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Natural Gas Offers an Opportunity for Success, Not a Guarantee

December 12th, 2013

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Remember that movie “The Jerk”, in which Steve Martin plays a monumental idiot who stumbles into a fortune, and then blows it all on things like a giant stuffed camel and a private nightclub in his basement? Ultimately, Martin’s character is rescued by family members who prudently invested the money he’d occasionally sent them—providing both a happy ending and a life lesson about responsible resource management.

Technological developments like hydraulic fracturing have suddenly given the U.S. access to a fortune in natural gas, which is already providing opportunities for economic growth. And recent studies like those being conducted by Environmental Defense Fund further support the tremendous environmental opportunities presented by natural gas, including climate change mitigation. But opportunity alone does not guarantee success. A certain amount of planning and public support can help ensure we maximize the benefits of this resource, and avoid being… jerks.

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EPA’s New RFS Proposal Turns Clarity Into Confusion

December 4th, 2013

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Consistency. Certainty. Clear expectations.

These are critical elements of any successful regulatory policy implementation. The Environmental Protection Agency’s proposed rule on the Renewable Fuels Standard (RFS) could unravel them all.

In only 6 years, the RFS has driven billions of dollars in private capital toward the development of low-carbon advanced biofuels, and propelled these fuels out of the lab and into the market. This level of investment in emerging technologies requires long-term regulatory and market certainty, and the RFS has provided just that.  It has also provided a consistent idea of what is expected of regulated industries.

The RFS was carefully designed to encourage production of increasing amounts of biofuels, without making demands of industry that are not technologically feasible. A perfect example of this flexibility is EPA’s statutory authority to reduce volumetric requirements for cellulosic biofuels annually, to reflect anticipated production.  EPA has used this authority multiple times in cases where production has lagged behind the volumes envisioned by the statute.

But EPA’s proposed rule uses a new and very…creative…interpretation of the RFS statute to expand this authority and reduce the required blending levels of a fuel that is in abundant supply. EPA’s interpretation has struck many as counter-intuitive at best, and inconsistent with the law at worst. As market analyst Ben Salisbury explained in a recent Third Way briefing, the RFS offers little certainty to investors if it is implemented in such an unpredictable way. According to Salisbury, “…that has a chilling effect on not just biofuels but all environmental control investments.”

If inconsistent rulemaking has a chilling effect on investment, then legislative adjustments might as well be a meat locker. The odds of passing thoughtful and productive legislative adjustments to the RFS are about as high as getting Congress to gently reopen Obamacare. And if the existing law were simply “eliminated”, it’s difficult to envision some new and improved renewable fuels bill getting signed in the Rose Garden any time soon.

The bottom line is that the RFS has performed as it was intended to. Most importantly, it has driven investment toward technologies that offer exceptional greenhouse gas emissions reductions compared to petroleum fuels, and that are now starting to enter the market. Creating instability, either by regulation or legislation, will only halt this progress at a critical juncture.  By continuing to implement the RFS consistently, EPA can provide the certainty investors need to maintain this level of support and help drive further innovation in critically-needed advanced fuels.

This piece was originially published via National Journal

Stick to Targeted and Discrete Policies

May 15th, 2013

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Energy policy is difficult to move, in part because there’s really no such thing as a “must-pass” energy bill. It doesn’t carry the same urgency or institutionalized process as certain annual taxing and spending bills, and it certainly doesn’t generate the same passion in the electorate as health care, immigration, or other social policy priorities. Let’s face it…energy policy is the stowaway, not the train. You can slip a discrete energy policy into a larger vehicle, as we saw with the PTC’s inclusion in the fiscal cliff deal. But building a large, comprehensive energy bill in this political era is basically the equivalent of a dozen stowaways standing by the tracks deciding to tie themselves together. Good luck with that, guys.

Recent movement of hydropower and efficiency bills, along with bipartisan support for master limited partnerships and ARPA-E, has shown us the potential for passing targeted energy legislation in this Congress. Perhaps these particular issues are unique in that they tend to gin up relatively little controversy. But an incremental and targeted approach can be effective with contentious policies as well. Returning to our earlier example, the PTC for wind has become a target of hyper-conservative groups in recent years. Yet a significant block of Republican lawmakers, including tea party favorites like Steve King and freshman class president Kristi Noem supported the extension. To be precise, they actually FOUGHT for it, pressuring their leadership and colleagues to move the provision. Focusing solely on the PTC for wind allowed geography to trump partisanship. This prioritizing of parochial issues over political ideology is a well-known phenomenon in energy policy, and it has often provided opportunities for compromise and progress in Congress. But the influence of the “geography effect” is diminished once the policy in question is merged with others that are of less interest or that present a conflict for lawmakers.

