Technology Emerging to What End?

Several fundamental issues related to defining and discussing emerging energy technologies include:

In view of these obstacles in the energy industry, the task of identifying the potential of an emerging technology is difficult. Proposed objectives to be met by new technology should have a reasonable chance of surviving over time and be substantially free of speculation. To this end, one development goal stands out: Emerging energy technology must be based on fuel price. That fuel price must be for the delivered product and, for planning purposes, need to include anticipated environmental costs.

For the electrical power industry, the energy fuel consumer is the large utility company that generates electrical power. For the vehicular fuel industry the millions of individual owners of cars and trucks are the final consumers.

Recent trends have included an emphasis on the sustainability of an industry. A reasonable interpretation of sustainable is sustainability in the 30-year time frame. There is too much uncertainty for longer time frames in view of potential breakthroughs in science and technology.

This 30-year time frame is greater than the 3–10 year time frame that large corporations plan to get full return on investments (ROIs). It is less than the total sustainability pursued by advocates of wind and solar energy.

In the following discussion the potentials of different energy feedstocks will be reviewed. The feedstock costs provide an indicator of the potential of a fuel for meeting goals on fuel price.

Wastes and By-Products as Feedstocks

The greatest potentials exist with municipal solid waste and spent nuclear fuel. Historically, both vehicular fuel and electrical power technologies were alive and well before there was either a municipal solid waste or nuclear waste problem of any magnitude. Both municipal solid waste and nuclear waste (spent nuclear fuel) provide an opportunity to generate useful energy from a “waste” that imposes a burden on society.

Today’s US nuclear power plants extract about 3.4% of the energy available in the fuel rods before they are set aside as spent fuel. The spent fuel elements are stored at each of the nuclear power plants, and transporting them to a common repository in Yucca Mountain is the subject of bitter debate that seems to have been resolved not being a good option.

Reprocessing the fuel reduces the mass of the waste requiring long-term storage and recovers about 96% of unspent fuel. This reprocessing is practiced in Europe and Japan, but not in the United States. Excess weapon grade uranium/plutonium can also be blended with natural uranium to make power plant fuel and eliminate this inventory as a weapon threat.

Similar to nuclear reprocessing, the conversion of municipal solid waste into fuel and electricity can eliminate a waste problem and provide the needed energy. Landfill corporations receive $15–60 per ton of waste to dump this waste in a properly prepared hole in the ground, and unfortunately, often see waste-to-energy projects as competition for their revenues. The municipal waste-to-energy process must overcome at least four opposing groups: (i) direct political pressure from electrical power providers and landfill corporations; (ii) air quality regulations that make it very difficult to build the new conversion facilities; (iii) the cost and availability of conversion technology; and (iv) Mafia-type control of the collection of solid waste. Full use of municipal solid waste for energy is as much a political issue as it is a technology opportunity.

In the absence of American leadership, answers are likely to come from Europe. In Japan and Europe, landfill land is becoming less available. In Germany and other countries waste-to-energy industries are prospering. Across Europe in 2010, there were about 400 waste-to-energy plants, with Denmark, Germany, and the Netherlands leading the pack in expanding them and building new ones [2].

Energy facilities designed to run on waste products typically benefit from the economies of scale made possible by adding other feedstocks to their mix. Municipal solid waste plants will be able to take in biomass produced near the plant locations where hauling distances are short. Coal could also be used in the municipal solid waste plants. Co-firing these facilities with biomass and coal would provide improved economies of scale and feedstock reliability to keep the plant in operation. In the future, more advanced facilities would be true “solid fuel refineries” with the option to produce chemicals, liquid fuels, electrical power, and recycled metals.

Liquid Fuels Market

Both nuclear power and municipal solid waste facilities are better suited to produce electrical power rather than liquid fuels. For liquid fuels, the next least expensive feedstock options are remote natural gas, coal, and oil sands (and heavy oil). This liquid fuels market is not synonymous with automobiles—a case will be presented in Chapter 7 for conversion to electrical power as the primary distributed energy for automobiles. Electrification of trains is possible, and short-haul trucks may run off batteries. Interesting options like the Hyperloop and Terreplane System are emerging as an alternative for some of the aircraft market. There is no end in sight for the end of liquid fuel dominance for farm tractors.

As Table 3.1 indicates, biomass will have a difficult time competing with oil on a cost basis. While it is true that ethanol and biodiesel may actually have periodic cost advantages over gasoline and diesel as these industries expand (2001–2008), cost advantages disappear when the volumes of ethanol and biodiesel expand by using “excess” agricultural commodities competing with increasing population food demands. A side effect of this expansion might be higher farm commodity prices—this might bring an end to government-subsidized agriculture.

