The 2008 Presidential primaries are finally over. There is no more endless jabber about Obama and Clinton etc. and who is going to win the Democratic nomination. During the primaries, most (if not all) of the discussions were centered on who said what about whom and numerous other silly and senseless topics. But amazingly, one topic that seldom if ever came up is the MOST important topic of ALL for the American people and their future — Energy and the Environment.
Since the Presidential campaign between Senator Obama and Senator McCain has started energy has suddenly become a very prominent topic. It ranks up in the top three along with the economy and the war in Iraq. Hopefully the American people are NOW going to have a meaningful discussion regarding the KEY topic of our generation. This is long overdue and needs the FULL attention of the country NOW.
Why is ENERGY so important? Trust me, when you are sitting in your home in the dead of winter and you have no power, there are NO other problems in your life. There is ONLY one, how to get the power back on and get the house warm again.
Access to energy, specifically electricity on demand is the KEY to our way of life. It is what separates the “developed” world from the “third” world. If we don’t focus on and discuss the most critical issue of our day, we will all lose and all be sitting in the dark.
What America needs NOW are fewer Democrats, fewer Republicans, fewer politicians and more Americans who will put politics second and the future of our planet, our children and grandchildren as their first priority.
What America needs NOW is a viable, consistent, LONG TERM plan to ensure the energy future of America and the entire world! I have been in the investment banking business for 30 years helping companies raise money and develop their products. Trust me, if the U.S was a company looking for money — no one would fund it. It has no proven management, its track record is terrible, there is no well thought out plan, no idea of priorities and it is running increasingly large deficits.
The US and the rest of the world are totally dependent on fossil fuels, which are limited in supply and are rapidly being depleted. This transition, away from fossil fuels, is critical. The nation is extremely vulnerable because most of the surplus fossil fuels are in the volatile Middle East. Energy independence should be a number one priority as a matter of National Defense.
I see many articles that say we are running out of oil. In actuality, we are not “running out” of oil, we are running out of “cheap” oil. It is predicted that sometime in the very near future (3 to 5 years) the world’s supply of oil will be HALF gone (“peak oil”). Once this “tipping point” is reached, the demand for oil will always exceed the supply (since demand will be increasing and supply can only go down), this will result in constant increases in prices, a growing balance of payments problem for the U.S and other importing countries and tremendous inflationary pressures on the world’s economies.
“The stone age did not end because we ran out of stones, and the oil age will not end because we run out of oil.” — Don Huberts, CEO, Shell Hydrogen
Fossil fuels are the primary cause of global warming and like it or not, global warming and our energy future is the most serious problem mankind has ever faced. In fact, even if there was an abundance of fossil fuels available at cheap prices the earth’s environment may not be capable of absorbing the constantly increasing levels of carbon in the atmosphere.
We are not going to solve this problem overnight or in 10 or 20 years, there is no “quick fix.” People will have to realize this, understand the problem in greater depth and move forward united to address the problem. The keys to solving the problem are really quite simple, but seem to be elusive to many, especially in the United States.
Acknowledge that a problem exists.
Take immediate steps to address the problem.
Acknowledge the Problem
If the majority of people do not see a problem or are in denial about it, no significant action will be undertaken to address the problem.
Many of the countries in the world have acknowledged that there is a major problem and are moving forward quickly. Countries such as Germany and Japan are moving forward with innovative legislation and comprehensive awareness and education programs to educate their populace to the existence of a global energy and environmental problem.
The U.S. however, does not seem to be aware of the problem or it feels that it does not exist. Perhaps they feel it is not proven “scientifically,” that it is merely a natural course of events and there is nothing to worry about. We must be careful to understand the difference between what we “know” and what we “think” we know. This is a very dangerous method of analysis and it often leads to failure to see the forest from the trees.
While the amount of warming globally since the last ice age (approx. 10,000 years ago) seems small, it is not exactly accurate representation. What is not being recognized is the exponential “rate of change” or acceleration of this warming. To illustrate, roughly half of this warming has occurred in the last decade! Warming over 10,000 years may or may not be a problem, warming over 10 years is a problem. This is indeed a serious problem that needs to be recognized and dealt with immediately. There may be no time to take a “wait and see” attitude, the consequences are just too great to take that risk.
