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Conflating Energy and Climate Policy: Road to Nowhere

By Kennedy Maize

Washington, D.C., March 4, 2012 — Conflating climate and energy policy in the U.S. over the past several decades has produced incoherent policy in both areas, along with considerable confusion and loss of focus, argues economist Denny Ellerman in the current issue of Economics of Energy & Environmental Policy, the journal of the International Association for Energy Economics. While sharing some attributes, the two areas of public policy have important differences, argues Ellerman, and the past 30 years of energy policy demonstrate that following that the path that intellectually combines them leads “to nowhere.”

Ellerman has been a participant and observer of both energy and climate policy for many years. Currently teaching at the Robert Schuman Centre for Advanced Studies of the European University Institute in Florence, Italy, Ellerman was for many years executive director of MIT’s Center for for Energy and Environmental Policy Research and MIT’s Joint Program on the Science and Policy of Global Change. He was also an energy economist with the Department of Energy in the Carter administration (where I first got to know him) and the chief economics thinker for the late, and long-lamented National Coal Association.

Looking back at the sorry U.S. history of energy policy, and the often parallel course taken in examining global warming as a policy issue, Ellerman sees a confusing and dangerous landscape. “Over the past thirty years,” he writes, “energy policy has become almost devoid of meaningful content; and effective climate policy involves a good deal more than reducing CO2 emissions.” Climate involves reducing other greenhouse gases, adaptation, land use, terrestrial sinks and biofuels, and other areas that don’t have much or anything to do with energy, notes Ellerman.

“Conflating climate with energy,” says Ellerman, “not only ignores these other aspects of climate policy, but also risks heading down the same road to nowhere.” That the country has moved down that road quite a distance is irrefutable, he observes.

Ellerman’s article provides a brisk, pointed history of the development of U.S. energy policy since the 1973 Arab oil embargo, a period of some 40 years that covered most of the careers of both of us. The landmarks include the Nixon administration’s silly “Project Independence,” the same administration’s counterproductive wage and price controls that included crude oil, a legacy of natural gas price controls going back to the end of World War II, the Carter administration’s feckless “moral equivalent of war,” the Clean Air Act Amendments of 1990 in Bush I, the Clinton administration’s failed energy tax proposals, Bush II’s slapdash surrender to subsidy, and Obama’s complete conflation of energy and climate policy when cap-and-trade legislation died on the congressional vine. When cap-and-trade up-and-died, Obama proclaimed that “cap-and-trade was just one way of skinning the cat.”

“Energy policy has evolved since the 1970s into the promotion of whatever form of energy has the requisite political support at the moment, and climate policy has become indistinguishable not only in the measures proposed but in the rhetoric as well,” Ellerman writes. “If the evolution of energy policy over the past three decades is a guide, climate policy will have as little effect on greenhouse gas emissions as energy policy has had on oil imports.”

A fundamental aspect of U.S. energy policy has been the notion of “energy security,” a form of either outright or virtual autarky where U.S. consumers are assured of a plentiful supply of low-cost, domestically-produced energy that is insulated from world markets. Of course, this is often at complete odds with the goals of those who fear climate change will destroy the earth and civilization as we know it. Coping with that threat, as New Yorker writer David Owen points out in his new book “The Conundrum” requires expensive, high-cost energy so that folks won’t use much of it. The subtitle of Owen’s book tips his policy hand: “How Scientific Innovation, Increased Efficiency, and Good Intentions Can Make Our Energy and Climate Problems Worse.”

Looking back, Ellerman observes that “it is remarkable both how enduring the theme of energy security has been and how meaningless the phrase has become.” In that context, he says, “climate policy has come to be seen as just another form of energy policy….”

Both energy and climate, says Ellerman, have risen to the policy agenda “because of mispricing.” In energy, that was the hangover from the days of formal government price controls. In the case of climate, “the problem is the absence of a price on the externality that attaches to the carbon content of fossil fuels….” The energy misallocation was largely cured by letting markets set prices. That was easy. “Energy security,” on the other hand, is neither attainable nor particularly desirable.

Not so for climate, says Ellerman, where, failing to put a price on carbon, the Obama administration has adopted its “skin the cat” regulatory agenda. That has meant that “the conflation of climate with energy policy is complete” and climate policy has become “indistinguishable not only in the measures proposed but in the rhetoric as well. If the evolution of energy policy over the past three decades is a guide, climate policy will have as little effect on greenhouse gas emissions as energy policy has had on oil imports.”

Do Old Coal Plants Ever Die?

By Kennedy Maize

Washington, D.C., February 13, 2012 — Environmental activists have a long record of miscalculation and misadventure. That’s been particularly true when it comes to coal. Remember acid rain? No such thing, according to a decade-long government scientific inquiry (which can’t ever quite turn itself off). Global warming? A global yawn, Al Gore to the contrary nothwithstanding. Mountaintop removal? Locals in West Virginia and Kentucky like flat land.