Oil corporations in North America are moving toward tight oil and oil sands. Heavy oils are an option after the most accessible tight oil reserves are consumed—oil prices greater than $100 per barrel increase the recovery options. These fuels will work with incremental modification of existing refining infrastructure. Today, the use of tar sands tends to be a better long-term plan than conventional petroleum. The driver for commercialization will be corporate profitability. This type of industrialization should have little problem providing liquid fuels well past the end of the twenty-first century—for a price. Lessons of history show that the environment, military conflict, major trade deficits, and huge fluctuations in prices can be the results of industrial expansion driven by corporate profitability.

A problem with the liquid fuel industry is the lack of diversity in feedstocks—petroleum feedstocks and oil corporations dominate and control the industry. One of the paths forward in this industry is electrical power (including nuclear) and increased automobile efficiency to displace 33–50% of this 187 million gallon a year. If biodiesel and ethanol replace another 10–20% of this industry market, the dominance of petroleum will be undermined. This diversity will provide stable prices and nations can eliminate trade deficits to the extent desired. Diversification is key.

Fischer–Tropsch fuels are a fourth player in diversification of the liquid fuel industry. The growth of Fischer–Tropsch is slow, but persistent.

Fischer–Tropsch Technology

Fischer–Tropsch technology was developed in the mid-1920s in Germany to produce liquid fuels from coal. It is being used today to produce liquid fuels from both coal and natural gas. The Fischer–Tropsch technology can provide liquid fuels at prices competitive with petroleum today. Early estimates indicated that Fischer–Tropsch technology is borderline competitive with crude oil at $20 per barrel (eliminating nontechnical cost barriers); however, recent history has shown that sustained prices greater than $55 per barrel have led to a much more rapid increase in tight oil production (drilling) as an alternative to Fischer–Tropsch process.

There is reason to believe that Fischer–Tropsch technology and shale oil fracking technology are sustainable to compete on a large scale with conventional petroleum oil at prices of about $55 per barrel and higher. The primary difference between the technologies is that it only takes a few weeks to drill a well using fracking technology with an investment near $1 million and a production well that can pay for itself in less than 12 months; while a Fischer–Tropsch facility can cost hundreds of millions of dollars, take 2 or 3 years to bring into production, and then take several years to pay for itself. The difference is the risk involved and the time it takes to realize a return of the investment.

Because of the high costs for Fischer–Tropsch production facilities, growth will be slower, but once the investments are made they will impact the industry for decades in the form of steadily increasing market share. This slow but steady growth is depicted by US Energy Information Agency (EIA) projects for “natural gas plant liquids” of Figure 2.1.

The primary applications will be low-cost natural gas available at remote sites or at oil production sites where it is currently flared.

The key event that accelerated the maturing of tight oil recovery (fracking) technology was high oil prices. To some extent these prices were artificial.

Impact of Commodity Crude Bidding

Dan Dicker wrote a book titled Oil’s Endless Bid, Taming the unreliable price of oil to secure our economy [19]. Addressing our current problems with the price of crude oil, on page X of the Introduction the following:

“WE have caused this; there is no one else to blame. We have inspired this disaster with lax regulation, blind faith in free markets, and unfettered greed. The oil market has followed a similar pattern to other modern asset markets, becoming enmeshed in more and more complex derivative products that benefit mostly the people that sell them, we encourage and reward best the people who create and squeeze profit out of these new product markets, and we invite—no warn—every investor to participate as well, lest the miss the latest and greatest money making opportunity. The result of this avalanche of activity is clear, causing prices to boom, only to bust violently before beginning the cycle over again.”

“So why should I care about the swinging prices of oil? … The difference is that people choose to invest in stocks, therefore, they bear responsibility for their own risks and possible losses. But whether it is the heat in our homes or the fuel for our cars, even the food we eat and the clothes we wear—just about everything in our lives is tied to the costs of energy. We are all invested in oil, whether we like it or not. Business is hardly exempt. More than 50% of the companies on the New York Stock Exchange rely on energy as their single largest input cost, and that doesn’t even include the energy companies themselves (some of which were being put out of business by the high price of oil!).”

These are the facts of the international crude oil market. It is very difficult to predict how the crude oil market will move. It is clear that about 15% of the energy in a barrel of crude oil will be spent refining the crude into the array of products sold in the energy and chemicals market. It is worth considering what might be done to make us less dependent on this “sole source” of energy. Estimating the economic “break even” or the profit margin in alternative energy sources is worth considering.

To its merit, commodity crude bidding the high, albeit temporary (see Figure 3.1), prices it created has provided the incentive for the advancement of technology in tight oil recovery. Like a frog sitting is a pot of water over a flame, if the temperature increases gradually the frog dies a slow death; however, if the temperature increases rapidly the frog is aware and jumps from the pot. Commodity crude bidding has brought disruption and that disruption has brought evolution.