“There are risks and costs to a program of action. But they are far less than the long-range risks and costs of comfortable inaction.” — John F. Kennedy
Because of the magnitude of this problem, it is critical that the U.S. play a leading role in solving this problem. The U.S. is the richest and most powerful country in the world and is acknowledged by most to be the world leader. Unfortunately, it is also the world’s leading energy user, leading energy waster and environmental polluter. Consequently it is the U.S. that must take the lead and join with the rest of the world to address and solve this problem. The American public must be made aware of the problem and educated as to its cause and potential solutions.
Currently, the general public’s awareness of energy or environmental problems is minimal. Compared to the average citizen in Europe, most Americans are quite simply, “energy illiterate.” There is absolutely no reason for this current situation; government and the media must get serious and address it. Many people still think there is plenty of oil and gas and that the big bad oil companies are secretly taking advantage of us. The American public needs to be told the truth (even though they don’t want to hear it) and armed with the truth move forward to effectively address this problem.
“Human history becomes more and more a race between education and catastrophe.” — H.G. Wells, The Outline of History
The only possible way to halt the spread of global warming is to reduce the amount of carbon that is released into the atmosphere. Since fossil fuels are the major source of carbon, the only way to effectively reduce and reverse the current trend is to stop or minimize the use of fossil fuels and turn to renewable sources of energy — solar, wind, biomass, geothermal, hydropower and others sources that emit little or no carbon.
“No one can be comfortable at the prospect of continuing to pump out the amounts of carbon dioxide that we are pumping out at present … with consequences that we really can’t predict but are probably not good.” — Lord Ron Oxburgh, Chairman of Shell Oil
Steps To Address the Problem
There are a number of steps that I think the U.S. and the rest of the world need to take immediately to start to effectively address the problem. We simply need to change our way of thinking — that is the first step.
“We can’t solve problems by using the same kind of thinking we used when we created them.”
— Albert Einstein
The good news is that many of these steps have already been tried in other countries and proven to work amazingly well. As a result it is clear to me that we have the technology and the knowledge to implement it, what we lack is the political will to face the facts. What we have to understand is that we are in the midst of a global paradigm shift from a (non-renewable) fossil-fuel-based economy to a renewable-energy-based economy and that this total transition will take at least 30 to 50 years or more and that the time to start is NOW.
Steps – Formulate a Long-term Plan
Understand that government legislation and tax policy can greatly assist in making major changes in society and that they must be implemented wisely. All policies must be consistent and long term and structured in a way that eliminates uncertainly for individuals, corporations and investors.
“Best Available” technology must be put into place in all areas of industry, commerce and residential structures and processes.
Energy conservation and increased energy efficiency in all areas must be implemented nationwide. Intelligent conservation is not only possible but is by far the largest source of “new energy” to preserve the current fossil fuel sources long enough to accomplish the transition to a renewable energy-based economy. It is also the most cost effective method. IT needs to be the cornerstone of any long term program.
The “true costs” and benefits of all energy forms must be utilized in the calculation and determination of which source or sources to utilize in a given situation.
All energy sources must be diversified and the most appropriate used in each case.
To further elaborate on these steps above, I offer the following descriptions:
Step 1: Legislation and Tax Policy
Legislation and tax policy in many ways “makes the world go round” and much of it is actually based upon subsidies, many of them age old and very well hidden. If subsidies were removed from ALL energy sources and all the direct and indirect costs accounted for, I think that renewable would be at parity with fossil fuels right now.
For example, you can write off your mortgage interest payments as a tax deduction. Why is that? Your home is not a “productive” asset. But it is a tax break that has played a very significant role in making homes in America the average person’s largest asset.
What we need to do is to put in place a national policy, with the proper incentives, that encourages renewable energy sources, allows them unimpeded access to the electric grid and applies more accurate “costs” to fossil fuel sources. There are two basic existing methods of accomplishing this: Feed-in Tariffs (FITs) and Energy quota systems.
FITs are legislated polices that guarantee renewable production access to the grid, at a guaranteed minimum price and duration of time (10 to 20 years).