One of the most enduring environmental miscalculations about coal has been getting electric utilities to shut down old, dirty coal plants. Over the past 40+ years, it has seemed that old coal plants never die, they just get patched up, equipped with protheses, pushed down in the dispatch order, and go on making watts and (increasingly less) pollution.

This coal conundrum goes back to the days of the original Clean Air Act in 1970. Environmentalists at the time, among them the legendary, long-serving David Hawkins of the Natural Resources Defense Council (who, except for a brief sojourn as clean air chief in Jimmy Carter’s EPA, has served continuously with NRDC since its founding), reckoned that shutting down the creaking, elderly coal plants was only a matter of time, technology, and economics. The old dirties would collapse of their own weight and age-induced infirmities. So the original law included provisions “grandfathering” the old coal plants, policy pushed by the electric companies that built and owned them, such as Cleveland Electric Illuminating. The thrust of the new air law was on new plants.

It turned out, however, that there was plenty of life left in those rusting, belching hulks. The major changes in the Clean Air Act, version 1977 (originally planned for 1974) didn’t shut them down. Some obscures provisions of the act, plus the political prestidigitation of old pros such as Ohio’s Democratic liberal lion, Sen. Howard Metzenbaum, kept them alive. Ohio, it turns out, was the home of a fair number of the big dirties. Then came the 1990 amendments and their focus on acid rain. A lot of big old coal plants got wet limestone scrubbers (despite the self-serving and false claims of the utility industry that they wouldn’t work). The plants lived.

The plants themselves often outlived the companies that built them. CEI is long gone as a free-standing utility. It now operates as “The Illuminating Company,” basically a brand name under the FirstEnergy holding company. But the Eastlake plant still squats on the Lake Erie shore, where it has been generating 1,200 MW of coal-fired power since CEI built it in 1953.

Eastlake power plant (courtesy of FirstEnergy)

Now, in 2012, the old home for coal is beginning to see its ranks of the lame and the halt thinning. Coal-burning utilities in the Midwest and South are announcing closures, blaming them on the latest round of EPA bullying. As long as that doesn’t harm reliability, I have no problem with that outcome. I’m skeptical about utility claims that shutting down these increasingly marginal plants will cause the lights to even flicker.

But I’m not persuaded that the recent EPA rules, particularly the mercury ukase, have all that much to do with it. Instead — and I credit my perspicacious editor Bob Peltier for first pointing this out — it was the failure of a major initiative on the wish list of the major environmental groups (that means you, Dave Hawkins) and utility executives interested in gaming the regulatory environment (Jim Rogers, anyone?) that kept a lot of coal plants running beyond their time. The prospect of cap-and-trade legislation, which many analysts figured was a slam-dunk when the Obama administration rolled into Washington in 2009 with Democratic majorities in both the House and Senate, kept the coal plants alive. They would become generators of carbon dioxide allowances when the utilities agreed to shut them down in response to the caps. The CO2 reductions would have become monetized and, no doubt, securitized as well. The companies would have been paid to shut plants it was probably in their economic interest to close eventually anyway.

When that didn’t happen, there was little need to keep the plants running. The new EPA rules were an easy excuse to start closing them down, particularly because of a second factor that clobbered the plants’ economics: natural gas.

The shale gas revolution — and, no, I don’t think that’s hyperbole — rendered the oldest, least efficient coal plants uneconomic. Gas prices are at historic lows; there doesn’t seem to be any chance they will go up significantly anytime soon. Need new generation? Build gas, reap capital cost savings, fuel savings, and tangible environmental savings, including significant CO2 reductions, while maintaining reliability. Seems like a no-brainer to me.

And that brings us back to Eastlake, in continuous operation since I was 9 years old, burning some 4 million tons of coal each year, providing jobs for over 300 people, and putting more than $6 million annually into the local tax base. FirstEnergy on January 26 announced it would close the plant and five other coal burners, including a very old unit in Williamsport, Md., near where I live. The plants will be out of service by the fall.

A FirstEnergy spokesman said, “This was a very tough decision for us. It’s not a good day here at FirstEnergy. This is the real result of the environmental rules as they were laid out.” That’s true, but not exactly as the spokesman meant it. The real culprit wasn’t a rule EPA adopted, but one that Congress, probably unwittingly, prevented. Oh, and add the working of the energy market to the list.

The Year in Cars: It’s About Black, Not Green

By Kennedy Maize

Washington, D.C., January 29, 2012 — Detroit is back and the year 2012 looks promising for U.S. automakers. But unlike the hype of early last year, the color that most of the auto industry is seeing in its dreams for 2012 isn’t green, it’s black. That’s in black ink, which has firmly replaced the flowing red of the recent recession years.

