Friday, November 19, 2010

Europe Can Teach America about Energy Security and Climate Policy

Yesterday, published a column by Larry Bell, “Disarmament in America’s Energy Security Battles”.  I thought it was extraordinary, even by the low standards of opinion journalism, in its blatant disregard for the facts.  So, I wrote to Forbe's editors, in order to correct the record.  I've copied the letter below.  

I am writing in response to Larry Bell’s November 18 column, “Disarmament in America’s Energy Security Battles” printed on  This column is notable for its lack of facts and its assertions against renewable energy that simply do not have a basis in reality.  Mr Bell uses hyperbolic language and assertions that are simply not backed-up by the facts.As a favor, then, to Forbes’ editors and readers, I will attempt to put some real facts behind his statements, then you can determine whether his assertions are correct, or just hot air.  As the author of “Learning from Europe on Climate Change” in the December 2009 issue of Survival, I am well-placed to offer informative, fact-based analysis of energy security and climate policies. I would appreciate it if you would print my response in full. 

An unfairly maligned Spanish wind farm
First, Mr Bell asserts that the EU is facing “costly, yet unsuccessful, CO2 emission reduction efforts.”  In fact, the opposite is true – the EU has been successful in reducing its emissions, and at low cost.  Last month, the European Commission released a report stating that, by 2012 (the date for compliance with the Kyoto Protocol) the emissions of the EU-15 (the 15 Western European countries) will be 10.4% below 1990 levels, and the emissions of the EU-12 (the 12 former East Bloc countries) will be 36.8% below  1990 levels.  This means that the EU as a whole will reduce its emissions 17.3% below 1990 levels.  Alone among major developed economies, the EU will meet the emission reduction commitments it made when it signed the Kyoto Protocol.  In Europe, it is true, the cost of energy – both electricity and gasoline – is generally higher (rates vary greatly throughout the EU), but that is the result of long-standing government policies that encourage energy security, not a recent increases from climate policies.  In France, for instance, the cost per KWh of electricity is about 19.25¢, while in the USA, it is about 10.45¢. 

Mr Bell then goes on a rant against the wind industry.  It is true that wind energy requires high up front infrastructure costs, but he does not acknowledge that once they are running, there are no fuel costs – which can fluctuate widely – as there are with traditional electricity power plants.  He then cites a report from Spain, repeatedly pushed by the right-wing Heritage Foundation, that has been widely debunked as based upon flawed analysis and untrue foundations. For instance, the report estimates that Spain’s renewable program created only 50,000 jobs, when official estimates are 188,000. The argument they make is that supporting renewable energy destroys jobs by causing the loss of 2.2 jobs for every 1 created.  It is based on flawed analysis, and it just goes to show that you can always find an economist to support your view.  It doesn’t make them right, though.   

Mr Bell then states that “high wind power premiums” get passed onto customers, while talking about wind farms in Texas.  What he doesn’t mention is that in his home state of Texas, the state with most installed wind power – about 8 gigawatts – the Public Utility Commission said “Wind generation has had the impact of reducing wholesale and retail prices of electricity.

Solar power, too, receives Mr Bell’s attention, saying that solar power doesn’t work, because of ‘night’.  Of course this is simplistic.  He doesn’t mention that night is when electricity demand is lowest.  He also doesn’t mention that new Concentrating Solar Power (CSP) plants are being developed (in Europe, of course), that will heat molten salt in order to store power so that it can continue producing power through the night.

Next on Mr Bell’s target list is the supposed fact that Germany is canceling planned coal power plants because of “environmental resistance”.  What he doesn’t mention is that this is being driven more by free-market realities than by concerns about carbon emissions.  Coal prices in Europe are now trading close to their two-year high, at $108.50 per metric ton, due to rising demand from China.  In fact, the high price of coal this year has meant that utilities burning coal in the UK have averaged a net loss of 9 pence (14 US cents) per megawatt hour in 2010.  Due to these market realities, utilities in Europe are increasingly turning to natural gas, and –yes – renewables for their power generating capacity.

French nuclear power plants
Mr Bell then goes ahead to extoll the virtues of French leadership on nuclear power.  It is true, as he says, that France is major nuclear technology leader and exporter, and that it obtains 80% of its electricity from nuclear power.  However, we should not mistake this for the effects of the free market.  35 years ago, the French government and Électricité de France (EDF), the then government-owned utility, came together to create a massive, and successful nuclear power program.  However, it wasn’t due to free markets that this came about. 

I agree with Mr Bell that the United States should return to building nuclear power.  It can provide low-cost, carbon-free baseload power to large areas of the United States.  However, we should not pretend that the free market will supply it.  Constellation Energy recently announced that it would be cancelling the building of a new reactor in Maryland due to cost issues.  It could not raise sufficient funds from Wall Street, and it was seeking loan guarantees from the US Department of Energy for $7.6 billion, 80% of the cost of the project.  Even then, Constellation determined that the costs of the project were too high. Certainly, free-market people like Mr Bell would not support the government giving loans to build nuclear power?

Finally, Mr Bell talks about America’s “vast deposits of oil, natural gas and oil shale”.  True, the shale gas revolution of the last three years in the US has changed us from a net importer to a net exporter of natural gas.  At a time when gas extraction is booming in this country, he must surely be mistaken in saying that “our energy developers struggle”.  On oil, though, he is wrong that we have vast untapped reserves, either on or off shore.  US oil production peaked at 9.6 million barrels per day (mbpd) in 1970.  Today we produce 5.4 mbpd, and we use approximately 19.7 mbpd.  No amount of extra drilling in this country is going to close that gap – John Hotmeister, former President of Shell Oil, US said that reduced government restrictions could bring 2 mbpd extra online, and most of that would be from opening the Alaska National Wildlife Refuge to drilling.  The truth is that the United States will never again be a major power in oil production. 

While Mr Bell claims that energy developers in the US are unduly burdened by “expanding government restrictions, regulations and legal challenges”, but he fails to note that the subsidies to oil and gas companies add up to about $4 billion per year. 

And there lies the truth – Bell says we should “let free markets, not government, pick the winners.”  But, the truth is that Bell wants the opposite – his policies would have the government favor dirty energy over clean-yesterday’s energy over tomorrow's.  His policies will have the US cede leadership in tomorrow’s new clean energy economies to Europe and – especially – China.  Instead of letting blind opposition to President Obama’s agenda cloud their analysis of America’s future energy options, Mr Bell and Forbes’ editors should instead do a fact-based examination of the actual costs and benefits of proposals.  Perhaps also, it would be better to take our advice on energy policy from experts in that field, instead of a professor of Space Architecture who is trying to sell a book.  

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