 years it will be cheaper unsubsidized than oil at $50, $60 a barrel.

(RR: I would like to see the math on this. It’s amazing that someone can believe this, despite there not being a single commercial-sized cellulosic ethanol plant in existence.)

EC (18:48): Let’s look at some of the numbers. You don’t like plain ethanol, right; the kind that comes from corn and soy?

VK: Right. To be fair to the corn guys, they served their purpose. I have said for years that they are a good stepping stone. This is important. I will tell you a funny story that really makes a lot of sense. About two years ago, we said that corn ethanol would be a good stepping stone; they have raised a lot of visibility; there’s a lot of pumps; cars are flex-fuel capable. It helped set up the infrastructure. The economics of corn will not work long-term relative to cellulosic. We had a company called Gevo that were not doing corn ethanol, they were doing butanol. (RR: Butanol is something that was produced commercially via the biological route before the petroleum route displaced it; I have explained the issues with bio-butanol here).

They decided to change – not their science; they have bugs that produce butanol and on to some other things – but they changed their strategy for developing the process; the plants they use – to use corn ethanol plants. They have been doing this for two years now; planning on corn ethanol plants being available at 20 cents on the dollar. (RR: And as we saw recently with the Valero purchase of Verasun’s assets, others are also interested in picking up ethanol plants for pennies on the dollar). And developing a process technology that can use them. And in fact the largest maker of corn ethanol plants in the country – or one of the largest, ICM – about three months ago signed an exclusive agreement with them to convert corn ethanol plants into higher value products. So that’s a great example of how every problem is an opportunity.

(RR: While they may be able to reuse portions of a corn ethanol plant, the distillation of the butanol is going to be much different. Distillation capacity will need to be added during any conversion of ethanol plants to butanol plants. I have looked into this already at someone’s request, and I did spend years working in a butanol plant.)

EC (20:38): From your point of view, it’s the 2nd generation ethanol (VK: Absolutely) that’s going to make the most sense. What’s had to go into that is a lot of biotech engineering, finding microorganisms that can efficiently convert. (VK: Sometimes, not always) Finding fuel stocks that will be cheap enough, whether you get them from trees or other brush or winter crops and so forth. Take us through the numbers. Where do the prices have to be in order to make that work, and what happens if oil declines in price? What happens if it gets down to $30/bbl?

VK: What I would say is that unless there’s a competitor to oil, I don’t think oil is going to $30/bbl. (EC: Even though John Doerr was in the Middle East, and people told him, “John, it’s going to $30/bbl?) I won’t speak for John. When we plan for unsubsidized market competitiveness, we plan on $50 oil. I suspect the price will be much higher, especially when economic growth resumes. And whether it’s higher in a year or five years doesn’t matter as much. Not only that, the problem isn’t oil anymore, it’s a carbon constrained world. And we are going to have legislation on that. It doesn’t matter whether the science of climate change is right or wrong. Assume for a moment that we discover over the next 10 years that climate change science is wrong, and we don’t have a climate change problem – not something I believe. We will still end up with legislation in the next five years. So, at this point it is fait accompli; it’s going to happen.

EC (22:50): Doesn’t that amount to government subsidies?

VK: No it doesn’t. If you dump your wastewater into the river, is it a government subsidy if they require you to clean it up? In fact the nuclear industry is the one that’s subsidized. They say we’ll take your toxic waste, the government takes responsibility and subsidizes them. There is not a chance that you [nuclear] can compete in the market unsubsidized. Even if it had the toxic waste subsidy where they took waste off, you still couldn’t compete at market interest rates. There’s not a viable nuclear plant at 15% IRR or 15% debt, which is what the solar guys contend with. It’s only because of 5% loan guarantees from the federal government that keeps nuclear in business.

EC (24:30): Come back to the tax on carbon, though, because there will be a tax. Right? (VK: Yeah). What do you predict that legislation is going to be?