True Barriers to Commercialization

Each of the four nontechnical barriers to commercialization of the synthetic oil case study has a greater impact than reasonable advances in technology for Fischer–Tropsch facilities. If solutions to the nontechnical barriers were implemented, threshold petroleum prices to attract investment into domestic synthetic oil production would be less than $20 per barrel and possibly as low as $13 per barrel. However, this production would be by a nonpetroleum corporation without refineries and a fuel distribution network—this producer would have to sell to existing oil corporations or face tens of billions of dollars of additional investment for separate refineries. In view of possible agreements with foreign producers (e.g., 11 years of reserves) it is not certain that the US major petroleum corporations would displace contracted petroleum with a synthetic oil alternative.

Intervention or a nonfuel alternative is needed. The plug-in hybrid electric vehicle (PHEV) is an example of a nonfuel alternative. The Canadian oil sand industry is an example of how government intervention can be effective. These represent two possible solutions—other good solutions may exist.

The Canadian oil sand (formerly referred to as tar sand) industry is a success story that demonstrates how commercialization barriers can be overcome. At $9–15 per barrel production costs, oil sand production costs are more than Fischer–Tropsch production costs. But even at these higher costs, large-scale mining of oil sands in Canada began in 1967 [4] when oil prices were less than $10 per barrel. It took about a decade to make a profit from the oil sands (when including regional opportunity costs of not allowing imported petroleum to compete with the oil sand fuels).

The Canadian National Oil Policy introduced in 1961 made possible the oil sand commercialization. It established a protected market for Canadian oil west of the Ottawa Valley and freed the industry from foreign competition. This policy protected companies from the greater intangible costs and provided an environment for smaller companies (other than the major petroleum companies) to develop the technology. In addition, in 1974 the Canadian and provincial governments invested in Syncrude’s oil sand project and provided assurances about financial terms [5]. New refineries were built (Shell Canada Limited Complex at Fort Saskatchewan, Alberta). Today, with oil prices in excess of $50 per barrel, the Canadian oil sand industry is profitable beyond most investors’ expectations; it provides energy, security, and quality jobs.

The United States is at a disadvantage today because it did not heed the warnings of the oil crises in the 1970s and 1980s. However, it is possible to turn this disadvantage into an advantage. New and better options are available today. Tesla Motors was founded in 2003, but it was 2013 before profitability was realized; this is similar to the Canadian oil sand industry in that it took about a decade for profitability to be realized.

In addition to Tesla Motors becoming a sustainable company, its production and demand for electric vehicle batteries has a wide impact. Tesla Motors brings with it electric vehicles from other corporations who wish to “join the band wagon” and lower cost and better batteries for HEV and PHEV approaches. All assist with the ultimate of desired stabilities in vehicular fuel markets which is attained when grid electricity is established as a major competitor with gasoline both as a direct replacement (electric vehicles) and to increase the efficiency with which gasoline is used (HEVs).

PHEV vehicles are similar to HEVs on the market today. They use extended battery packs (e.g., 20 miles of range) that charge using grid electricity during the night providing the first 20 (or so) miles out of the garage each day without engine operation. Gasoline is fully replaced with grid electricity for most of each day’s transit. Per-mile operating costs for grid electricity are about one-third the cost of gasoline. Rather than going to petroleum producers, the majority of the fuel operating revenues would go to local communities.

If a consumption tax were applied to imported fuels representative of taxes on domestic synthetic fuel production, the higher vehicle cost of a PHEV would be recovered in about 3 years. Advancing technology would rapidly reduce this time to about 2 years. Less oil would be imported, domestic jobs would be created, and the new demand for off-peak electricity would allow restructuring of the electrical power grid to include base load generation with increased efficiency for electrical power production and reduced greenhouse gas emissions. Up to 20% of gasoline might be replaced without expansion of the electrical power grid.

Petroleum Reserves and Protecting the Status Quo

The starting point for solving problems related to the deterioration of the US manufacturing base and the inability of the United States to displace its reliance on imported petroleum is to recognize that these are both artifacts of corporations attempting to maintain the “status quo.”

In the middle twentieth century, the US steel industry decided not to invest in new US steel mills because such mills would replace operational and profitable steel mills they already owned—such investments were not good short-term business decisions. On the other hand, Japanese investors had a greater incentive to invest in a steel manufacturing industry because their infrastructure had been destroyed during World War II—investments were made in more efficient mills that often produced a superior quality product. Eventually, most of the US steel industry lost out to foreign competition.

