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Energy Woes
By William Sweet and Elizabeth A. Bretz

The long-awaited and much-discounted National Energy Policy report, issued on 16 May by a task force headed by Vice President Dick Cheney, was not the one-dimensional document critics and adversaries of the Bush administration eagerly awaited. Much of the criticism since release of the report would seem, in fact, to reflect more what people expected to read than what is actually in the report.

For this reason alone, IEEE Spectrum sees fit to excerpt the report ["A National Energy Policy"], so that readers may judge for themselves. In addition, for a contrasting view, Spectrum is excerpting a report prepared by researchers at several national laboratories and released last November, which presents quite a different outlook on the role fossil fuels need play in the country's energy future [" Clean Energy Scenarios "

Prior to the release of the Cheney task force's report, environmentalists expected to hear nothing but "drill, drill, drill." But the report acknowledges the savings produced by improved energy technologies over the last three decades, which, with rising incomes, have resulted in U.S. residents paying a smaller proportion of their income for energy than they did before the 1973 oil crisis [see

Energy Used More Economically, but Electricity Infrastructure Deteriorates: Consumers are spending less of their household income on energy now than before the 1973 energy crunch [top But transmission owners have spent less on infrastructure despite growing demand [bottom


 

The report recognizes that big gains in efficiency will continue to be achieved. Accordingly, it recommends sizable tax credits for hybrid-electric vehicles, purchase of solar panels, and use of biomass and sundry other renewable energy and conservation technologies.

It also faces head-on the critical state of the nation's energy infrastructure, especially the yawning gap between the growing demands made on its transmission system and money spent to improve it [see

Energy Used More Economically, but Electricity Infrastructure Deteriorates: Consumers are spending less of their household income on energy now than before the 1973 energy crunch [top But transmission owners have spent less on infrastructure despite growing demand [bottom


 
The report urges broadening the federal government's authority to exercise eminent domain to get new transmission lines built, to the discomfiture of states' rights Republicans.

Yet if the Cheney task force shows some willingness to stand up to close allies, it does not toss out proposals willy-nilly, careless of their real political prospects. On hugely controversial questions such as disposal or recycling of nuclear wastes or tightening costly fuel-efficiency standards for cars, it asks only for reconsideration or further study.

As for development of oil and gas resources, universally expected to be the heart of the report, it does indeed call for opening the Arctic National Wildlife Refuge to exploration and for making public lands generally more available for drilling. But the report recommends no new tax breaks or incentives for the administration's oil industry friends. So, while natural gas developers may be making out like gangbusters in Cheney's native Wyoming, they are benefiting from credits enacted in the late 1980s, and cannot expect further giveaways.

Having given credit where credit is due, it must also be said that the Cheney task force's approach to the electricity problem is, as such, very one-dimensional. Last year, a Department of Energy blue-ribbon panel, convened to study widespread outages, found the nation's grid sorely stressed in every conceivable way. As Spectrum reported [June 2000, p. 44], "Whether the talk is of generation and transmission capacity, distribution lines or control equipment, service personnel or simulation engineers, it is the same story: too few resources to easily satisfy demands made on systems designed for radically different purposes."

As pointed out, too, by the leadership of IEEE-USA, the IEEE's public policy arm in Washington, D.C., what is most needed now—and this is something that gets short shrift in the task force report—are "better ways to operate transmission systems," and "improved transmission, communication, control, and materials technologies and systems."

The Cheney report does pay lip service, but not very forcefully, to the desirability of enacting legislation to establish a national self-managing electricity reliability organization—legislation that has been languishing in Congress for a couple of years, after being introduced with the backing, however ineffective, of the Clinton adminstration.

"Who's in charge?" Spectrum asked in January 2000 [p. 86 Well, the Bush administration has made a good show of taking charge, and it has persuaded the public, if any persuading was needed, that there is indeed an energy crisis. The latest polls show three-fifths of U.S. residents are convinced action needs to be taken. But what action? Three-fifths also say they lack confidence in proposed administration plans.