The big three of the U.S. — counting Fiat-owned Chrysler — all reported profits for 2011 and 2012 looks even better, according to Associated Press auto writer Dee-Ann Durbin. Overall, U.S. auto sales totaled 12.8 million in 2011, up 10% over 2010 and 22% over the 2009 figures.

Chrysler, which went through formal bankruptcy in 2009, turned in a particularly strong year. It saw its sales up 26% for 2011, driven largely by sales of the Jeep Grand Cherokee and the Chrysler 200 sedan. Durbin noted that Chrysler ousted Honda as number 4 in the U.S. market share top 10.
Honda and Toyota suffered badly in 2011 from the March 11, 2011 Japanese earthquake and tsunami that disrupted supply chains throughout the island nation.

For 2012, forecaster and online car seller TrueCar.com is predicting U.S. sales of 14 million cars and light trucks.

But while 2011 was a good year for cars, it wasn’t because of the over-hyped and under-performing electric segment of the industry offerings. While GM execs such as Bob Lutz long ago said their future was tied to EVs — and the Obama administration, which wanted to, believed them — GM’s Chevy Volt underwhelmed ordinary consumers. Sales, never very good at best, went south when GM and the government reported that Volt batteries were spontaneously combusting. GM’s Volt sales target for 2011 was 10,000 units, which it won’t hit until sometime this year. By most accounts, GM sold around 7,000 Volts in 2011.

When it comes to Volt sales, the Cato Institute’s Pat Michaels pointed out recently that a lot of those sales have been to governments and fleet buyers, with proportionally fewer to average (or above average when it comes to income) buyers. Michaels deconstructed the Volt’s December sales figures in a recent op-ed in the New York Post. GM sold 1529 Volts in the final month of the year. More than a third were to fleet buyers, but not, Michaels noted, the traditional fleet buyers such as Hertz and Avis. Rather, they were large companies that appear to be trying to make a political statement, such as General Electric. Then there are the Volts bought by taxpayers. New York City bought 50, on the taxpayers’ tab, not that of billionaire mayor Michael Bloomberg. Deland, Fla., has bought five Volts, using Department of Energy stimulus grant money.

Michaels wrote that “until GM is transparent and forthcoming about how many (or how few) Volts are selling to private individuals, we aren’t going to know.” But the signs, he said, are “ominous” about the viability of the Volt. Even Bob Lutz, “the car guy’s car guy,” is skeptical about electric cars as everyday vehicles. He told CarTalk.com that “people buy cars based on style. No one will buy an electric car that looks like a Dorkmobile. If it’s beautiful and it does what people say it’s going to do, they’ll pay the price.”

Lutz is particularly skeptical of the market appeal of Nissan’s battery-only Leaf, which some early adopters have gobbled up. The Leaf reportedly sold 9600 cars in 2011, beating the Volt. “I’m a little bit less enamored of the Nissan Leaf,” he said,” because it has all the normal electric car limitations—on a good day it has a range of 80 miles, which means that a lot of commuters will experience what they call ‘range anxiety.’”

Nissan’s all-electric Leaf

A journey by Stephen Smith, head of the South Alliance for Clean Energy, demonstrates the limits of the Leaf. Smith drove his new Leaf on a 180-mile trip from Knoxville to Nashville to visit family over the holidays. The trip required four stops at Cracker Barrel restaurants along the way (which feature “fast” chargers which will replenish the car’s battery in only 30 minutes). The longest distance between charges was 51 miles.

Adding up all the electrics — all flavors including hybrids, plug-ins, and pure plays — notes a Reuters account, and they about 2% of U.S. car sales last year. Take out the now-conventional hybrids and the total is less than 20,000 cars sold during the year. Says Auto Trends Consulting analyst Joe Phillippi, “I’d say they failed.”

The problem with today’s electric cars is the same that doomed the technology in the early 20th Century: the battery. There still aren’t batteries available that come close to matching the power-to-weight-to-price equation of the internal combustion engine. The Fisker Karma is a fine example of the problem with current battery technology. The car, a high-end plug-in hybrid, has had so many problems it ought to be named the Bad Karma. The cost of the batteries has driven the base price of the car to $102,000, up $20,000 from the original plan for the Karma.

Energy secretary Steven Chu has proclaimed that he sees the price of an EV battery that goes for $12,000 today falling to $3,600 by 2015. He said the administration would reach its goal of 1 million electric vehicles on the road in the U.S. by the same time. Those claims drew considerable skepticism when Chu made them at the Detroit auto show in January. Michigan columnist Henry Payne scoffed, “This from the same man who flushed $500 million in taxpayer dollars down the Solyndra drain because he got solar panel prices wrong.”