From a corporation’s perspective, the “upside” potential is clearly greater to invest profits in infrastructure that does not compete with existing infrastructure. Whether it be the steel industry, textile industry, or petroleum industry, the path of short-term corporate profitability was and is different than the path of long-term prosperity for countries, states, and communities.

From this observation it follows that countries should not allow energy corporate giants to decide the long-term national energy strategies.

A solution is to select energy options that do not rely on the refineries or distribution networks of major oil corporations. Increasing the fuel economy of vehicles is such an approach, but it has limited potential. A new technology referred to as “PHEV” has the potential to substantially replace oil with domestic electricity and may be a technology that displaces petroleum. Hydrogen gas would be used on fuel cell versions of PHEVs, but no hydrogen distribution infrastructure will be required. Hydrogen would be generated “onboard” the vehicle.

Intangible Risks (Costs) and International Antitrust Policies

Investment in new infrastructure brings with it the risk of losing the monetary investment. Intangible risks are those that are difficult to predict and often outside the control of the investors.

When pursuing alternatives to petroleum-based fuels, the intangible costs include: (i) the risk that oil-producing countries will flood the market with oil to maintain market share and drive competition out of business; and (ii) the risk that a better alternative will be available in a few years. The latter is an accepted risk for all investments because competition is recognized as good for the country. The former is recognized as going against the best interest of a country as documented by antitrust cases against corporations like Standard Oil and Microsoft.

Reform in the antitrust laws is needed, because John D. Rockefeller demonstrated that even when you are guilty your competition will be gone, your wealth will be great, and you will merely have to stop certain practices. Reform is needed to provide quicker response to unscrupulous business practices or to stop such practices from ever eliminating the competition.

To the credit of current antitrust laws, they are used to proactively evaluate mergers before they occur to make sure the mergers do not create a monopoly. However, these laws do not prevent corporations from lowering prices to stifle the competition.

In the case of petroleum imports, one solution is to add an “antitrust tax” to imported petroleum if the price is lowered more than, say, 25% from the recent 5-year average price (25% and 5 years are one of many possible combinations). For example, if the price of imported oil into the United States was $40 per barrel for five consecutive years and OPEC decided to reduce the price to $20 per barrel, this “antitrust tax” would place a $10 per barrel tax on imported oil. New alternative fuel industries in the United States would then have to compete with an effective price of $30 rather than $20 per barrel. A year later, the new 5-year averaged price would be $36 per barrel, and the new minimum effective price would be $27 per barrel. Sustained price decreases could occur, but the reductions would be gradual, and the intangible risk to domestic industry would be considerably less.

An “antitrust tax” on imports would only be applied if significant decreases in prices occurred. It would be proactive. It would not limit how low prices could eventually go. And it would reduce/eliminate the intangible risks that create one of the barriers to the commercialization of alternatives to imported petroleum.

US taxes take their toll on the profitability of domestic industries. Figure 3.2 summarizes US taxes on “hypothetical” domestic synthetic oil (like the case study) for comparison to the taxes on imported petroleum. For these calculations, every dollar of sales going to a domestic synthetic oil producer is interpreted as either going to the government or becoming “true” purchasing power in the hands of either a worker or investor.

As indicated in Figure 3.2, for a domestic production facility selling a $28 barrel of oil, about $14 in taxes is paid for every $14 in purchasing power that goes to either investors or workers. These numbers will vary depending upon specific examples. The inclusion of state portions of employer taxes (unemployment, etc.) as well as property taxes further increases theses taxes. Sales taxes should debatably be excluded from this analysis since it is placed on all products independent of where they are produced. This shows that taxes are about 50% of the domestic sales price of most products produced and sold in the United States—an effective domestic tax rate of 100%!

If $50 is spent on a barrel of crude oil purchased from a foreign government, essentially no US taxes, tariffs, or social costs are paid on that oil. In some cases, little or no taxes would be paid to any government. Foreign taxes may also be excluded from those items exported from foreign countries to improve international competitiveness.

Even though the domestic and imported oils are superficially equivalent purchases to a refinery in the United States (based on current US law), the fundamental question remains whether these options produce the same US societal benefit. This can be stated in a different way. From the perspective of a US citizen is $1 in US tax money going toward the purchase of a jet aircraft for the US Navy the same as $1 in Iranian tax going toward the purchase of a fighter jet for the Iranian air force? Certainly not!

Why then, does the US government continue policies that give foreign production competitive advantages and direct cash flow away from the US government and to foreign governments?

Who pays the US taxes to make up for the lack of taxes on imported crude oil?

US citizens will ultimately pay costs to keep the US government going. Mega energy corporations and several foreign governments benefit greatly by having this portion of the tax bill not show up on their balance sheet. It is clear these are shortcomings of current US tax laws.

