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Energy the nexus of everything: September 2009 Archives

On January 29, of this year the Environmental Defense Fund, together with the UK Consulate, hosted a climate conference at the capitol: "Texas' Changing Economic Climate." At the beginning of the conference, we heard a personal message from Prince Charles of Wales to the State of Texas imploring Texans to lead the US, and hence the world in climate mitigation. At the end of the conference, one of our elected officials suggested Texas may in fact already be a leader in carbon emissions mitigation while at the same time increasing the gross state product. And if Texas has been taking this leadership role by promoting things like a business-friendly environment and a deregulated electricity market, then perhaps other states, and countries, should look to Texas for how to mitigate carbon emissions.

Are those claims true? Is Texas a leader in reducing carbon emissions while increasing economic productivity?

On the surface, it seems plausible. From 2000 to 2005, total CO2 emissions in the state decreased 4.4 percent while economic output increased 16.5 percent. But dig deeper, and claims of real leadership on climate mitigation evaporate. It turns out that global energy prices were the main drivers of those changes, not the state's regulatory environment or business initiatives. Much of the CO2 reduction came from decreased natural gas use by the chemical industry as a result of the rising cost of natural gas. Electricity deregulation in Texas fostered the increased use of natural gas combined cycle technology for electricity generation – helping to maintain relatively steady electric sector CO2 emissions since 2000. Much of the rise in the state's economic output is attributable to the oil and gas industry, buoyed by the same rise in global energy prices.

It is a mistake to think that significant steady and long term CO2 emissions reductions, together with increased gross state product, can be achieved by simply continuing actions of the past five to ten years.

This report examines the data behind claims that Texas has been a leader in reducing carbon emissions while increasing economic productivity. The data shows that the external economic factor of higher energy prices was the main driver in decreasing emissions in Texas from 2000 to 2005, not our pro-business or deregulatory policies. Furthermore, Texas must prepare for the future. Federal climate legislation is on the horizon. This legislation is likely to impose constraints on the Texas economy that will demand even greater reductions in emissions. Texas and the rest of the US states should work to understand how specific industries and consumers will be affected by a federal CO2 constraint. By promoting those businesses that are well-positioned and facilitating restructuring for those ill-positioned, Texas can successfully transition to and maintain leadership within the new carbon-constrained energy economy.

Texas CO2 emissions data

In looking at aggregated data from the Energy Information Administration of the Department of Energy, from 2000 to 2005, the CO2 emissions of Texas went from 654 million metric tons (MtCO2 ) to 625 MtCO2 – a decrease of 4.4% F F. By looking at the data in Figure 1, one can see that the peak year for Texas CO2 emissions was 2002 at 672 MtCO2. Emissions in both 1999 and 2001 were less than in 2000 with the decrease from 1999 to 2005 being only 0.2%, as Texas' CO2 emissions in 1999 are listed at 626 MtCO2. Thus, in thinking about a specific baseline year for CO2 emissions, the choice can have a large impact. This fact provides reasoning for using a running average that can level out short-term fluctuations in the economy and energy prices.

The evidence for the emissions decrease is revealed by looking one level deep into the data – emissions from the industrial sector (see Figure 2). In 2005, the Texas industrial sector was responsible for 179 MtCO2 compared to 218 in 2000 – a 17.6% decrease. As a comparison, the drop in the overall US industrial sector emissions was only 6.4%. No other major sector, transportation or electric power, decreased in emissions in Texas during the 2000–2005 span. Furthermore, the Texas industrial sector is dominated by the consumption of natural gas as they are correlated very closely: Texas total consumption of natural gas dropped 21% from 2000 to 2005.


Figure 1. Texas' CO2 emissions by fuel.

Figure 2. Texas' CO2 emissions by sector.


Table 1. Comparison of US and Texas CO2 emissions from 2000 to 2005. Emissions in Texas and the US (MtCO2).

Interpreting Texas CO2 emissions data

There is an important question to ask in terms of interpreting the data showing a drop in industrial natural gas usage and subsequent emissions: Did the industries in Texas quit making as many goods or find a way to make the same amount, or even more, goods while consuming less natural gas?