In effect, the administration has bundled the very real crisis in electricity with concerns about increased prices for gasoline and home heating oil—increases that may prove quite transitory—to sell the public hard on an all-out effort at new production, with environmental protection given much less emphasis. What the administration seeks from the public, at bottom, is much more production of fossil fuels and streamlined or less onerous procedures for approving new plants and infrastructure.

Contrasting scenarios

The national labs' report, "Scenarios for a Clean Energy Future," presents in some ways a radically different view of what the country's energy sector may look like 20 years from now. Instead of an enormous and inexorable increase in reliance on fossil fuels, the labs report believes coal and oil consumption can be held close to current levels [see figures

Must Consumption Outpace Production?: The National Energy Policy Report projects the gap between energy consumption and production to roughly double between now and 2020 [left The National Labs' report says it need not increase and could actually decline, without heroic efforts [dashed lines, right


 
and

Must Dependence on Coal and Gas Rise Sharply?: The National Energy Policy Report projects that use of coal will increase by about 25 percent by 2020, and reliance on natural gas will jump fourfold [ left According to the National Labs report, coal consumption could decline sharply, and gas use might only double [right


 

The objective enshrined in the Kyoto Protocol of getting greenhouse-gas emissions back to 1990 levels by 2010 has been dismissed by the Bush administration as unrealistic. The labs report, though, sees it as readily doable.

Where the Cheney report basically gives up on ideas of energy independence or energy security, and calls for creative diplomacy to secure new supplies of petroleum from the Caspian area and from South America, the labs report argues that greatly increased reliance on imported oil can be avoided.

Regarding the important transportation sector, Energy Secretary Spencer Abraham has written: "[Will] Americans...agree to steep taxes on gasoline and electricity, and fuel economy standards high enough to ban SUVs?...I doubt it" [

Fuel Economy Stays Flat: More efficient transportation technologies are offset by the popularity of gas-guzzling sport utility vehicles and trucks, keeping average fuel economy numbers flat for the last decade.


 
The labs report, in contrast, emphasizes the enormous environmental costs of gasoline vehicles [

 
], and suggests, that gasoline prices—presumably even at current inflated levels—are still too low because they do not adequately reflect those social costs.

Probably the most persistent line of criticism of the Cheney-Bush energy plan is this, that its authors seem to have lost sight of urgent short-term problems that can be effectively addressed with short-term remedies.

Where suppliers are reaping huge windfall profits because of temporary market irregularities, as seen during the last year in the California wholesale electricity price market, every economics student will learn that a suitable windfall profits tax can be enacted or price caps imposed without any adverse impact on development of long-term supplies. But that is a message seemingly lost on the Cheney-Bush team. If, as many expect, the problems afflicting California are increasingly experienced nationwide, the administration may end up paying a high political price.




Sidebar 1

A National Energy Policy

Excerpts from report touted by the vice president's task force show how proposals highlight supply side, downplay demand measures

The [National Energy Policy] report...envisions a comprehensive long-term strategy that uses leading edge technology to produce an integrated energy, environmental and economic policy. To achieve a 21st century quality of life—enhanced by reliable energy and a clean environment—we must modernize conservation [and] infrastructure, increase our energy supplies, including renewables, accelerate the protection and improvement of our environment, and increase our energy security.

Our national energy policy must be comprehensive in scope. It must protect our environment. It must also increase our supply of domestic oil, natural gas, coal, nuclear, and renewable energy sources. Between 1991 and 2000, Americans used 17 percent more energy than in the previous decade, while during that same period, domestic energy production rose by only 2.3 percent. While U.S. production of coal, natural gas, nuclear energy, and renewable energy has increased somewhat, these increases have been largely offset by declines in domestic oil production. U.S. energy consumption is projected to increase by about 32 percent by 2020.