VK: I suspect…look it’s hard to predict politics…I suspect it won’t happen this year it will happen next year. Many people are pushing to have it before Copenhagen this year. I hope we do. There is a 50/50 chance the House can pass a bill by summer. The Senate will take longer, and it will get stuck in the Senate. Anyway, my expectation is that next year we will have a carbon cap and trade.

EC (25:30): Do we know enough about how to make cap and trade work? Isn’t that market just an opportunity for fraudsters to come in?

VK: Any market will have fraudsters to begin with. (RR: He went into an explanation of events that have led to stock market regulations). Will it take 10 years to get a system in place where there is not too much fraud? Yes. (RR: And during those 10 years another administration can come in and dismantle the whole thing).

EC (27:20): So you are willing to put up with an ill-defined, highly-regulated system to have cap and trade?

VK: We have to have cap and trade. We don’t have a choice. (RR: VK compares the need for homeowner’s insurance to the risk that climate change is catastrophic). If we buy home insurance, why shouldn’t we buy planet insurance? (RR: VK discusses the risks that climate change will lead to 100 million deaths; also suggests that the growth rate in China is exaggerated by neglecting “off the books” environmental damage).

EC (29:48): What is a cap and trade system going to do in the United States if we enact it without China?

VK: I suspect China will be part of it in some way. (RR: Discusses targets for developing countries, but doesn’t really answer the question of how China will be compelled to participate. He then referred people to this paper on his website that further explains his ideas.).

EC (33:50): Talk about efficiency. We are hearing a lot about the smart grid; a lot of smart grid technology involving more efficient use of power; we are hearing a lot about Silver Spring which is a company that I think you passed on. Why not? That seems like it would fit your strategy; great, low-cost investment; big bang for the buck.

VK: Silver Spring is a good company. (EC: Why did you pass?) I wouldn’t say I passed, what I would say is that what Silver Spring is doing is not what we are investing in. By that I mean we don’t invest at the valuations at which Silver Spring was raising money. It’s a different domain. (RR: EC explains that Silver Spring is doing smart metering). Efficiency is absolutely in our sweet spot. We are reinventing lighting. We are reinventing motors. We are reinventing air conditioners that haven’t been reinvented for 75 years. Every air conditioner still has a compressor; we are trying to do one without a compressor. We are reinventing batteries, pumps; anything that consumes energy, we are interested in improving.

A smart grid is a good thing to do. I would say that it’s very fashionable among environmentalists. (RR: VK says to remind him to rant later about environmentalists, whom he said cause half the damage). But efficiency is important, smart grid is important, but if I was asked, the money that was allocated to the smart grid in the stimulus package – is that the best use of that money? Absolutely not. (RR: VK says he would rather have a smart grid so wind energy in North Dakota can get to New York; then goes into the differences between a smart grid and a transmission grid.) An area of less than 100 miles by 100 miles in Nevada – and there are plenty of those – could replace 100% of U.S. electricity with solar. (RR: I have done calculations consistent with that sort of estimate, but there are some big caveats like intermittency). Why don’t we have it? Because we don’t have a grid.

EC (39:00): Let’s get to those electric cars. You don’t like the Prius.

(RR: This takes us just past the halfway mark of the interview. I will pick up the second half and conclude it in Part III).

May 1, 2009 Posted by | Altra, butanol, cellulose, cellulosic ethanol, Cilion, climate change, global warming, Hawaii, nuclear energy, Vinod Khosla | 75 Comments

Steven Chu at the 2009 EIA Energy Conference

Because I am terribly snowed under, I am going to provide the summaries in pieces. But there are some other options if you want immediate gratification on all of the sessions. Professor Dave Summers – aka former editor ‘Heading Out’ at The Oil Drum – has several updates posted at Bit Tooth Energy. Neal Rauhauser, who is founder of the Stranded Wind Initiative, also published a summary over at Daily Kos. Eventually, I believe all of the presentations will be available as was the case for the 2008 Energy Conference.