From 2000 to 2005, the Texas Comptroller of Public AccountsF F shows that the gross state product increased from $850 billion to $989 billion in constant 2005 dollars. This is a 16.5% increase in economic output. During that same 2000-2005 span, Texas' total industrial output dropped a few percent before coming back to 2000 levels (see Figure 3). The only industries with substantial economic growth were oil and gas extraction, refining, and primary metals (not shown). The real price of oil and natural gas rose 40% from 2000 to 2005 – and roughly doubled from 1999 to 2005, providing substantial income and revenue to the Texas oil and gas sector, as well as the state budget. However, the chemical sector, which uses substantial quantities of natural gas as a feedstock was down 11%, perhaps tied to the increase in cost of natural gas. Additionally, a 13% drop in employment in the chemical industry from 2000 to 2005 provides some evidence to a drop in the number of chemical goods produced.


Figure 3. Industrial productions indices for Texas.

One can still ask what industrial energy efficiency improvements occurred early this decade in Texas. At the beginning of 2000, approximately 10.3 MW of cogeneration was installed in Texas. By the end of 2005, this was 17.5 MW – a 71% increase in capacity in six years F F. This is important because cogeneration, also commonly known as combined heat and power facilities, get more useful energy out of the same amount of fuel. Generating electricity and heat from more efficient systems decreases fuel consumption and emissions when it displaces less efficient systems.

However, electricity generation within the industrial sector was relatively constant from 2000 to 2005. Electricity generation from combined heat and power (CHP) facilities increased from 70 to 97 million MWh from 2000 to 2002, and then decreased to 85 million MWh by 2005. Overall, CHP generation increased 21% from 2000 to 2005, practically all outside of the industrial sector. Thus, many CHP facilities were installed, but the demand for their services did not seem to hold up.

The signing of SB 7 in 1999 began the deregulated electricity market in Texas. This change in policy ended up launching a tremendous increase in the installation and use of natural gas combined cycle units (NGCC) for electricity generation (see Figure 4). However, the move to NGCC generation technology had already begun in the early 1980s. The NGCC units use the excess heat from a combustion turbine to generate steam for a steam turbine. This combination makes NGCC power generation much more efficient than generating electricity from either the steam or combustion turbine alone. Amazingly, Figure 4 shows the clear impact that deregulation policy had on the strategy in the electric power sector. From 2000 to 2005 the installations of NGCC units increased by 400%.


Figure 4. The cumulative installed capacity of natural gas plants in Texas shows that installation of combined cycle plants increased significantly starting in 2000F F. ST = steam turbine operating stand-alone, CT = combustion turbine of an NGCC plant, CA = steam turbine of a NGCC plant, GT = gas combustion turbine operating stand-alone, and CS = an NGCC plant where the combustion turbine and steam turbine are connected mechanically.

The employment situation in the industrial manufacturing sector shows a marked contraction (see Figure 5). Employment in the chemical and plastics industry was representative of the overall Texas manufacturing employment trend from 2000 to 2005. Employment in the oil and gas extraction industry was slightly up from 2000 to 2005, and followed the continually climbing energy prices through 2007. Interestingly, even in some industries that saw economic growth during the time span of interest due to an increase in prices for the manufactured good, employment went down (e.g. primary metals). Also, industries that experienced decreasing employment are many of those that are energy and natural gas intensive.


Figure 5. Employment indices for the overall Texas manufacturing sector as well as selected industries.


What this analysis shows are a few major points regarding Texas gross state product and CO2 emissions from 2000 to 2005: (1) the major growth of the Texas gross state product increased during the first half of this decade due to a rise in global energy prices and increased value of chemical products, (2) the boom in natural gas cogeneration installations does not nearly account for the 32% drop in natural gas consumption in the industrial sector as the generation from these facilities only slightly increased from 2000 to 2005, and (3) a drop in cogeneration systems from 2002–2005 together with a drop in output from the chemical industry accounts for a large portion of the decrease in natural gas consumption, and subsequently Texas' CO2 emissions. Texas' emissions may have even slightly decreased since 2005 with continued increases in natural gas and oil prices.

It is a mistake to think that significant steady and long term CO2 emissions reductions, together with increased gross state product, can be achieved by simply continuing actions of the past five to ten years. High energy prices benefit some Texas industries while hurting others, and there is evidence to suggest that higher energy prices have been influential in decreasing emissions from 2000 to 2005. Impending federal climate legislation will impose constraints on the economy that go beyond the reductions in emissions that have occurred in Texas as a consequence of external factors rather than by directed policy. Texas and the rest of the US states should work to understand how specific industries and consumers will be affected by a CO2 constraint. By promoting those businesses that are well-positioned and facilitating restructuring for those ill-positioned, Texas can successfully transition to and maintain leadership within the new carbon-constrained energy economy.