For example, in Germany the government guarantees a fixed payment for energy generated from all renewable sources for a period of 20 years. Each year the guaranteed price for new systems goes down 5% to account for technical advancements and the formula is reviewed every 2 or 3 years to keep it flexible.
In Japan, there is a similar set of government guarantees and incentives that have been in effect for a number of years (since 1992). They were dropped each year to reflect technical advancements and were eliminated in 2005. Despite the annual drops in incentives, the market is still growing at 20% plus per year and as a result, on-grid solar electricity in Japan is now CHEAPER than retail fossil fuel electricity. In short, Japan has moved forward quickly with a well-planned program, including incentives and widespread consumer education and in less than 10 years has made solar electricity a success in Japan and has made Japan the worldwide solar electricity leader.
With energy quota systems such a Renewable Portfolio Standards (RPS) the government (Federal or State) sets a target percent for energy that will be generated by renewable energy sources and the market determines the prices that will be paid.
Twenty-five states plus the District of Columbia currently have RPS’s, but each of them is different. This is confusing and needs to be coordinated on a national level. What is needed is a National RPS with the federal government taking on a leadership role to set the standard and move forward.
I see no societal or technical reason for not starting out with a national RPS goal of 20% by 2020 and 50% by 2050.
Of couse, the big question is always how will we pay for it?
Both FITs and RPS will be paid for by a fee, called a Systems Benefit Charge, which will be added to the monthly utility bill of all customers. The Union of Concerned Scientists estimated that this charge would be approximately .002 cents per kilowatt-hour of electrical usage or approximately $1.00 per month per user. This is certainly an absurdly low price to pay for helping to ensure the future of our world. I am quite confident that if the American people were “educated” on this situation that they would be willing to contribute far more than $1.00 per month to save our planet. How about everyone giving up one Cappuccino PER MONTH? This would represent a four-fold increase to approximately $4.00.
FITs are more popular in Europe and other place around the world, while the RPS is catching on (slowly) in the U.S. I personally think the feed law concept is superior because of its simplicity and the fact that it has worked very well in Germany, Denmark, Spain and is being considered in many other countries around the world including China. In fact, there are some recent developments in the U.S. involving FITs, which is very encouraging.
Step 2: Use the Best Available Technology
There are numerous cutting-edge technologies that can be used to save significant amounts of energy.
Examples are: fluorescent lighting in every house (75% electricity savings), high efficiency air conditioners and appliances (25% to 50% savings) and boilers (25% savings) and the list goes on and on. In addition, none of these efforts will produce any discomfort or change in lifestyle; they are all transparent to the user.
To illustrate: a critical area that should be a major FOCUS of the U.S. is the widespread use of hybrid vehicles instead of current internal combustion automobiles. The fuel saving would be enormous, the average auto or light truck today barely gets 20 MPG, whereas the new hybrids get between 35 and 50 MPG. Most important is the fact that, this change could occur very rapidly, probably in less than 10 or 15 years.
Transportation utilizes roughly 70% of the oil used in the U.S. Even a minor increase in the average MPG of the average automobile, i.e. 5 MPG, would eliminate all oil imports from the Middle East. This sort of increase (5 MPG) can be accomplished via hybrids (gas/electric cars), which can easily increase average mileage, by over 20 MPG. Once again, the technology and knowledge is here, but is the political will?
Step 3: Implement Energy Conservation & Energy Efficiency
Energy conservation and increases in energy efficiency are the easiest and cheapest ways to save energy. Simple things like home roof insulation, storm windows and weather stripping can literally save hundreds of dollars a year with a payback of a year or two.
The other major item that can be implemented is a nationwide enhanced set of building codes. These would require new residential and commercial buildings to meet minimum energy-efficiency requirements.
This is very important because, unlike an automobile, a building or a house can last 50 years or more. So, if you design it inefficiently now, you will be paying for your mistake for 50 years with sky high energy bills and a house you may NOT be able to sell.
Most people would probably be surprised how much of our energy consumption our buildings use: they account for 65% of electricity consumption, 36% of total energy use and 30% of greenhouse-gas emissions. The good news is that the majority of this can be addressed with current technology and good design practices, with a marginal cost increase of between 2 and 5%.