Where, exactly, have our classical analyses of this trade gone wrong?

The philosophical father of free trade, Adam Smith, identified two legitimate exceptions to tariff-free trade—when industry was necessary to the defense of the country and when tax was imposed on domestic production [6]. Corporate income taxes are an obvious example of a tax imposed on domestic production. Personal income taxes may be a less obvious example, but, from the perspective of foreign competition, the personal income tax has the same impact as the corporate income tax—so do property taxes, unemployment taxes, dividend taxes, and FICA. Sales/consumption taxes are fundamentally different since they are applied without bias to the origin of the item sold.

Clearly, any strategy on sustainable energy technology and policies should include a critical analysis of tax policies to make sure that domestic industries are not hurt by imposing higher taxes on domestic energy supplies as compared to imported energy.

Corporate Profitability and High Investment Thresholds

Corporations tend to pursue only the most lucrative investments available when reinvesting their profits. The spreadsheet analyses of these investments often indicate the potential to recover all capital investment plus a yearly 20% ROI in the first 6 years (6-year payback) of production. For new endeavors, anticipations of this high return and quick payback are standard. The following represent typical ROI and payback periods for corporate investments:

The case study results of Table 3.3 demonstrate that if an oil corporation owns years of petroleum reserves in excess of the time it takes to build an alternative fuel facility, the ROI simply cannot be high enough to compensate for the reduction in value of those assets. Only under the assumption of less than 2-year reserves can a corporation meet reasonable ROI investment goals.

To place things into perspective, recent petroleum oil prices (3/05) exceeded $55 per barrel. If imported petroleum is taxed at the same rate as the case study’s domestic production of synthetic fuel from coal, the refineries would be paying about $110 per barrel. As summarized in Table 3.3, if a corporation that was not vested in petroleum reserves were to commercialize this technology using municipal bonds, the cost of domestic production would be $20.21 per barrel (including taxes). In this hypothetical environment of “equitable taxes on both foreign and domestic products” and “investment using municipal bonds”—the facilities would be built and actual ROIs would be much higher than the minimum expectations of the investors.

The Canadian oil sand industry is an example of a community and government making what was perceived as a low ROI investment in the 1970s. This has resulted in exports of fuel (rather than imports), regional prosperity, and increased national security. With crude oil prices at $55 per barrel and production costs from the oil sand fields at about $12 per barrel, the returns on investments are huge and the industry has self-sustained growth/expansion.

The irony of the Canadian oil sand industry example is that a providence made an investment based on anticipation of minimal monetary gains and received great monetary and nonmonetary returns. At the same time, corporation after corporation holding out for high ROI investments have gone out of existence.

Today, states in the United States are attempting to reduce this nontechnical barrier by providing tax credits or land for plant sites. For example, Alabama provided Hyundai $253 million in “economic incentives” to build an automotive plant there—these incentives included sewer lines, highway paving, and tax breaks [7,8].

Land and tax credits are effective and low-risk approaches for states and municipalities to attract corporate investment. A more direct approach would be for local and state governments to provide capital with bond-based funding. If this direct investment approach was used, communities would be able to match their capabilities and needs with the industry the community is trying to attract. The underlying message here is that communities realize value from local industry beyond the ROI realized by the corporation and that it is often good policy to provide incentives to attract industry. In this approach, there must be assistance to communities to help them make smart incentive decisions.

A particularly intriguing opportunity exists for state and local communities to provide bond funding for local investment with a “balloon” interest rate that pays off well after the 10 or 20 years. Low-bond rates for the first decade allow the corporation to receive the quick payback while high interest rates in the long term make the communities/states winners.

It is important to recognize that profitability (10%, 20%, or higher) can continue for decades after the payback period used to determine the threshold prices that warrant investment. A community can position itself for this long-term upside of a good manufacturing infrastructure investment.

The Cost of Driving a Vehicle

Essentially no tax is applied to imported crude oil; however, substantial taxes are applied to gasoline at the pump. The taxes at the pump for maintaining the nation’s highway system should not be confused with the taxes that increase the cost of producing domestic synthetic oil presented in the case study.

With crude oil selling at about $55 per barrel, about 20% of the price of automotive gasoline is taxes averaging about $0.42 per gallon. The crude oil feedstock is $1.30 ($55 per 42-gallon barrel, March of 2005) of a $2.01 gallon of regular unleaded gasoline. Premium gasolines would have higher refining and sales component costs amounting up to an additional $0.20 per gallon. Table 3.4 summarizes federal taxes corresponding to the $0.184 federal tax on automotive gasoline for commonly used fuels.

