And They Call This an Energy Policy?

Connecting the dots of a broken plan for natural resources

Chris Skates


A broken plan for natural resources

I wonder sometimes. Is anyone connecting some of the dots in what currently passes for our national energy policy? I don’t mean the dots of the minutiae. I mean the dots of the larger picture. In the conclusion of this article I will attempt to do just that. The case may be a bit circumstantial, but it is all too logical.  First, let’s look at some of those dots.

Is it feed a fever?

By now it seems we have heard it all before. Climate change would be catastrophic; then, concerns were downgraded to “really bad” in the near term but apocalyptic in the longer term. The science was “settled” (only it actually wasn’t and it actually isn’t); there was a scientific consensus (that was actually a consensus of about 80 people out of potentially thousands and, which is currently not even that strong), and then kaput. With global temperatures leveling off, glaciers actually growing, and a record cold winter in 2014, it appears the warming may have been overstated to say the least.  Many who were formerly part of the pseudo-consensus have recently “left the reservation.” The warming we were cautioned about—warming that was predicted by climate models—simply hasn’t happened.

Yet even with all that being true, the momentum towards regulations ostensibly created to avoid this non-crisis seems unstoppable. Helped along by a sycophant media and an ignorant yet passionate entertainment industry, our nation is still pressing forward with regulations to severely curb CO2emissions. Add to that regulation on a host of other constituents whose harm to public health is dubious at best, and we have a hyper-regulatory environment that is rapidly breaking the coal-fueled power generation industry.

Or starve a cold?

Misguided policies, created by regulatory agencies that admit their actions will have “negligible” impact on emissions or climate are hampering an already struggling U.S. economy. Aren’t we having enough trouble recovering without adding hurdles through superfluous regulation? Even without draconian regulation, utilities would be struggling because baseline demand is down, due to decreased industrial usage (manufacturing leaving the country, or itself curbing production) and partly by milder weather during peak summer months.  In addition, even during the recent polar vortex and record setting cold temperatures, some power plants couldn’t benefit from higher power prices. That is because ever since the 2003 Northeastern blackout, the grid itself has been more stringently regulated. In addition coal plant closures have led to upsets and constraints in the flow of electricity on the grid, particularly in the Midwest. That means many of the surviving plants cannot get their power to where demand is located.

Still, the Energy Information Administration expected demand to be on the increase by now and nearly back to pre-recession levels by 2013. That didn’t happen. And it doesn’t look like it will be close to pre-recession levels in the foreseeable future. So with the energy industry already taking it on the chin, it would be nice if someone in government leadership would realize that the added cost of regulations are forcing more and more power plant closures and costing thousands of well-paying jobs.

Now I don’t expect any consumer out there reading this to cry for the utilities (after all, they always made money in Monopoly) but perhaps your eyes should glisten for yourselves and your fellow consumers. With one coal plant after another beginning to shut down, has anyone asked who will fill the void in the grid when the economy does come back? Think of an older power plant as your granddad’s reliable old Chevy. It could always be counted on for a smooth trip to the grocery, if the battery wasn’t charged in your new Chevy Volt. With a rebounded economy and the old reliable coal plants in mothballs, won’t we reach a tipping point where demand will force electric rates to “skyrocket”? (Seems like I have heard that phrase before). As rates go up, that will be like someone throwing a big wet blanket on a recovery that seems to be destined to begin only as a glowing ember.

Don Quixote foolishly thought windmills were monsters.

But don’t feed the monster under the bed

In this case the “monster” (affectionately analogous of course) is China. You know, the China that is currently enjoying unparalleled economic growth? That would be the same China that holds nearly half of our foreign debt according to testimony before a Congressional Commission by Simon Johnson of MIT.  That same China is also enjoying the prosperity and benefits of cheap, reliable coal-generated power (much of which is supplied by U.S. coal producers). Yes, you read that correctly. The environmental activists are effectively blocking this nation’s ability to utilize its own abundant natural resource. However, China likes this God given national asset just fine.

National coal exports to China doubled from 2010 to 2011. While this may be good for the mining industry, it doesn’t do a thing for American utility companies who are being rabbit punched by the federal fist of regulation on one hand, while receiving a roundhouse of decreased electricity demand with the other. Meanwhile they can only stand there and wave bye-bye to one barge after another of our coal headed for that giant customer from the East. So while environmental policy hampers the ability to burn U.S. coal to benefit the U.S. consumer, that same coal is being burned anyway, only for China’s benefit.

(Authors Note: Currently China’s coal imports are leveling off, still why should any foreign and potentially hostile economy benefit from our natural resources when we cannot?)

Don Quixote would be appalled

Don Quixote foolishly thought windmills were monsters. Maybe he was just a character born before his time. Wind farms are popping up around the country lauded as the savior from the aforementioned climate change catastrophe and hey…the fuel is free. Unfortunately, the cost of constructing these unsightly, bird-chomping behemoths is most emphatically not free. Wind power requires, the cost to construct the windmills, a transmission system to connect the wind farm to the grid, and back-up generation for those times when the wind doesn’t blow.  Windmills simply do not generate enough power to pay for all this upstart cost. The solution? Subsidies, of course. According to a report for the Institute for Energy Research, wind power is subsidized at a rate 88 times that of coal (subsidies are $56.29/MW for wind and only $0.44 for coal). Solar is even worse, being subsidized at $775.64/MW.

Who pays for subsidies in the long run? Those who are both tax payer and consumer, that’s who. A subsidy for wind is a tax by another name. Still, subsidies do not cover all the up-front capital costs of wind farms. To recoup that cost, wind power has to be priced higher. Recent cost figures showed wind power getting to the consumer at $0.30/KW versus $0.06/KW for coal. Wind power is only available when the wind blows but when the wind blows it is available. That means the grid has to absorb that generation whether we need it or not.

So in summation…

It would seem that U.S. energy policy in the year 2014 goes something like this: First, we panic over the non-threat of catastrophic man-made global warming. As a result we drastically increase regulations on reliable, cheap, coal-generated power to make it less reliable and less cheap.

Second, we propose an energy solution that under the best of conditions can only produce a fraction of our energy needs, and even that is at a greatly increased cost. Then we build the infrastructure for said system and force the rest of the market to purchase the more expensive power for which there is limited demand. These policy choices not only result in increasing costs to the consumer, they also force the cheaper coal plants to back down their generation, harming their plants physically and their bottom line economically.

Third, through both regulation and these convoluted economics, we severely limit the ability of our nation to benefit from one of our most abundant natural resources and cede the advantages to China and other international competitors. This decision allows China to have abundant access to the $0.06/KWh power mentioned above while simultaneously allowing them to preserve their own coal deposits for a rainy day.

Finally, the last I heard, we are a debtor nation and, as already mentioned, China may hold as much as half of our foreign debt. So could we possibly be paying interest to China on the windmills that will provide us with more expensive, less reliable power?

Who knows? With energy policy like this our economy will be damaged enough that we may not need our coal anyway.


Chris Skates is a chemist at a Midwestern Utility, author of the novel Going Green: For Some It Has Nothing to Do with the Environment and a contributing writer for The Cornwall Alliance for the Stewardship of Creation, a network of evangelical ministry leaders, scientists and economists dedicated to earth stewardship and economic development for the poor.

 

01. March 2014 by Jason Hayes
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