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As we have reached the one-year anniversary of Lehman Brothers bank collapsing, many are still wondering what happened to the US and world financial system. Many in the government are calling for better regulation of the financial and banking industry, but perhaps there is one regulation that towers above all others: banking reserve ratio.

The reserve ratio, or reserve requirement, identifies the amount of customer bank deposits that must be held within the bank. The bank is allowed to lend out the rest of the money. Currently the US reserve requirement is 10%. Thus, for every 100 dollars deposited, 90 dollars can be lent to borrowers.

The reason that the reserve ratio is important, is that it parallels conceptually to another ratio of concern in the area of energy: energy return on energy invested (EROI). To some, the question remains whether or not this parallel is also a correlation caused by the physics and thermodynamics describing energy, rather than "laws" of economics and financial practice. But to me, there is no debate. To think that we can have an industrialized society without much excess energy, or high EROI, is not feasible. Also, because net energy and economic growth are so highly coupled, there likely cannot be a continuing industrialized society without a relatively low banking reserve ratio.

Economists model the macroeconomic output (GDP) as a function of three basic factors (that are not necessarily independent): labor, energy (energy services), and capital. Research since the 1970s by a group of dedicated ecological economists has unequivocally shown that the modern US economy grows significantly with more energy (energy services) and capital. Over the last 100 years in the US the labor factor has become insignificant. That is to say, and increase in the labor force will cause practically no economic growth (see Robert Ayres (2008) Ecological Economics). The reason is that in the US, labor has been almost 100% replaced by primary energy sources including fossil fuels, nuclear energy, and renewables. Consider that economic capital includes the intellectual capital and education of the workforce, and we see that physical human labor is valued quite poorly.

Before you say this doesn't make any sense, then keep in mind that people expect a "jobless recovery" yet again after we apparently had such an economic recovery (in the US) after the dot-com bust. I say apparently because it is probable that the US fiscal policies fighting off recession during the early 2000s just kicked the can down the road until the current economic recession.

While there are no systematic analyses of how EROI should relate to banking reserve ratio, I think this is a fruitful area for study. Lending money and expecting a return on investment is analogous and reliant on lending energy to invest for future energy return. It is likely that the inverse of the reserve ratio (that is amount of money lent out to that held in deposit in the bank) cannot be larger than EROI. As the EROI of fossil fuels to energy services seems to be only slightly above 10 (where the inverse of US reserve ratio is 9), or in the 10–20 range at the "mine mouth", and even less for finished products such as gasoline and electricity, we might very well already be operating society on an energy services EROI <10. Can our society operate as it exists if we lend more money than we our lending ourselves energy? I hope we can learn the answer to this soon.

A recent article ("Leaping the Efficiency Gap") in the August 14, 2009 edition of Science discussed the now classic argument of how far energy efficiency takes you to conserving energy.  The general answer is so far, not much.  The article discusses Arthur Rosenfeld starting an energy efficiency program at Lawrence Berkeley National Laboratory in the mid-1970s, and how he and many were convinced that reductions in energy consumption could be achieved by advances in technology.  The article also notes how Lee Schipper of Stanford's Precourt Energy Efficiency Center took offense to President Jimmy Carter's 1977 'cardigan' speech in saying that in order to save energy sacrifice was needed and some sacrifices would be painful.  Schipper wrote a letter to a congressman arguing that conservation did not have to be painful. Schipper is then quoted as saying he was wrong and Carter was right.

After 35 years of the efficiency v conservation debate, I think there is much more understanding that energy in the US is still cheap and has not generally dicatated decision making by businesses and citizens.  Perhaps the last few years represent a turning point in that the CO2/climate argument has put a differnet spin on the question.  But when we think of the word sacrifice, particularly in the US, are we really sacrificing to reduce our annual per capita energy consumption from the range of 350–370 GJ/person (330–350 million BTUs/person)? The world average is 75–80 GJ/person, and approximately 23% of the world's population live in countries consuming up to 100 GJ/person/year.

Since the 1970s the accumulation of statistics on energy and human development have allowed us to see that most human basic needs in terms of food access, health, and longevity are achieved at approximatley the 100 GJ per capita level. There are of course a few exceptions to any rule, but the tendency of diminishing returns on most of the important quality of life measurements when consuming over 100 GJ/person is extremely enlightening and provides great perspective.