For the House and Senate, the strategy that seems to be showing the most promise is to keep it simple (and practical), stupid. Smart policy initiatives will minimize variables that give lawmakers a reason (or an excuse) to vote against clean energy interests that matter to folks back home. And they will take advantage of unique coalitions that each individual issue can bring to the table based on geography, local economies, etc. Legislators can also encourage the Administration to continue its use of executive orders to increase efficiency and clean energy procurement within federal agencies, and to pursue collaborations with industry to iron-out regulatory hurdles that could slow the adoption of clean technologies.

The bottom line is, there is plenty to be done. It just can’t be done all at once. So pick your spot on the apple and start taking a bite.

This piece was originally published in the National Journal Energy Experts Blog.

Failing to Succeed: Fisker’s Demise Offers America a “Teachable Moment”

April 29th, 2013

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By: Woei Ling Leow* and Ryan Fitzpatrick

The tragic losses of Apollo 1 did not petrify the U.S. and derail the Moon Shot program. The collapse of Henry Ford’s first car company did not mean that the world would never want his product. And the demise of Fisker does not condemn the electric vehicle (EV) to certain failure.

If anything, Apollo 1 strengthened the resolve of those involved to do better. It also provided NASA with information and experience that would one day be critical to successfully landing Apollo 11 on the moon and ensuring the safe return of the Apollo 13 crew despite overwhelming odds. Apollo 1 was a great teacher, and perhaps its biggest lesson is that a nation cannot be held back by individual losses if it intends to achieve greatness.

Yes, Fisker is in the tank. But like Apollo 1, lessons will be learned from this failure. For one, future entrepreneurs and venture capitalists will take note of business strategies that are helping Fisker’s competitors succeed. For instance, Fisker focused on body styling and depended on other companies for technology. Tesla, on the other hand, developed its own technology that eventually brought in revenue streams through partnerships with Toyota and Daimler.

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Energy Policy after 2012

October 23rd, 2012

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Summary points

  • Thanks to continued partisan gridlock, major congressional action on energy is unlikely after the 2012 elections. However, this could change if there is a deal to address the budget deficit or if one party makes significant gains in seats.
  • Domestic oil and natural gas production will continue to grow under either Barack Obama or Mitt Romney.
  • A second Obama administration would be likely to seek to accelerate the commercialization and deployment of clean energy through a mix of tax incentives, encouraging private financing, and regulation of conventional and climate pollutants.
  • A Romney administration would be likely to focus on increasing domestic conventional energy production by reducing environmental regulation, particularly on coal-burning power plants, and opening more public land to oil and natural gas development. Excluding basic research, government incentives for clean energy would most likely be eliminated.

Introduction

In 2008, the price of natural gas in the United States was roughly $8 per thousand cubic feet (tcf), coal was used to generate more than 47 per cent of all electricity, and there was a consensus among Democrats and Republicans that climate change was real, caused by humans, and needed to be addressed immediately. It seemed only a matter of time before the country adopted a cap-and-trade system similar to one backed by both parties’ presidential nominees.

Four years later, the energy landscape has changed dramatically. Cap-and-trade is on the ash heap of history, and climate change and clean energy have become enormously politicized. The price of natural gas has dropped as low as $2.25 per tcf thanks to the hydraulic fracturing drilling process (fracking) that has given the United States access to more than 500 trillion cubic feet of natural gas and sent domestic coal use into a precipitous decline. That same fracking technology has led to a domestic oil boom, with imports dropping to 42 per cent of use, the lowest level in two decades. Clean energy, particularly wind and solar, also saw a boom in the early years of the Obama administration thanks to the American Recovery and Reinvestment Act of 2009 (ARRA).

The growth in domestic shale oil and gas production seems inevitable. But the broader future of US energy faces much more uncertainty. There are enormous differences in how the two candidates would approach regulation of energy production and generation, climate change and America’s competition in the global clean energy race. Polling shows that these issues will have little impact on the decisions voters make. But they will have enormous implications for the price and source of the energy Americans consume, the success of America’s energy industries and the fate of international efforts to stem climate change.

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Investing in the Grid: When the Going Gets Tough, the Tough get … Creative

August 2nd, 2012

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The unexpected storms that knocked out power to millions in the Midwest and Mid-Atlantic earlier this month highlighted how fragile America’s electric grid is. But while front page photos of fallen trees and utility repair trucks capture people’s attention, there’s a much more grave and fundamental threat to our electric grid.

The U.S. grid system was born in the 1920s, and has seen few major upgrades since the 1960s. With America’s growing population and exploding demand—bigger houses, A/C units, TVs, iThings—we have serious congestion and inadequate capacity on our nation’s power lines. This has led to more frequent power outages, which cost the American economy well over $100 billion each year. The inefficiency of our old-fashioned grid also leads to enormous waste through “line loss.” In 2010, 6.6% of the electricity generated in the U.S. simply disappeared before it could reach consumers. That’s $25.7 billion worth of electrons, lost into thin air. Read the rest of this entry »