Ironically, two weeks after Chu’s bold prediction, lithium ion battery developer Ener1 filed for Chapter 11 bankruptcy, despite a $118.5 million DOE stimulus grant. Market research firm Citron cast doubt on how well DOE exercised due diligence before doling out funds to Ener1. The research firm said: “So here is the story in a nutshell (or the trunk of a Prius). It is Citron’s opinion that Ener1 is just a corporate shell company with a long history of failed businesses based on exaggerated promises. Management has tried everything from video games to visualization software to set top boxes for television. All of these businesses have failed — miniscule revenues and never a penny of profit delivered to investors. They purchased Delphi’s years-old attempt to get a lithium battery business going, and got a sublease on a manufacturing plant in Indianapolis. Since then we haven’t seen a single sign of a viable business.”

For me, long a skeptic of electric cars and a fan of diesel technology, the future doesn’t look promising for the administration’s push for electric vehicles. But it does look very good for the luxury liners. Rolls Royce (owned by BMW) had a banner year in 2011, with sales up 31% (to a Volt-like total of 3500 cars). The Wall Street Journal reported from the Frankfurt auto show, “Demand for luxury sports-utility vehicles is booming worldwide, defying concerns that rising fuel prices and environmental concerns would inevitably crimp demand in a lucrative segment for top manufacturers.”

Or as Michigan’s Henry Payne said after Chu and his crew left the press week tour of Cobo Hall in Detroit before the opening of the auto show, “As Chu and his entourage boarded a plane back to Washington, automakers were already busy preparing the show floor for public consumption next week. Chu’s electrics will move to the background as automakers flog the popular SUVs that have once again captured over 50 percent of the U.S. market.”

The author owns a 2004 Toyota Highlander SUV and a 2011 Chevy Express full-size van, both powered by conventional gasoline internal combustion engines. He lusts for a new VW Toureg diesel.

SOTU: Who Needs Energy Policy?

By Kennedy Maize

Washington, D.C., January 25, 2012 — For as long as most of us can remember, both U.S. political parties have been shouting from the partisan tree tops that the country needs an “energy policy,” whatever that might mean. The parties disagreed on just what it should be. The GOP’s mantra has always been “produce, produce, produce” with a solid soupcon of nukes. The Dems have pushed “conserve, conserve, conserve,” all green at the gills.

But, as President Obama made clear in Tuesday night’s State of the Union speech, America does NOT need an energy policy. He didn’t say it outright, but his message clearly demonstrated that we are doing just fine without some sort of over-arching, politically-driven command-and-control guidance from above on how to find, make and use energy and power.

Here’s the relevant portion of what Obama said about energy in the U.S.:

“Over the last three years, we’ve opened millions of new acres for oil and gas exploration, and tonight, I’m directing my Administration to open more than 75 percent of our potential offshore oil and gas resources. Right now, American oil production is the highest that it’s been in eight years. That’s right – eight years. Not only that – last year, we relied less on foreign oil than in any of the past sixteen years.

“But with only 2 percent of the world’s oil reserves, oil isn’t enough. This country needs an all-out, all-of-the-above strategy that develops every available source of American energy – a strategy that’s cleaner, cheaper, and full of new jobs.

“We have a supply of natural gas that can last America nearly one hundred years, and my Administration will take every possible action to safely develop this energy. Experts believe this will support more than 600,000 jobs by the end of the decade.”

That’s right, the nation is on a steadily descending path on use of foreign oil, through a combination of new production – Bakken and Marcellus come to mind – and conservation from market-driven energy prices. Thank goodness the government has not intervened to try to control gasoline prices. And, yes, recession played a role in the conservation but I doubt that either party wants credit for that.

Take a look at this graphic from the Energy Information Administration:

The president didn’t mention, but he could, that the U.S. is now a net exporter of petroleum products. I haven’t done the math, but I strongly suspect that current U.S. natural gas prices, adjusted for inflation, are the lowest in U.S. history. At $3-$4, they are astonishingly low even unadjusted. What accounts for that? Mostly the rise of shale gas, a development (Obama to the contrary notwithstanding) almost entirely driven by the free market with very little input from government “energy policy” or federal funds.

“Energy policy” is a beguiling phrase. Uttering it, particularly with an Eastern European or British accent, makes the utterer sound profound. “Harrumph, what the United States desperately needs is an Energy Policy.” But at bottom, it’s a bogus concept, as recent history demonstrates. The federal government, regardless of who has been at the wheel, has tried to steer energy markets in various, usually feckless, ways. The government turns the wheel to the left and energy markets go right. Hard right turns yield a careen to the left. Go figure. Maybe the best course, as I’ve often argued in this blog, is to do nothing.

The best advice I’ve seen recently on energy policy comes in a broader context from Stanford economics professor John Taylor, writing in today’s Wall Street Journal. In the article, and in his new book — First Principles: Five Keys to Restoring American Prosperity (WW Norton) – Taylor writes that the key to sound, long-term economic development is that “families, individuals and entrepreneurs must be free to decide what to produce, what to consume, what to buy and sell, and how to help others. Their decisions are to be made within a predictable government policy framework based on the rule of law, with strong incentives derived from the market system, and with a clearly limited role for government.”