Energy challenges facing the United States

Energy efficiency is the ability to use less energy to produce the same amount of useful work or services. Conservation is...simply using less energy. Electricity demand is projected to rise by 1.8 percent a year over the next 20 years, requiring the addition of some 393 000 MW of generation capacity. At the same time, energy efficiency is projected to improve between 2000 and 2020. A decrease in demand from 1.8 percent to 1.5 percent would reduce the need for new generating capacity next year by about 2000 MW. Extending that reduction over the next 20 years would reduce the need for new generation by 60 000 to 66 000 MW.

National Energy Policy Report: National Energy Policy Development Group: Dick Cheney, chair, Andrew D. Lundquist, executive director

Large amounts of new generating capacity are slated for installation from 2001 to 2004. [However, the] most pressing long-term electricity challenge is to build enough generation and transmission capacity to meet projected [demand Of the approximately 43 000 MW of new generating capacity that power companies planned in 1994 for construction from 1995 to 1999, only about 18 000 MW were actually built. Although plans have been announced to build more capacity than the country will need over the next five to seven years, this new construction assumes market and regulatory conditions that are not yet assured.Since 1989, electricity sales to consumers have increased by 2.1 percent annually, yet transmission capacity has increased by only 0.8 percent annually. As electricity markets become more regional [in nature], transmission constraints are impeding the movement of electricity both within and between regions.

Transportation energy needs

Transportation fuels account for about two-thirds of our oil consumption, and the industrial sector for 25 percent. Per capita oil consumption, which reached a peak in 1978, has fallen by 20 percent from that level. [Yet] net oil imports...have grown from about 4.3 million barrels per day (bpd) in 1985 to 10 million bpd in 2000.

By 2020, U.S. oil production is projected to decline from 5.8 to 5.1 million bpd under current policy. Domestic oil supply cannot be increased unless several access and infrastructure challenges are addressed. Greater price volatility for gasoline, diesel fuel, heating oil, propane, and jet fuel is likely to become a larger problem over time, unless additional refining capacity and expanded distribution infrastructure can be developed at the same time cleaner products are required.

Recommendations

The NEPD Group recommends that the President:


 
Sidebar 2

Clean Energy Scenarios

Report by U.S. national laboratories sees big potential for gains in energy efficiency and conservation

As we move into the 21st century, a number of key energy-related challenges face the nation. U.S. dependence on imported oil is growing, increasing the nation's vulnerability to supply and price disruptions. Electricity outages, power disturbances, and price spikes threaten U.S. productivity, especially in the rapidly growing information-based service industries. Despite ongoing improvements in air quality, air pollution from burning hydrocarbons continues to cause high levels of respiratory illnesses, acid rain, and photochemical smog. And global climate change threatens to impose significant long-term costs from increasing temperatures, rising sea levels, and more extreme weather. The prosperity and well-being of future generations will be strongly affected by the manner in which the nation responds to these challenges.

Clean Energy Scenarios: Coordinated by Marilyn A. Brown, Oak Ridge National Laboratory, Mark D. Levine, Lawrence Berkeley National Laboratory, Walter Short, National Renewable Energy Laboratory

Following a 1997 study, Scenarios of U.S. Carbon Reductions, the U.S. Department of Energy (DOE) commissioned an Interlaboratory Working Group to examine the potential for public policies and programs to foster efficient and clean energy technology solutions to these energy-related challenges. This [Clean Energy Future (CEF) report] reflects the best efforts of the Interlaboratory Working Group to understand and present that potential. The three key conclusions are:

• Smart public policies can significantly reduce not only carbon dioxide emissions, but also air pollution, petroleum dependence, and inefficiencies in energy production and use. A range of policies exists...that could move the United States a long way toward returning its carbon dioxide emissions to 1990 levels by 2010.

• The overall economic benefits of these policies appear to be comparable to their overall costs.

• in the CEF assessment are unlikely to alter the overall conclusions. The policy and technology opportunities identified are so abundant that they compete with each other to reduce carbon emissions. We would expect enough of them to be successful to achieve the results we claim.

Clean future scenarios

This study does not make policy recommendations. Rather, [its] purpose is to better understand the costs and benefits of alternative sets of policies.