Day 1 – Steven Chu Speech

I was quite looking forward to hearing from Energy Secretary Steven Chu, so I grabbed a seat up front. Chu started off by saying the DOE is the biggest source of science funding within the government, and that science and technology absolutely must solve the energy issue. The major thrust of his speech was that we must rein in carbon emissions to avoid a climate catastrophe, but he primarily focused on electricity. Chu correctly noted that imported oil has become a huge drain on the economy and that recessions typically follow oil price spikes, but there was otherwise scarce mention of liquid fuels. As Professor Summers points out in his summaries, the speech followed pretty closely a speech that Chu gave two years ago. In fact, he used quite a few of the same slides.

The first step that we need to take, according to Chu, is to make a big investment in energy efficiency. He would also like to double alternative energy production in 3 years, but again the talk was centered around electricity. Chu noted that solar PV will play a major – if not the major – role in energy 100 years from now. He also noted that we really need cheap solar cells with polymer backing. Of course most of our polymers are oil-derived, which is just another example of how we take for granted the role that cheap oil plays in enabling some of these renewable technologies.

When he did talk about liquid fuels, he discussed some DOE programs in which bacteria and yeast are feeding on sugars and producing gasoline and diesel. As I have noted before, I think production of fuels that can phase out of water is the right approach. This greatly minimizes the energy requirements for purification. It is technically very challenging, but there are some companies working on this approach.

Questions/comments were collected from the audience. I submitted a comment and two questions:

1. It seems ironic to me that the domestic oil and gas industry is being marginalized while at the same time you are pleased with OPEC for not cutting production. (What I was thinking but didn’t write: If you really want to see what it might be like to marginalize our own oil and gas industry, encourage OPEC to cut a couple more million barrels/day of production.)

2. Predict the year that cellulosic ethanol achieves true commercial viability. (I was really interested in his thoughts here, and whether he distinguished between gasification and true cellulosic ethanol).

3. What percentage of our transportation fuel will be biofuels in 2030? (Most projections show that it will still be overwhelmingly petroleum-based, and I wanted to see if he thought the same).

These questions were basically designed just to get a feel for whether I think his views are overly optimistic. However, he only took two questions from the audience:

1. What is most important – energy independence or CO2 reduction? Chu’s answer: He compared it to the game he played as a kid: Which would you rather be, blind or deaf? Of course they are both important, but I think the gist was that he considered the CO2 issue more pressing.

2. How does nuclear power fit into your plans? Chu’s answer: It must play an important role this century.

Following that, he exited out the back. I thought he had left the building, but when I stepped out to grab a cup of coffee I bumped into him. He had about 10 people lined up to shake his hand, so I passed on that opportunity. Maybe next time. But in an upcoming essay, I am going to address a theme that I think about often: What If I Am Wrong? It will essentially be about risk assessments (What If?), but I also want to pose the question to someone with Chu’s basic views, and ask about the consequences if he turns out to be badly wrong on some of his assumptions.

In the next essay, I will run through the rest of the conference by focusing on bits that I found interesting/odd/etc.

April 10, 2009 Posted by | EIA, nuclear energy, Steven Chu | 33 Comments

The Nuclear Comeback

The natural gas crisis caused by the cutoff of supplies from Russia earlier in the year crystallized for many nations the threat of being overly dependent on another country for their energy supplies. Over the past decades, countries in Europe have shut down nuclear reactors, which caused them to turn to other energy supplies – like gas from Russia. Bulgaria began pushing for a return to nuclear power during the crisis, and concerns over gas supplies have already prompted Germany to reverse course and change their stance on phasing out nuclear power.

Italy has decided that this seems to be a prudent course of action:

After a 20-year ban, France helps Italy embrace nuclear energy

MILAN, ITALY – Twenty years after banning new nuclear plants, Italy is turning to France to restore its nuclear program.