As a possible extreme example, I recently purchased a house that had a three-star green building rating (by the local utility) yet has 17 recessed lighting sockets in the main room of approximately 800 square feet. Two light switches control 7 light bulbs each, so there was clearly a need to install low power-consuming light bulbs (or remove some of the light bulbs) so that 400–500 W of power are not consumed just to light half of a room.  When materials and energy got cheaper from efficiency gains and technological advancement, many times people just bought or installed more gadgets.

On the other hand, the per capita energy consumption of the US has remained relatively flat for the last 35 years due to many infrastructural and behavioral changes, even though total energy consumption has gone up due population increase. This same pattern holds for the electricity consumption of the state of California – a point that the Science article makes as the total electricity consumption rose similarly to the rest of the country.

It seems that most of solid energy conservation gains in the US stemmed from actual mandates and legislation, not business operations. After all, we measure economic growth based upon the flow of goods and services, not the amount of resources that we have in stock. Businesses are naturally incentivised to increase efficiency of operations, including using less energy per product, so subsidizing them to do what economics should drive them toward is perhaps a bit ridiculous. Subsidizing them to actually consume less energy, measured as total energy, not energy/product, can make more sense.

Many famous entrepreneurs and politicians have stated their visions in the past, and we have acheived them. President Kennedy targeting putting a man on the moon. Bill Gates (Microsoft founder) targeting a personal computer in every home. But none of these targets have anything to do with using less, they are always for using more. 

I think what we need is confidence that we can actually remove something from our homes and lives (here I'm thinking of the US), because we know that decreasing our energy consumption by 100 GJ/person/yr probably won't affect anthing fundamental in that Americans will then conserve energy at a rate that is still more than Western Europe. Granted, some things would certainly be hard to give up – I'm sitting in Texas right now where high temperatures of at least 38°C can occur for 3 months of the year, but other regions of the world experience this as well. But do we seriously think that there isn't the ability to 25% of our per capita energy consumption? Most of the reduction would likely come in the combination of reduced travel and smaller/lighter vehicles. Telecommuting and teleconferencing exist also. Exposing people to the correct prices of energy and food will also help.

So I propose this new challenge of removal, not addition: remove 100 GJ/person from the average American footprint.

The level of 'sacrifice' is to be determined.

One of my earlier posts discussed how Austin Energy, the #1 US utility in selling renewable electricity, had posted a price for its latest GreenChoice batch of renewable electricity such that it was too high for any more takers. The major issue coming to the fore is that at some point, a small percentage of residential and commercial customers cannot pull along an entire city, much less a state or a country, toward high percentages of renewable energy all by themselves.

In trying to find a way to meet its goals, Austin Energy changed its standard 10-year fixed price (at 9.5 cents/kWh for GreenChoice charge + a standard 3.6 cents/kWh) offer for renewable energy by adding a 5-yr option as well (at 8.0 cents/kWh for GreenChoice charge + a standard 3.6 cents/kWh). Now, after no one is buying the latest batch of green pricing, the charged price has now come under scrutiny by some local experts, saying that in fact Austin Energy is not open enough about how it calculates this price. So in attempting to come to a solution, a task force has been set up to come up with a solution. Additionally, Austin Energy is now proposing charging 5.7 cents/kWh and a 5-yr fixed price for the Green Choice charge.

A local paper covered the issue well, see this Austin Chronicle article. Also see a website, PowerSmack, organized by a local energy consultant to discuss these issues.

Much of the consternation over the price for the green electricity stems from the electric grid transmission charges that are applied to much of the wind power coming from West Texas through a limited set of transmission lines. The state of Texas has a plan in motion to build more transmission lines to relieve this congestion, but the solution is 4-5 years out during the siting and construction of the transmission lines. So, we wait for the transmission lines, but this is not a unique problem, and further expansion of renewable energy in Texas and other locations will face similar issues. Even with the transmission constraint charges, reports are showing that overall electricity prices in Texas are actually lower

But as Austin Energy general manager Roger Duncan states in the Austin Chronicle article and in regard to the GreenChoice program, it was intended to stimulate the market for renewables and not continue forever. The city council of Austin (who officially approves pricing for electricity that Austin Energy) is now coming to grips with the unavoidable fact that to meet goals for low carbon emissions (and we really haven't even started) and high percentages of renewable electricity, sooner or later everyone must contribute in one form or another. These levels of contribution by poor, middle class, rich, environmentalists, industrialists, greenies, turquoisers, left, right, up, down and everything in between is what the future is all about. The future is being determined on a local level by a small group of people representing just under 1 million citizens in Austin, TX USA, and perhaps on a global level this December in Copenhagen by thousands of world representatives representing almost every country in the world.