To extrapolate, a point illustrated by the facts Obama cited Tuesday night: We don’t need no stinkin’ energy policy. What we have now works.

Obama Names Tony Clark to FERC

By Kennedy Maize

Washington, D.C., January 24, 2012 – President Obama yesterday said he will nominate Tony Clark, retiring chairman of the North Dakota Public Service Commission to the Federal Energy Regulatory Commission, replacing departed commissioner Marc Spitzer in one of the two Republican seats on the commission.

Clark was first elected to the North Dakota utility regulatory commission in 2000 and reelected in 2006. According to the Bismarck Tribune, Clark earlier this year said he would not run for reelection to the state commission. His term ends at the end of this year. Clark’s FERC nomination was a result of lobbying the administration by North Dakota’s junior Senator, Republican John Hoeven, working Senate Republican Leader Mitch McConnell of Texas. Hoeven, a member of the Senate Energy and Natural Resources Committee, was North Dakota’s governor during most of Clark’s term on the PSC. He served a one-year term as president of the National Association of Regulatory Utility Commissioners.

Before running for the PSC, Clark, 40, represented a Fargo district in the state legislature from 1994 to 1997, when Gov. Ed Schafer named him the state’s labor commissioner. He has degrees from North Dakota State University and the University of North Dakota. He is a former eagle scout and has been active in scouting since.

Tony Clark

North Dakota has become one of the most important energy states in the U.S. with the development of horizontal well drilling and hydraulic fracturing. The new approach to drilling for fossil fuels has led to a boom in both oil and natural gas production to the state. According to the Wall Street Journal, North Dakota in November pumped more crude oil than Ecuador, the founding nation of the Organization of Petroleum Exporting Countries. FERC has jurisdiction over siting of both oil and natural gas pipelines, which could represent a growing task for the commission, particularly as President Obama is said to be ready to make increased domestic energy production a feature in his State of the Union address tonight.

Clark’s nomination also has won support from the state’s senior senator, Kent Conrad, who is not running for reelection. “Tony has developed an expertise on a variety of energy issues,” Conrad said. “It will be an advantage to North Dakota and our vast energy potential to have Tony on FERC.”

Clark’s nomination must be confirmed by the Senate, which could prove a problem as presidential election politics heat up. Recent FERC nominations have been held up in partisan dealmaking. The Bismarck newspaper noted that is unclear if Clark would have to resign from the state board; his term ends December 31 pending his FERC nomination.

By law, the five member FERC consists of three members of the president’s political party and two from the minority party. Spitzer, a former Arizona regulator and legislator, held one of the two GOP seats, with commissioner Philip Moeller the other.

GE Earnings and the U.S. Economy: Up, Down or Sideways?

By Kennedy Maize

Washington, D.C., January 21, 2012 — What’s a poor reader to do? Industrial giant General Electric, a crucially important company for many in the energy biz and long a stalwart of the Dow Jones Industrial Average, announced its fourth quarter economic performance this week.

The New York Times, which always follows GE carefully, in part because the company’s headquarters is in Fairfield, Conn., headlined its account: “G.E. Says Operating Profit in Quarter Rose 6%.” The Wall Street Journal, which is the paper of record when it comes to U.S. financial news, led the paper with a story headlined: “GE’s Profit Declines 18%.” The venerable Financial Times, the London predecessor of the Wall Street Journal, reported, “GE profits limited by finance arm.”

What gives? How can three excellent newspapers, with experienced business reporters, find such disparate results from the same company report? Who is right and who got it wrong?

Answering the last question first, they are all correct, based on the 13-page earnings press release GE issued. Like far too many company press releases, the GE offering appears designed to put a positive spin on the company’s performance and force skeptical reporters to probe beneath the surface gloss. GE didn’t prevaricate, didn’t avoid, didn’t mislead. It just put its best face forward, leaving it up to the journalists to search for warts and wrinkles.

So to the NYT account accurately reflects the GE press release. The first sentence in the GE press release reports “operating earnings” of $4.1 billion (39 cents/share), “up 6% and 11% respectively from the fourth-quarter of 2010.” That’s where the Times got its 6% figure. The Times properly discounted the EPS report, as earnings per share are not just a function of earnings, but also of the number of shares, which GE has been buying back of late. Without making much of the fact, the Times correctly noted that “net earnings fell 16 percent, to $3.7 billion, largely because the year-ago quarter included to proceeds of the sale of NBC Universal.”

But the WSJ story focused on the net earnings, as the reporter zeroed in on the section of the press release describing the net after last-years sell-off. GE stated, “Including the effects of discontinued operations, fourth-quarter net earnings attributable to GE were $3.7 billion in 2011 ($0.35 per share attributable to common shareowners), compared with $4.5 billion in the fourth quarter of 2010 ($0.42 per share attributable to common shareowners, down 18%.” As the Times reported, that reflects the Universal sale.