On Tuesday, Italy’s Prime Minister Silvio Berlusconi signed a cooperation deal with President Nicolas Sarkozy for the construction of four power plants in Italy.

Italy shut down its four nuclear plants following a 1987 national referendum that rode a wave of fear and outrage over Russia’s Chernobyl reactor meltdown. Now it is joining a growing number of European countries – including Germany, Slovakia, and Bulgaria – that are returning to nuclear energy due to concerns both about carbon emissions and about the reliability of energy supplies from Russia.

Even without the gas crisis, this was inevitable because the long-term supply situation isn’t overly favorable for Europe. It is inevitable that the UK will turn back to nuclear power in a big way (lest their citizens freeze as fossil fuel supplies deplete) and it is inevitable that we in the U.S. will expand nuclear power in a big way in the decades ahead.

Regular readers know that I strongly favor an expansion of renewable energy, but renewable electricity is starting from a very small base. Electricity produced from renewables (minus hydropower) is less than 3% of total U.S. electricity production, and even with aggressive growth projections that is unlikely to change dramatically. Why? Total renewable electricity production in 2007 hit an all-time high of 105.3 million megawatt-hours. The growth over 2006 was impressive; almost 10 million megawatt-hours. (2008 numbers aren’t yet complete, but it looks like they will be about 10 million megawatt-hours than 2007). Yet the average annual growth of electricity demand over the previous 10 years was 66 million megawatt hours. At that rate, renewable electricity production could quadruple in the next 5 years and just about cover historical demand growth.

So if we are serious about moving away from coal, I believe we will have to expand nuclear power. We would need to add renewables at six times our current rate just to keep up with historical growth rates. Displacing much coal is out of the question unless demand can be curtailed. As I have said before, I am not opposed to nuclear power by any means. I understand that there are environmental issues that aren’t completely resolved. But you can make that case for just about any energy source.

I do know one thing about human nature, though. When energy starts to become sufficiently expensive – as gasoline did last summer – environmental concerns will take a back seat to economic concerns. Look no further than the popularity of the ‘drill here, drill now‘ campaign. This was one issue where John McCain did get some traction during the presidential campaign. If gas is $1.50 a gallon, people are concerned about the environmental impacts of expanded drilling. At $4.00 a gallon, they are prepared to let you drill in their back yard.

The same will be true of nuclear power. Opposition will be inversely proportional to the cost of electricity.

February 26, 2009 Posted by | Italy, nuclear energy | 114 Comments

Energy at the WSJ

The online version of the Wall Street Journal has a new section devoted entirely to energy:

Energy – WSJ

It contains numerous energy-themed articles ranging from ‘going green’ to changes in the refining industry to investing in natural gas to thin film solar panels. Excellent stuff.

Here are some snapshots of the wealth of information featured there:

Countries with the highest per capita energy consumption in 2005* (in kilograms of oil equivalent per person)

Based on International Energy Agency data for 2005, the most recent year for which IEA has data. Note: Numbers have been rounded off

Source: World Resources Institute

Qatar 19,466
Iceland 12,209
Bahrain 11,180
Kuwait 11,102
United Arab Emirates 10,354
Luxembourg 10,138
Trinidad and Tobago 9,736
Netherlands Antilles 9,057
Canada 8,473
U.S. 7,886

Countries with the lowest per capita energy consumption

Bangladesh 171
Eritrea 175
Senegal 261
Myanmar 291
Haiti 293
Congo, Dem Rep 295
Congo 300
Ethiopia 304
Benin 306
Yemen 321

Countries with the most nuclear power generation in 2007, in billions of kilowatt hours

Source: International Atomic Energy Agency and U.S. Energy Information Administration

U.S. 807
France 420
Japan 267
Russia 148
South Korea 137
Germany 133
Canada 88
Ukraine 87
Sweden 64
China 59

Countries with lowest super gasoline* prices as of mid-November 2008 (U.S. dollars/gallon)

United States super gasoline price: $2.12

*Super gasoline has a higher octane rating than regular gasoline. The higher octane rating helps
prevent a vehicle’s engine from igniting before the optimal time.