For the gasoline price summarized in Figure 3.3, typical price contributions are: federal tax ($0.184), average state tax ($0.236), crude oil ($1.30), refining ($0.133) and distribution/sales ($0.150).

Federal and state taxes on gasoline go toward the building and maintenance of our nation’s highways totaling about $72 billion per year, and most agree that these moneys are well spent. An average of $0.42 per gallon is applied at the pump to gasoline sold for use on highways. For diesel, a red dye is placed in the off-highway diesel (no taxes) to distinguish it from diesel for which highway taxes have been paid—law enforcement can sample the fuel tank to verify that diesel intended for farm tractors is not used to haul freight on highways.

A Fischer–Tropsch fuel (fuel of case study) would be completely compatible with petroleum-based diesel and could be distributed in the same pipelines. The $0.42 per gallon highway tax is applied to all fuels (imported and domestic, alike) at the pump.

For a hypothetical gallon of Fischer–Tropsch fuel and based on the estimate of Figure 3.2, half of the $1.30 per gallon ($0.65 per gallon) would actually be a compilation of additional taxes collected prior to the fuel reaching the refinery. As the American Petroleum Institute [11] points out, imported crude oil is taxed multiple times prior to the refinery as summarized by the following per barrel taxes:

These taxes on the imported petroleum total to about 0.25 cents per gallon as compared to the projected 65.00 cents per gallon for the case study fuel.

In addition to these taxes, approximately half of the refining, sales, and distribution costs (assuming refining occurred in the United States) are also a compilation of taxes. Here, about 14 cents is applied to fuels based on both imported and domestic (e.g., Fischer–Tropsch fuel from Wyoming Coal) oils.

If a $0.79 ($0.14 + $0.65) per gallon consumption tax were applied to all gasoline as an alternative to Figure 3.2 compilation of taxes, the Fischer–Tropsch gasoline would remain at a price of $2.01 per gallon while the import-based gasoline would cost $2.66 per gallon. It is possible that under this tax structure the production of Wyoming-based Fischer–Tropsch fuel would increase to totally displace imported oil. It is possible that the price of imported oil would precipitously fall to about $28 per barrel to compete with domestic fuels. It is possible that something between these two extremes might also occur.

Corporate Lobbying Retrospect

The cumulative impact of past corporate lobbying on energy policy is far greater than the impact of Washington’s oil lobbyists on today’s pending legislation. Years of legislation that has been created under their influence is a problem.

Legislation providing essentially tax-free crude oil production, especially in foreign countries, gives foreign governments and oil companies competitive advantages of more than $25 per barrel of crude oil (about 50% of the price of imported petroleum) over alternative fuels. Legislation inhibiting the development of reprocessing technology has created nuclear waste disposal problems and increased the price of electricity.

As a first step to developing longer term and sustainable energy strategies, it is import to acknowledge that government policies on both taxes and inhibiting reprocessing need to be changed.

Certainly, it is better to have the $28 per barrel stay in the United States as taxes and buying power rather than to go to foreign countries with unknown agendas. At the very least, if $28 of a domestic barrel including $14 in US federal/state/local taxes, then of the $28 spent on imported petroleum, $14 should also go to the US taxes. The most likely scenario of a policy promoting commercialization of competitive alternative fuels in the United States is lower pre-tax gasoline prices. This translates to lower costs to consumers under the assumption that total taxes collected by the government remain constant.

The gross profit analysis of Table 3.1 indicates several options with feedstock prices less than $0.40 per equivalent gasoline gallon. For coal and oil sands, proven technology is ready to implement. For hydrogen from nuclear power, smart approaches could be implemented cost-effectively (see section on Energy Wildcards later in this chapter).

The mega corporations, by definition, are on top of their industry. For them, change is interpreted as reduction status. They do and will resist alternatives to petroleum and also resist nuclear power that will decrease the value of natural gas and coal reserves and facilities.

In response to corporations that serve their shareholders, government leaders must recognize that these corporations will not be objective in their advice. Government leaders must understand energy options and represent the people in their actions. Commercialization of alternatives to petroleum would be much easier with one or more of the corporative giants on board. The one thing that should bring them on board is recognition that a substantial part of more than $160 billion (2005) per year of oil moneys going to foreign producers could become corporate revenue.

The electrical power industry takes a more modular approach to systems than the liquid fuel industry, so greater versatility exists leading to healthy competition. For example, the paper industry produces a by-product called black liquor. Factories are able to custom-design boilers to burn the black liquor. The steam produced by these boilers can be used to drive steam turbines and produce electrical power. Similar sustainable and economical liquid vehicular fuel applications are rare.