The FT story focused on the earnings per share from continued operations increase, a bare 3% compared to the 2010 fourth quarter, figuring that shareholders are most concerned about what they are taking home from the quarter, not the big numbers. That’s a defensible decision, although not one I would make.

On balance, my choice for the account that most accurately reflects the position of General Electric following the fourth quarter is found in the Times. I think excluding one-time events such as the sale of Universal makes sense, as the result more accurately reflects GE’s ongoing business. But the treatments in the Journal and the FT, with generally more sophisticated business readers, are also accurate and valuable.

The best account of all, reported in the Journal, comes from GE CEO Jeff Immelt, a man I have frequently hammered in this blog. He said, in a conference call with reporters, “It’s a good quarter. It could have been better. I like our momentum.” That’s not only a well-formed opinion about GE, but a pretty good summary of where the U.S. economy stands going into the first quarter of 2012.

GE CEO Jeff Immelt

Obama Stumbles into Keystone XL Trap

By Kennedy Maize

Washington, D.C., January 18, 2012 – In denying TransCanada’s permit for the Keystone XL pipeline to move oil from Alberta’s tar sands projects to U.S. refineries, the Obama administration has stepped directly into a Republican political trap. Given how savvy the Obama folks are about these sorts of events, I confess I’m surprised by what I regard as a misstep.

Let me make two disclosures up front. First, I’m an Obama fan. I supported him in 2008, gave him money, worked for his election. I will do the same this year. Second, I often disagree with his energy policies, as I have done with all of his predecessors of both parties. I believe he should approve the Canadian pipeline project, primarily because denying the permit serves no purpose other than green grandstanding while approving it provides some positive benefits to the U.S. In giving the project his thumbs down, Obama is playing to his environmental base, which has found his policies lacking and confounding of late.

But let’s get to the trap in which the White House finds itself ensnared, without getting into the weeds of the merits of the pipeline. The GOP’s position on the pipeline has been every bit as political and cynical as that of the Democrats, only cleverer. Some Republican campaign strategists had been hoping that Obama would nix the project – and several have told me this on background. In rejecting the pipeline on global warming grounds, Obama is defending territory that has little political value outside those already committed to his cause. Republicans have dismissed global warming as a losing political proposition and the polling shows they are right. So Obama gains little in taking on the pipeline.

But in trying to shore up his green flank, Obama angers the labor component of his party’s political foundation. No experienced observer pays any attention to any claims during a campaign about how many, or how few, jobs a particular policy or project will create, because these numbers are essentially unknowable. But the Keystone project certainly would create union jobs that don’t exist today.

Beyond that, the GOP critique of the Obama administration is that it isn’t doing enough to move the U.S. away from a dependence on foreign oil. It’s hard to argue that Canada is analogous to Saudi Arabia or Iran. All this is bogus, of course, because oil is fungible, which cuts both ways in the argument over the pipeline. But it works for Republicans, particularly because the Canadian crude will flow out of North America and likely into Asia. Most folks don’t pay close attention to the details on disputes such as that over the Keystone XL pipeline. Why should they? Most folks have more important things on their minds, such as going to work every day if they can, paying the mortgage, and other draining details of daily life. So the Republicans will use the pipeline decision as evidence of a White House that cares more about the sea level in Bangladesh than jobs in Oklahoma.

The Democrats knew about the political perils of the pipeline. The Obama administration earlier tried the kick-the-can ploy on Keystone XL, putting off a decision until after the coming election. The Republicans in Congress trumped that by tying an early decision on the pipeline onto crucial spending legislation.

Could Obama have avoided this political leg hold laid by the GOP? I suspect he could. He could have announced, within the legislative deadline, that his administration was approving the pipeline, but with conditions that TransCanada would have to make to satisfy concerns raised about the project. This has already occurred once, with TransCanada agreeing to change the original route across Nebraska to avoid the Ogallala Aquifer. The White House could have come up with a set of additional conditions, requiring additional work and paperwork on TransCanada’s part, before the approval would be final, but it would be “approved.” Then, when the GOP and the pipeline supporters cried foul on the administration decision, the White House could respond, as they have with the latest flap over recess appointments, “So sue us.”

My choice would have been to approve the project straight up. But if the administration didn’t want to face the political fallout from that action by its environmentalist supporters, it could have finessed the issue. Instead, it stepped into the GOP’s carefully-laid trap.

Will this decision have a significant impact on the coming presidential election? I doubt it. Energy and environmental issues are at most second tier these days. The election is likely to turn on bigger, more important topics. But campaigns are built incrementally, so sometimes second level concerns can make a difference at the margins, where elections are often won.