The technology and knowledge are ready to go. What is needed is an aggressive government policy of education and raising awareness of the problem.
Step 4: Use True Energy Cost Calculations
How can you expect to make a decision if you do not have all the facts? Not easily. When it comes to energy, it is very difficult for the average citizen to determine the true cost of different forms of energy.
Let me illustrate with nuclear power. Nuclear power is a relatively “clean” source of power in that it does not generate large amounts of carbon that contribute to global warming. It also generates electricity at a very low price per kilowatt-hour (kWh). Or does it?
The nuclear industry is and has been heavily subsidized by the federal government. For example, over the first 15 years of the nuclear industry’s lifetime the government paid the industry $39.4 billion in DIRECT subsidies; in the first 15 years of the wind industry the government paid the industry $600 million, over 60 times less. I STRONGLY doubt that an accurate estimate of the cost for the decommissioning of a highly radioactive facility and the long term storage of the waste (which could easily exceed the cost of building the plant) has been included in the cost projections.
In addition, there is a law called the Price Anderson Act, which limits the liability of insurance carriers in the U.S. to $9 billion dollars in the event of a nuclear accident. The balance of any liability would fall on the shoulders of the American taxpayer, a number probably in the US $400 to $500 billion area for a major nuclear accident. This is a perfect example of an enormous indirect subsidy that is hidden from the public and NOT counted in the cost of an energy source.
How expensive is nuclear power? I am not sure, but it is MUCH MORE than what we are being told it is and the “cost” number that is being used when comparing it to alternative projects is most likely highly inaccurate and vastly understated.
Similar points (additional subsidies and hidden costs) can be shown for oil and coal. Oil costs the U.S. taxpayer hundreds of billions of dollars per year in pollution costs and military costs to protect our Middle East oil sources. Coal burning destroys the water, air and the health of people in the regions where it is burned. None of these hidden taxes, environmental or health costs are included in the “cost” when the American people are told how much the various alternatives cost. We are all paying a much higher “price” than we realize. If these cost factors were included in a decision it may change the decision, if they are NOT included (as is the case today) we may be making critical long term decisions based upon inaccurate cost numbers.
“Socialism collapsed because it did not allow prices to tell the economic truth. Capitalism may collapse because it does not allow prices to tell the ecological truth.”
— Oystein Dahle, retired VP of Esso Norway
Step 5: Diversify Energy Generation
No one form of Renewable Energy generation or energy conservation will be able to address and solve the world’s energy problems. All forms (solar thermal, photovoltaics, hydropower, wind power, biomass, geothermal and tidal power) must be utilized in a diversified portfolio of energy sources and conservation measures that most effectively address the various needs and applications worldwide.
The problem is obvious and the answer is clear. We just have to open our eyes to see that: The answer rises in the east every morning!
We must move immediately toward a global economy based upon renewable sources of energy NOT on non-renewable sources like fossil fuels. The total transition may take 30 to 50 years or more, but there is no time like the present to start.
Americans must select leaders that understand the enormous complexity of the worldwide energy and environmental problems that we face. If we do not, then we will all get exactly what we asked for and exactly what we voted for.
The father of the most valuable form of power — electricity, saw it clearly over 100 years ago, why can’t we see it now?
“We are like tenant farmers chopping down the fence around our house for fuel when we should be using Nature’s inexhaustible sources of energy — sun, wind and tide. I’d put my money on the sun and solar energy. What a source of power! I hope we don’t have to wait until oil and coal run out before we tackle that.” — Thomas Alva Edison (1847-1931)
J. Peter Lynch has worked for 31 years as a Wall Street security analyst, an independent security analyst and private investor in small emerging technology companies. He has been actively involved in following developments in the renewable energy sector since 1977 and is regarded as an expert in this field. For 17 years, he was the contributing editor to the Photovoltaic Insider Report, the leading publication in PV that was directed at industrial subscribers such as major energy companies, utilities and governments around the world. He is currently a private investor and has from time to time been a financial/technology consultant to a number of companies. He can be reached via e-mail at: [email protected]