Source: German Technical Cooperation

Venezuela $0.08
Iran 0.38
Libya 0.53
Saudi Arabia 0.61
Bahrain 0.79

Countries with highest super gasoline prices

Eritrea $9.58
China (including Hong Kong) 7.38
Turkey 7.08
Cape Verde 6.96
Malawi 6.74

February 9, 2009 Posted by | energy consumption, gas prices, nuclear energy, wall street journal | 50 Comments

A Critique of Obama’s Energy Policy

Listening When We Disagree

Barack Obama has said that energy is going to be one of his top priorities. I believe he is completely sincere about this and that energy will get a lot of attention early on in his administration. I believe he is committed to moving the U.S. toward energy independence and a greener energy future. However, one can recognize energy as an important priority, yet sharply differ on the policy direction that is needed. For instance, some may have energy as a high priority because they feel that gasoline is too expensive. Their priority may be to keep gasoline prices low so people’s budgets aren’t adversely impacted by their fuel bills. Some can see energy as a top priority, and yet see a solution as suing OPEC to provide more oil.

On the other hand, someone else may have energy as a top priority, but think gasoline prices need to be much higher in order to shift our demand away from fossil fuels. This is the nature of my disagreement with some aspects of Obama’s energy plans: We broadly agree on the big picture, but differ on how to get there. And since I recently heard him say “I may not agree, but I will listen”, here is my attempt to highlight what I feel are the flaws in his energy proposals.

Up front, let me state my assumptions. These will of course influence my opinion on his proposals. I believe that the present rate of fossil fuel usage in the U.S. is unsustainable. I believe that world oil production is very near a production peak, and an energy policy that is keenly aware of the potential for energy shortfalls – which will lead to severe oil price volatility – is paramount. I believe that even if oil production does not peak in the next five years, oil production will not be able to be expanded quickly enough to stay ahead of demand. Finally, I believe our current breed of liquid biofuels is too fossil-fuel dependent to enable them to make up for significant energy shortages, and that there are no obvious silver bullet technological fixes around the corner.

These key assumptions impact the direction that I believe energy policy should take. While I believe the evidence supports human-caused global warming, I don’t think the world has the collective will to voluntarily reign in greenhouse gas emissions. I think this will ultimately only be accomplished by a combination of high prices and lack of availability. So the energy policy that I would propose would not focus on protocols and agreements for reducing greenhouse gases. Even though many countries signed on to the Kyoto Protocol, carbon dioxide continued to accumulate in our atmosphere – even from the signatories of the agreement. There will always be countries that will choose not to be a party to such protocols, thus I believe a greenhouse gas reduction will only come about as a consequence of a reduction in fossil fuel usage.

Thus I believe a sound energy policy should focus on 1). Minimizing per capita energy usage; 2). Finding sustainable, affordable alternatives; 3). Managing the down side of the production peak such that severe shortages are avoided. 4). Communicating to the public the nature of the problem, and explaining why sacrifice is needed.

The Fossil Fuel Blind Spot

While I think many of Obama’s proposals are spot on, and with a little tweaking he could have a great energy plan, I think he overestimates how easily alternatives can displace fossil fuels. Thus, he largely ignores the need to slow the decline of U.S. oil production. Late in the campaign, he started to pay some lip service to the need to (responsibly) drill, but not too many people are expecting him to put much emphasis on that aspect. That “responsibly” qualifier is usually a sign that 1). Someone thinks drilling is not presently responsible; 2). They are going to put hurdles in place that discourage drilling. In fact, one of the Obama proposals is

• A “Use it or Lose It” Approach to Existing Oil and Gas Leases.

Oil companies have access to 68 million acres of land, over 40 million offshore, which they are not drilling on. Drilling in open areas could significantly increase domestic oil and gas production. Barack Obama and Joe Biden will require oil companies to diligently develop these leases or turn them over so that another company can develop them.