Climate and the Wandering Albatross

By Kennedy Maize

Washington, D.C., January 12, 2012 — The ancient English idiom “It’s an ill wind that blows no good” takes on specificity following an article in tomorrow’s Science magazine. The article argues that increased winds in the Southern Ocean, likely caused by a changing global climate, are a boon to the wandering albatross (Diomedea exulans), the globe’s largest seabird and a noted long-distance traveler.

A team led by Henri Weimerskirch of France’s Centre d’Etudes Biologiques de Chizé found that as Southern Ocean westerlies have increased recently, the birds’ “rates of travel and flight speeds have increased. Consequently, the duration of foraging trips has decreased, breeding success has improved, and birds have increased in mass by more than 1 kilogram.” In other words, higher winds have made life easier for these pelagic wanderers. This is good news to any bird lover and particularly heart-warming to anyone who has seen these birds in their breeding habitat, as my wife and I did on South Georgia Island last October.

Weimerkirsch’s team of ornithologists studied the birds on Possession Island, one of the Crozet islands in the southern Indian Ocean (46°S, 52°E) and part of France’s Antarctic jurisdiction. The population, which today is comprised of 350 breeding pairs, has been monitored annually since 1960. Researchers have been collecting data on size, breeding success and demographics from market birds. They concentrate on the January-February (austral summer) incubation period, when the birds are foraging widely for food and 80% of the breeding failures occur.

Researchers measure and weigh a wandering albatross

The researchers found that higher winds in the Southern Ocean have led to an increase in flight speed for the foragers, meaning they could cover more territory and had a much higher chance of finding food in a shorter period of time, with less chance of falling victim to predators. “Wandering albatrosses appear so far to have benefited from wind changes occurring in the Southern Ocean,” says the article in Science, “with higher speeds allowing for more rapid travel….In the 2000s, birds moved quicker than in the 1990s and thus were able to cover similar distances during shorter bouts at sea.”

“Seabirds of the World,” the definitive photographic guide by Peter Harrison, notes that “Wandering, Royal and Amsterdam Albatrosses are the largest of all seabirds, with magnificent soaring flight on long, stiffly-held wings. Wandering is a habitual ship follower. Breeds in loose colonies on grassy headlands and plateau of oceanic islands.” A mature wandering albatross has a wingspan in excess of 10 feet. Awkward on land, except for breeding they spent their entire lives on the wing and at sea. Once you have seen one following your ship at sea, you will never forget your encounter with these astonishing avians, which seem to find a changing climate a very good thing indeed.

The Little Breeder that Could

By Kennedy Maize

Washington, D.C., December 21, 2011 – Call it “The Little Breeder that Could.” Sixty years ago – December 21, 1951 – on the remote, high Idaho desert near Arco, legendary atomic scientist Walter Zinn from the Atomic Energy Commission’s Argonne lab outside Chicago, overseeing the Idaho project, wrote in his log book, “Electricity flows from atomic energy. Rough estimate indicates 45 KW.”

At that moment – 1:23 p.m. — Zinn, colleagues from Argonne, and scientists from the National Reactor Testing Station in Idaho witnessed four small light bulbs glowing in the dim building housing the Experimental Breeder Reactor – 1. The machine, also known as “Chicago Pile 4,” or more colloquially as “Zinn’s infernal machine,” became the first in the world to turn the power of the atom into light for the world.

Zinn, a close colleague of Enrico Fermi, was the scientist who actually pulled the control rod out of Fermi’s pile in the squash court under the football stadium at the University of Chicago on December 2, 1942, starting the world’s first sustained chain reaction.

In 1946, Zinn proposed a reactor design that would produce more plutonium from U-238 than it would consume in highly-enriched U-235 fuel. It would, in fact, be a “breeder” reactor. The AEC approved a project to build a breeder in 1947 and, at Zinn’s insistence because of his fears of what might happen if the reactor failed in the densely-populated Chicago region, it was sent to Idaho for construction. The site was originally known as “Argonne West.”

Construction began in Idaho in 1949. A Chicago crew arrived in early 1951, as the reactor building was being completed, to install the core. In May, Zinn tried to operate the reactor, but it proved a dud. There wasn’t enough fuel in the football-sized core to sustain a reaction. It took another three months to get more highly-enriched uranium from the AEC stockpile and manufacture beefed-up fuel rods.

The tests culminated in the reactor reaching full power. Steam raised by the hot reactor coolant ran to a small steam turbine generator. The most enduring image of EBR-I resulted: four light bulbs glowing brightly from the first electricity produced from atomic power. The next day, the reactor was generating enough electricity for the entire building.

But the real mission of EBR-I wasn’t to generate electricity. It was to prove that the machine could make new fuel. In June 1953, the AEC announced that the machine, with a power output of 1.2 MW in heat (0.2 MW of electrical output, about the same generating capacity of a small, home backup, gasoline-powered generator) was making one new atom of Pu-239 for each atom of U-235 it was burning.