The structured development of energy scenarios allows a way to examine a range of public policies and to consider alternative possibilities. The CEF study develops three scenarios: Business-as-Usual (BAU), Moder-ate, and Advanced. The BAU scenario assumes a continuation of current energy policies and a steady, but modest pace of technological progress.

In contrast, the Moderate and Advanced scenarios are defined by policies that are consistent with increasing levels of public commitment and political resolve to solving the nation's energy-related challenges [by means of clean energy technologies, including:]

• measures that reduce the energy intensity of the economy (for example, more efficient lighting, cars, and industrial processes),

• measures that reduce the carbon intensity of the energy used (renewable, nuclear, natural gas, and more efficient fossil-fueled electricity plants), and

• measures that integrate carbon sequestration [capture of carbon dioxide] into the energy production and delivery system (such as integrated gasification combined cycle plants with carbon separation and storage).

To place the CEF scenarios within an expanded context that considers the post 2020 period, we qualitatively describe energy technology breakthroughs that could occur by mid-century. These include carbon sequestration from coal, a new generation of nuclear power plants, advanced gas and chemical separation technologies, hybrid electric systems deploying wind power and gas turbines in combination with low-cost storage and advanced power electronics, and a host of highly efficient and advanced renewable energy technologies. The policies identified as most important in the Advanced scenario may be summarized [however selectively] as follows:

Buildings

• New and tighter efficiency standards for equipment

• Voluntary labeling, programs promoting deployment of energy-efficient technologies

• Adoption and enforcement of more demanding building codes

Industry

• Build on existing voluntary agreements with companies and associations to achieve 0.5-percent annual efficiency improvements over business-as-usual

• Expand cost-shared federal R&D expenditures by 50 or 100 percent

Transportation

• Voluntary fuel-efficiency agreements with auto manufacturers

• "Pay-at-the pump" auto insurance

Electric generators

• Renewable energy portfolio standards and production tax credits

• Electric industry restructuring

Cross-sector policies

• Doubled federal R&D

• Domestic carbon trading system

A key policy mechanism for the Advanced scenario across all of the sectors is the addition of a domestic carbon trading system. In this system, which is assumed to be announced in 2002 and implemented in 2005, permits are sold annually in a competitive auction run by the federal government. The carbon emissions annual limit is set so that the permit price equilibrates at $50 per ton of carbon (in 1997$) throughout the period. A $25/tC case is also analyzed.

The second key policy mechanism in the Advanced scenario for all of the sectors is the doubling of federal government appropriations for cost-shared R&D in efficient and clean energy technologies. As these resources are spent in public/private R&D partnerships, they are matched by private-sector funds, resulting in an assumed increase of $1.4 billion per year by 2005.

The scenarios do not include international emissions trading, which could be important to meeting possible carbon emission targets.

Opportunities in electricity

The key policy driving the changes within the electric sector is the carbon allowance in the Advanced scenario. The carbon allowance plays a role in two ways. First, because of its larger impact on carbon-intensive fuels such as coal and inefficient oil and gas plants, no unplanned coal plants were added and 83 GW of coal capacity was retired by 2020 in the Advanced scenario. In addition, 112 GW of other fossil steam (oil and gas) were retired.

Second, the carbon allowance directly impacts the variable cost of production, thereby causing the remaining carbon-intensive technologies to lower their capacity factor. Nuclear power better maintained its cost-effectiveness.

Transportation barriers

A strong case can be made that energy fuels are underpriced, because market prices do not take full account of a variety of social costs associated with fuel use, and especially oil use (transportation is 95 percent dependent on petroleum products for fuel). Those externalities [social costs not reflected in prices] most directly tied to fuel use are greenhouse gases,...air, water, and land pollution, and...impacts associated with the uneven geographic distribution of oil resources [including] military expenditures associated with [the ] Persian Gulf....

[Another barrier: poor information] In making vehicle purchases, consumers and businesses experience difficulty in making rational choices about trading off the costs and benefits of different levels of energy efficiency.