That sounds great. Just one problem, though. There already is such a provision. To continue to beat this drum is either pandering, or demonstrates a fundamental misunderstanding of the oil and gas regulations in the U.S. The way these leases work is that companies bid on them competitively. They bid because they think there might be oil there. They then pay annual fees to the government over the course of the lease as they explore, and then if they find economically recoverable oil they begin to develop the lease. But the time between acquiring the lease and the beginning of production (should oil be found there) is several years. You don’t acquire a lease and immediately start producing oil. Further, if an oil company did acquire a lease and didn’t develop it (which would happen if they don’t find any oil there) then it goes back to the government anyway. Oil companies can’t keep leases tied up indefinitely without developing them.

The fact that these are the sorts of policies that are highlights of Obama’s domestic exploration plan indicate to me that he doesn’t look at domestic oil production as a big part of his overall energy plan. In fact, Geoffrey Styles recently noted the same in an essay that examined Obama’s plans in detail:

Senator Obama appears to consider the US tapped out for oil, and apparently expects his energy independence goals to be met without more help from that quarter. That assessment pervades his approach to the oil & gas industry, though recently he has described natural gas in more favorable terms. It is also consistent with his periodic citations of the “3% of reserves vs. 25% of consumption” soundbite, which drastically understates the remaining resource potential of the US. This may explain his 2006 vote against a modest expansion of the allowed drilling area in the Gulf of Mexico, and his restrained support for expanded access to oil & gas during this summer’s Congressional debate on various drilling proposals.

I think the vast majority would agree for the need to move away from oil as our principal source of energy. But fossil fuels and nuclear power presently combine to provide more than 90% of America’s energy needs (Source: EIA). And I think there are too many people who fail to understand exactly why that is the case. As Geoffrey Styles put it so well in the afore-mentioned link “it is counter-productive to pit solar, wind and biofuels against domestic oil & gas, which today contribute roughly 30 times as much net energy to the US economy, and could do more.”

Not understanding the problem can lead to unrealistic choices. A key question for me is whether Obama will sit down with the oil companies, explain his vision, but then also listen to these companies explain the view from their vantage point. After all, these are the companies that provide the vast majority of our energy today. They might know a thing or two about energy.

I believe that 10 years from now (the time frame we could reasonably expect today’s exploration projects to start putting supply on the market) we are going to find ourselves falling in a deep supply hole, and while biofuels can help, they aren’t going to fill the void. By adopting policies now that will encourage U.S. oil production, the supply void will shrink, and prices should be more stable. And as I have argued before, we can earmark the tax revenue from new production to fund alternative energy. The point here is not to keep us dependent on fossil fuels; it is to address what I see as a pending supply shortage in 10 years. Adopting policies that discourage U.S. production will exacerbate that supply shortage. If we are near an oil production peak – as I think we are – then those policies that discourage domestic production will put the country at great risk.

Yet there is a second proposal in Obama’s plan that will discourage domestic production:

• Enact a Windfall Profits Tax to Provide a $1,000 Emergency Energy Rebate to American Families.

Obama and Biden will enact a windfall profits tax on excessive oil company profits to give American families an immediate $1,000 emergency energy rebate to help families pay rising bills. This relief would be a down payment on the Obama-Biden long-term plan to provide middle-class families with at least $1,000 per year in permanent tax relief.

I have had an internal debate on this one for quite a while. I favor higher gas taxes to reduce consumption. (And I give Obama high marks for resisting the calls by McCain and Clinton for a gas tax holiday over the summer). If a windfall profits tax is in place, I believe that this will discourage investment, and ultimately lead to higher prices as supply is constrained. Hence, the same objective is ultimately achieved – except the oil companies get blamed instead of the politicians. But the biggest difference is that gas taxes can be implemented or removed in short order. Taxes that discourage investment will have unpredictable results.