Because of the versatility, viability of localized operations, and domestic nature of the electrical power industry, problems similar to the inequitable tax structure of crude oil are less common. Foreign competition is not a big issue. Federal regulations that inhibit development and commercialization of nuclear waste reprocessing are another exception.

Reprocessing technologies that tap into 20%, potentially 100%, of the energy contained in uranium are potentially the low-cost option for sustainable electrical power production. Uranium reprocessing technology could take markets away from the coal and natural gas industries. The role of reprocessing in the US electrical power infrastructure needs to be reconsidered in the absence of the influence of special interest groups.

Nuclear power appears to be gaining favor with increasing global warming concerns. The major objection to nuclear power is on what to do with spent fuel. Reprocessing technology holds the potential to solve problems related to waste disposal by recovering fuel values from the spent fuel while reducing the total mass of radioactive waste. Valuable uses are already known for some of the fission products (ruthenium, e.g., rare in nature) found in nuclear wastes. Valuable uses may be found for sources of the fission products that are at present only recognized as waste. Alternatively, these wastes can be converted to benign materials through nuclear processes (currently considered too costly). When considering the hundreds of years of energy available in the stored spent fuel, uses for available fission product metals may be found long before current stockpiles of spent fuel are reprocessed.

One hundred years ago, nuclear energy and most of the chemical products we use every day were unknown. Advances of science and technology will continue to bring valuable by-products. Reprocessing spent nuclear fuel is now practiced in Europe. Reprocessing produces about 750 kg of nuclear waste from a 1000 MW power plant as compared to 37,500 kg of waste produced by a current US nuclear power plant without reprocessing. Current US policy is to bury the 37,500 kg per GW year of spent fuel even though 36,200 kg of this is unused nuclear fuel.

Pressure is mounting (by those who do not understand and those vested in other energy sources) to bury the spent nuclear fuel and excess weapon grade material. This would be an expensive disposal process and make this energy resource impossible to retrieve. If this plan is successful, it will be a strategic victory for those wishing to eliminate nuclear energy as an option for electrical power production. It would make access to one of our nation’s greatest sources of energy even more inaccessible.

Sustainability

It is certain that science and technology will continue to produce yield discoveries as in the past. The inability to predict future breakthroughs is the reason a 30-year sustainability goal is a better planning criterion than perpetual sustainability. While the wind will blow and sun will shine for thousands of years, any particular wind turbine or solar receiver may only be functional for 20 years. Which is more sustainable, a wind turbine that must be replaced in 20 years or a nuclear power plant that must be replaced in 40 years? Which is more sustainable, a solar receiver that will take 5 years of operation just to produce as much energy as was consumed to manufacture it or a nuclear power plant that produces as much energy in 4 months as it took to manufacture the facility?

No technology should be developed simply because it appears to offer perpetual sustainability. Few scientists are presumptuous enough to say they know what energy options will be used in 100 years, so why should we assign a premium value to an energy source having perpetual sustainability over an energy source with a 100 plus year reserve? On the other hand, an energy source having 100 years of reserve should be considered premium relative to an energy source having a 20-year reserve.

Basing energy decisions on single-issue agendas like sustainability is not productive. Rather, hidden costs associated with nonsustainable technologies should be evaluated and included in the economic analysis of a technology. An economic analysis that includes hidden costs and analysis based on cost alone has broader implications. For example, what medical breakthrough did not happen because the resources were spent on very costly solar receivers? If there is a hidden cost associated with potential greenhouse warming due to carbon dioxide emissions, should an appropriate “CO₂ tax” be placed on a worldwide basis? At the same time, no reasonable technology (e.g., nuclear reprocessing) should be barred by federal law. Such restrictions are subject to abuse by special interests such as corporations vested in alternative energy technologies.

At any point in US history, total sustainability could have been put in place. For example, if in 1900 environmentalists were successful in persuading the US government only to use sustainable energy sources, today’s world would be substantially different. There is no reason to believe that single issue environmentalism is any more appropriate today than it would have been in 1900. The total energy program moves forward on many fronts. The environment must be protected, but other factors must be part of the future which is consistent with the slogan, “be aware of alarmists.”

It is possible to solve the problems identified by alarmists using approaches that are different than those proposed by the alarmists. Ultimately, it is not who proposes a solution but (i) does the solution address a core problem such as greenhouse gas emissions; and (ii) is the technology cost competitive (or can it be cost competitive either by fostering the technology with temporary incentives or by stopping incentives going to competitive technologies).

Environmentalism History

Environmentalism has a rich tradition of keeping industry under control. History bears witness to the devastation caused by deforestation. As early as 6000 BC, the collapse of communities in southern Israel was attributed to deforestation. In southern Iraq, deforestation, soil erosion, and salt buildup devastated agriculture in 2700 BC. The same people repeated their deforestation and unforgiving habits in 2100 BC, a factor in the fall of Babylonia. Some of the first laws protecting timbering were written in 2700 BC.

