State of the Union: Recycling a Failed Energy Policy

If you tuned into the State of the Union (SOTU) address expecting some new ideas and goals for the nation’s future electricity supply, then you were probably as disappointed as I was. You heard a rehash of ideas that have yet to resonant with the public or the Senate. Given the Republican control of the House, the chance of the president’s energy policy remix becoming law is dead on arrival. Before explaining how I reached that conclusion, I’ll begin by quoting the president’s vision of our energy future, as presented in the SOTU address:

Now, clean energy breakthroughs will only translate into clean energy jobs if businesses know there will be a market for what they’re selling. So tonight, I challenge you to join me in setting a new goal: By 2035, 80 percent of America’s electricity will come from clean energy sources.

Some folks want wind and solar. Others want nuclear, clean coal and natural gas. To meet this goal, we will need them all-and I urge Democrats and Republicans to work together to make it happen.

Energy Runaround

Does this goal sound vaguely familiar? It should. The ill-fated HR 2545, aka Waxman-Markey (W-M), proposed establishing a carbon market by 2012 to facilitate the twin goals of reducing carbon emissions and ushering in an era of clean energy. Passed by the House in 2009, the proposed legislation was ignored by the Senate and found little support from the public when the potential impact on electricity costs was revealed. Specifically, W-M proposed goals for a 42% reduction in U.S. carbon emissions (below 2005 levels) by 2030 and reductions of more than 80% by 2050.

Those levels of emissions reductions were used to optimize a series of Energy Information Administration (EIA) computer simulations of different combinations of electricity generating technologies. The various scenarios studied assumed, for example, a commercialization schedule for new technologies (including integrated gasification combined cycle and carbon capture and sequestration [CCS]), retiring older and less-efficient coal-fired plants, adding much more nuclear, a strong reliance on renewable generation (principally wind and solar), and using a lot of natural gas. The precise distribution of technologies was determined by the different scenario-based simulations and their assumptions, such as the future cost of fossil fuels, the rate at which carbon allowances are reduced, different policy decisions, and so on. The result was a series of analytical scenarios to select from to meet a given carbon reduction goal.

The EIA’s computer analysis of HR 2454 uses a Reference Case as a baseline that assumes carbon emissions are ignored, natural gas and renewable plants constitute the new builds, new coal plant builds without CCS are almost eliminated, and a large number of coal plants are retired.

If we examine the EIA’s Basic Case (thanks to Mario Lewis from the Competitive Enterprise Institute for pointing out the data source) it shows a mix of technologies, including nuclear, renewables, and CCS for future coal plants, which, according to the EIA report,  "are developed and deployed on a large scale in a timeframe consistent with the emissions reduction requirements . . . without encountering any major obstacles."

The obstacles the analysts had in mind include, among others, specific technology development trajectories as well as assumptions of expected capital and fuel costs. That caveat has proved prescient with the extraordinary higher capital costs associated with these "clean energy" projects going public, costs that have exceeded those assumed by the EIA in its W-M analysis. For example, the capital cost estimated by Tenaska for the 600-MW Taylorville IGCC project is $3.5 billion, and that doesn’t include the auxiliary power cost of someday compressing the CO2 and the cost of transporting and sequestering the carbon. Tenaska admits the cost of electricity from this plant would be over 21 cents/kWh when commissioned, even with a federal tax credit of $417 million plus a $2.58 billion loan guarantee and a lucrative 30-year power purchase agreement. For comparison, in 2009 the average production cost for all U.S. coal plants (operation and maintenance plus fuel) was only 2.97 cents/kWh.

Same Result, Different Path

A close look at the EIA spreadsheet (starting on line 1225) finds that the goal to reach the W-M carbon reduction goals requires 81% of electricity to come from "clean energy" sources by 2030, ignoring these higher-than-expected capital costs and much lower natural gas costs. The Basic Case scenario finds the carbon-constrained mix of resources such as coal-fired generation supplying only 29% of our electricity needs (down from about 48% today) and about 40% of the remaining coal-fired generation in 2030 would be fitted with CCS. Natural gas use drops 10 percentage points from today, but nuclear generation doubles, as does renewable energy, principally wind and solar.

When the cost to implement W-M was fully understood, the public absolutely rejected the legislation. So did the Senate. However, the president hasn’t moved on. At a news conference the day after last November’s election, he was asked about the future of cap-and trade legislation. "Cap-and trade was just one way of skinning the cat; it was not the only way. I’m going to be looking for other means to address this problem," he responded. I believe his new "clean energy" proposal is "the other means."

During the election, the president said the cost of electricity will "necessarily skyrocket" (you can listen to the interview on YouTube) under a carbon cap-and-trade regime. The "clean energy" goal  proposed by the president in the SOTU address will require the same general combination of generation resources suggested by the EIA’s W-M studies.

A Better Energy Plan

You would be right to think that it’s easy to criticize the president’s plan, especially without offering a better alternative. There is a much better energy plan available that will put millions to work, increase national security by using domestic fuel sources, and reduce the flow of dollars overseas. Institute for Energy Research President Thomas J. Pyle sums it up better than I can: "We don’t have a competitiveness problem, an innovation problem, or a resource availability problem; we have a government problem.  We have the ability to produce nuclear, but can’t get a permit to build a plant.  We have the world’s largest coal supplies, but the Administration is halting construction on even the cleanest plants. We have vast resources offshore, but 97 percent of our ocean energy lands are not leased for oil and gas production.  We have enough oil shale to free us from any imports, but his Administration stopped development.  If the President and his government will just get out of the way, our energy problems might not be solved, but it’d certainly be an improvement."

Don’t be fooled by the slick repackaging of the rejected W-M proposal under the guise of "clean energy." It may have a new name and a better sales pitch, but it’s more of the same bad energy policy that has been rejected multiple times by the public and Congress in the past. And just like Waxman-Markey and its predecessors, this latest proposal will soon become just another bad memory.

-Dr. Robert Peltier, PE, is COAL POWER’s editor-in-chief.

SHARE this article