Let’s also be clear here. The oil industry does make big profits, but they are also already one of the most heavily taxed industries. And their tax payments to governments increase along with their profits. There has been a lot of coverage given to the record profits being made by the oil companies, but much less to the record windfalls in the form of taxes that governments have received over the past few years as a result.

And don’t forget that we have experimented with a windfall profits tax before. It raised far less revenue than anticipated, and caused investment to fall. An article from the Cato Institute notes:

We’ve actually been down this road before in the form of the Crude Oil Windfall Profit Tax of 1980. According to a study published by the Congressional Research Service, the tax discouraged investment in the domestic oil industry to such a degree that domestic oil production was 3 percent to 6 percent less as a result of that tax, and foreign oil imports grew accordingly by 8 percent to 16 percent. There isn’t a single credentialed oil economist in the country who would argue that windfall profit taxes are good for consumers.

Geoffrey Styles also weighed in on this provision:

If anything, [Obama] seems to regard the domestic oil industry not as a potential source of new supply, but as a source of new tax revenue. His short-term energy program leads off with one-time energy rebates–$1,000 per family or $500 per individual taxpayer–funded by a windfall profits tax on oil companies. He hasn’t put a price tag on this, but assuming all taxpayers would be eligible, it would require on the order of $20 billion dollars per year in new taxes over the next five years. Although there are legitimate differences of opinion on the justification for such a tax, its consequences for future US oil output are unambiguous: what you tax more, you get less of.

I don’t think there is any doubt that a windfall profits tax won’t help add to supplies. And refunding it back to consumers sends the wrong message: If gas prices go up, the government will protect you by taking the money from the oil companies and giving it back to you. Where is the incentive for the consumer to conserve? For the oil companies themselves, the likely impact would be that foreign earnings wouldn’t be repatriated back to the U.S., and would just be reinvested overseas. For that matter, a steep windfall profits tax would provide incentive for U.S. oil companies to simply relocate overseas.

The Ethanol Blind Spot

One reason Obama feels like he can shun the oil industry is that he comes from a ‘corn state’ and has ties to the ethanol industry. A recent Bloomberg story reported that he wants to bail out the financially strapped ethanol industry, keep the protective tariffs on Brazilian ethanol in place, and is “fully committed to it and sees tremendous value in the renewable fuels standard and continuing down this path.”

Here we have a fundamental disagreement. I have written tens of thousands of words on my opposition to corn ethanol (a random sample here). I won’t repeat all of my reasons here, but will highlight the key sticking point from my perspective. Sustainability and net energy are important. I think we should make every effort to make agriculture sustainable so we leave the soil in good condition for future generations. But the way we make corn ethanol encourages highly unsustainable agricultural practices.

Where do we pay the price for strip-mining the soil? Who is going to get the bill for degraded soils and depleted aquifers? Our children will. If we are consuming natural resources and making them unavailable for future generations, there needs to be a really extraordinary reason, like a crisis that threatens our existence. Yet we are depleting our soil to keep our cars running on a fuel that delivers a very small energy return. Most of the energy in ethanol is derived from the fossil fuels used to produce it. If we put higher carbon taxes in place, not only would it encourage conservation, but it would directly discourage ‘alternative’ energy that relies heavily on fossil fuels. A cap and trade system, or a system in which the EPA has to quantify greenhouse gas savings – will quickly degrade to a lobbying effort if the ethanol industry finds itself at a disadvantage as a result of the rules (see this example).

The “benefit” of corn ethanol – unless you happen to be a corn farmer or ethanol lobbyist – is questionable. The negative consequences need to be a part of the analysis when determining whether to continue pursuing ethanol policies. At present the environment would be better off if – instead of using natural gas to produce fertilizer and steam for the ethanol plant – the natural gas was just burned directly in CNG vehicles. (To his credit, Obama does favor increased use of CNG).