While it could breed new fuel, EBR-I had inherent problems. One was what the physicists call a “prompt positive power coefficient of reactivity.” In ordinary language, this means that as the power increases, the nuclear reaction speeds up. It is a positive feedback that can lead to an out-of-control reactor. The core could melt and collapse.

The scientists at Argonne understood this problem and used EBR-I to examine the instability of the technology. In late November 1955, during an experiment on the positive reactor feedback, some 40-50 percent of the EBR-I core melted. The Argonne West team removed the damaged core – very carefully – and repaired and operated tiny EBR-I until the end of 1963. A second reactor – EBR-II – operated as a breeder until 1969.

EBR-1's achievement

In 1965, President Lyndon Johnson stood on the EBR-1 site and designated it as a national historic landmark. Johnson said, “We have moved far to tame for peaceful uses the mighty forces unloosed when the atom was split. And we have only just begun. What happened here merely raised the curtain on a very promising drama on our long journey for a better life.”

Unfortunately, Johnson’s optimism was somewhat misplaced. Breeder reactors at a commercial scale have proven to be an unnecessary dead end around the world. While the breeders are expensive to build and difficult to operate – the sodium coolant tends to catch fire – they respond to a problem that never materialized. Uranium is not in short supply, so there is no need for machines that create fuel more expensive than what they use.

But that should not detract from the achievement of EBR-1. It did what Walter Zinn designed it to do…and more.

FERC Puts Duke-Progress Merger in Doubt

By Kennedy Maize

Washington, D.C., December 15, 2011 – The Federal Energy Regulatory Commission yesterday gave a big lump of holiday coal to Duke Energy and Progress Energy, putting the colossal Carolina utility merger on hold pending an improved plan to mitigate market power. It isn’t clear whether FERC’s latest skepticism about the merger will scuttle the deal, but it is clear that the merger won’t happen before the end of the year, as the two companies had hoped.

FERC had been expected to take up the Duke-Progress mitigation plan at its regular meeting today, but decided late yesterday, at the suggestion of outgoing commissioner Marc Spitzer, to make the announcement while the stock market was closed. Today, a Duke spokesman understandably refused to comment on how the FERC action would affect the marriage of Duke, based in Charlotte, and Progress, headquartered in Raleigh.

Last September, FERC gave the merger conditional approval, contingent on the companies coming back to the federal regulatory agency with a plan to mitigate what would be new market power in the Carolinas, where both companies have extensive operations and captive customers. FERC suggested actions such as spinning off generation and turning control of its transmission network over to an independent regional operator, or construction of new transmission by an independent, third party.

Duke and Progress responded with a proposal on October 17. They proposed a “virtual” divestiture, which has become a popular “now you see it, now you don’t” ploy among merging utilities in attempts to demonstrate they don’t have the ability to manipulate their monopoly markets. They offered to sell “available economic capacity” from time-to-time into the Carolinas market. FERC has approved such arrangements in the past in other mergers.

The utilities’ mitigation plan drew fire from non-utility merchant generators and from municipal utilities in the Carolinas and Florida, challenging the plan as vague and purposefully imprecise. They argued that the plan would allow the new company to game the market so that it continued to possess, and employ, monopoly power by restricting sales and imposing market conditions that tilted markets toward the integrated utility incumbents.

FERC sided with the opponents of the merger, concluding that Duke and Progress had not adequately remedied the competitive problems identified in the agency’s September order. FERC’s order yesterday evening found that the utility plan “does not remedy the proposed transaction’s adverse effects on competition.” FERC said the mitigation proposal “does not eliminate the opportunity for the merged company to act anti-competitively. Although Duke and Progress describe the proposal as a virtual divestiture, it would not transfer control of the energy the applicants propose to sell from the merged company.”

FERC’s order does not reject the merger, but requires Duke and Progress to come back with a new plan to deal with the monopoly power of the new company. Whether they can accomplish that is far from clear and it would not be a surprise if the deal were to fall apart.

An article in today’s Charlotte Observer notes, “The ruling throws into disarray a series of plans and schedules that were contingent on the merger being approved quickly. The companies had hoped to close the deal this year.” The newspaper added that if the utilities submit a new plan to the feds, the state utility regulatory commission “might have to hold another round of public hearings on the merger.”

It’s not turning out to be a very merry holiday season for Duke Energy CEO Jim Rogers. The cost estimate for the company’s troubled Edwardsport, Ind., coal-to-gas project recently passed $3 billion, or some $1 billion over the original estimate, and state regulators are balking at sticking customers with the costs of the project.

This week, former Indiana utility regulator David Hardy was indicted on charges that he was negotiating with Duke for a job for one of his key employees at the same time he was presiding over a case where Duke was seeking to recover Edwardsport cost overruns. The Indianapolis Star commented that the indictment raises “questions about whether Hardy had compromised the agency’s mission of balancing the needs of utilities and ratepayers.”

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