However, I think we have put an ethanol infrastructure in place that can’t be easily dismantled without severe consequences on Midwestern communities. I would not advocate pulling the support out from under the corn ethanol industry, but I would be looking for an exit strategy. Instead, Obama wants to expand the program. What I wish he would do – instead of making a priori assumptions about the value of ethanol for our energy policy – is put a task force together consisting of opponents and proponents – and let them document the pros and cons around all of the sticking points. Some, like the long-term consequences of aquifer depletion – don’t even seem to be on Obama’s radar. Present policy calls for sending that bill to our children.

The Nuclear Blind Spot

Nuclear power gets a bad rap. While it is true that there have been some very serious incidents involving the nuclear industry, the truth is that all of our energy options involve difficult tradeoffs. It is also true that countries like France derive almost 90% of their electricity from nuclear power. While the majority in France supports nuclear power, in the U.S. we have attached a particularly strong stigma toward the topic. Personally, I would rather see the U.S. use more nuclear power and less coal (particulate pollution kills thousands every year).

As is the case with fossil fuels, nuclear gets only a passing mention in Obama’s energy plan. The reasoning is clear: He thinks we are better off with ‘clean coal’ technology and a mix of renewables. In my opinion, if we discourage nuclear we will ultimately ensure that coal continues to play a dominant role in producing our electricity. While I would be the first in line for 100% solar, wind, and geothermal electricity, the EIA projects that by 2030 renewable energy will only provide 12.5% of our electricity. The EIA has a spotty prediction record, but they do a good job laying out the obstacles that renewable energy has traditionally faced:

Renewable Energy is Expensive and Capital-Intensive: Renewable energy plants are generally more expensive to build and to operate than coal and natural gas plants. Recently, however, some wind-generating plants have proven to be economically feasible in areas with good wind resources, compared with other conventional technologies, when coupled with the Renewable Electricity Production Tax Credit (described below).

Renewable Resources Are Often Geographically Remote: The best renewable resources are often available only in remote areas, so building transmission lines to deliver power to large metropolitan areas is expensive.

I personally believe we are going to exceed the EIA’s projections, but I also believe that fossil fuel depletion is going to put pressure on all sources of energy. Thus, I don’t believe we can afford not to encourage further development of the nuclear industry.

What I Like in Obama’s Plan

As I stated, there is much that I like about Obama’s plan. I have suggested my own plan in the past, and there are several areas of overlap. We agree on the need to push plug-in hybrid cars and to incentivize the purchase of these vehicles. We agree on the need to invest in a green energy future, but we differ on the details. I like his proposal to weatherize a million new homes a year, and I think incentivizing the solar, wind, and geothermal industries will pay big dividends. (I just don’t know how some of this stuff is going to be paid for). I certainly agree with the need to take our energy security out of the hands of foreign powers, but we have some fundamental disagreements on how to get there.

Also, I like the aggressive targets, but I think the most realistic way of achieving them is via a pricing lever. This is one reason I haven’t been overly enthusiastic about the efficacy of raising CAFE standards: We already make fuel efficient vehicles. What we need is the incentive to purchase them, which will be incentive to the auto industry to continue making and improving them.

Conclusions

While I think Senator Obama has great potential in front of him, and like a lot of his ideas, I can’t fully embrace his energy policy proposals. I think there are many positive elements, but in my opinion there are glaring blind spots that could lead to energy shortages. I recognize that he is going to have people trying to pull him in many directions, and this often leads to compromise in favor of the politically expedient over the technically best solutions. As he prepares to govern, he has to be very careful that some of the politically expedient solutions don’t carve out a huge energy shortfall.

Additional Reading

Obama’s Plan: New Energy for America
Geoffrey Styles on the Obama Plan
The Outline of My Energy Plan
CNN: Putting Obama’s energy plan to the test
Energize America

November 9, 2008 Posted by | Barack Obama, energy policy, nuclear energy, politics | 297 Comments