Advances in citywide sanitation go back to at least 2500 BC and can be attributed to people uniting in an effort to improve their environment against the by-products of civilization. In 200 BC, the Greek physician Galen observed the deleterious acid mists caused by copper smelting. Lead and mercury poisoning was observed among the miners of the AD 100 Roman Empire. High levels of lead may have been a factor in the fall of the Roman Empire. The bones of aristocratic Romans reveal high levels of lead likely from their lead plates, utensils, and in some food [13].

Poor sanitation, including raw sewage and animal slaughter wastes dispersed throughout cities, during the dark ages contributed to both the bubonic plague and cholera—the insects and stench must have been horrific. In these ancient examples, the factors that allowed civilization to attain its magnificence, also presented new or reoccurring hazards. In this early history, the lives saved by the benefits of agriculture and metal tools far outweighed those lives lost or inconvenienced due to adverse environmental impacts.

The dark smoke of coal burning became evident as a significant problem in the thirteenth century. In 1306, King Edward I forbade coal burning in London. Throughout history the tally of deaths attributed to air pollution from heating and other energy-related technology accumulated. The better documented of these cases are reported prior to government regulations that finally brought the problems under control.

On October 26 and 31, 1948, the deaths of 20 people along with 600 hospitalizations were attributed to the Donora Smog incident, Pennsylvania. A few of the other smog incidents in the next few years include 600 deaths in London from “killer fog” (1948), 22 dead and hundreds hospitalized in Poza Rica (Mexico) due to killer smog caused by gas fumes from an oil refinery (1950), 4000 dead in London’s worst killer fogs (December 4–8, 1952), 1000 dead in a related incident in London in 1956, 170–260 dead in New York’s smog (November 1953), and in October 1954 most of the industry and schools in Los Angeles were shut down due to heavy smog conditions (a smart, proactive measure made possible by the formation of the Los Angeles Air Pollution Control District in the 1940s, the first such bureau in the United States). In the 1952 London incident, the smoke was so thick that buses required a guide to walk ahead of the bus with all London’s transportation except subway traffic coming to a halt on December 8, 1952.

In 1955, the US congress passed the Air Pollution Research Act. California was the first state to impose automotive emission standards in 1959 including the use of piston blow-by recycle from the engine crankcase. The automakers united to fight the mandatory use of this modification that cost $7 per automobile. Subsequent federal legislation has been the dominant force on changes in US energy infrastructure during the last 25 years.

The late 1960s has been characterized as an environmental awakening in the United States. Prior to 1968, newspapers rarely published stories related to environmental problems while in 1970 these stories appeared almost daily [14]. Sweeping federal legislation was passed in 1970 with the Clean Air Act (CAA) establishing pollution prevention regulations, the Environmental Policy Act (EPACT) initiating requirements for federal agencies to report the environmental ramifications of their planned projects, and the establishment of the Environmental Protection Agency. The CAA was amended in 1990 specifically strengthening rules on SO_x and NO_x (sulfur and nitrogen oxides) emissions from electrical power plants to reduce acid rain—this legislation ultimately led to closing some high-sulfur coal mines.

Starting with 1968-model automobiles, the CAA required the EPA to set exhaust emission limits. Ever since, the EPA has faced the task of coordinating federal regulation with the capabilities of technology and industry to produce cleaner running vehicles. Since the pre-control era, before 1968, automotive emissions (gasoline engines) of carbon monoxide and hydrocarbons have been reduced to 96% while nitrous oxide (NO_x) emissions have reduced to 76% (through 1995, the result of 1970 CAA) [15]. The phasing out of lead additives from gasoline was a key requirement that made these reductions possible.

On February 22, 1972, the EPA announced all gasoline stations were required to carry unleaded gasoline with standards following in 1973. Subsequent lawsuits—especially by Ethyl Corp., the manufacturer of lead additives for gasoline—ended with the federal court confirming that the EPA had authority to regulate leaded gasoline. Leaded automotive gasoline was banned in the United States in 1996. In 2000, the European Union banned leaded gasoline as a public health hazard.

The removal of lead from gasoline was initially motivated by the desire to equip automobiles with effective catalytic converters to reduce the carbon monoxide and unburned fuel in the exhaust. The lead in gasoline caused these converters to cease to function (one tank of leaded gas would wreck these converters). The influence of energy corporations was obvious when the US Chamber of Commerce director warned of the potential collapse of entire industries from pollution regulation on May 18, 1971. This has been viewed as a classic example of industrial exaggeration.

Corporate influence was again seen in 1981 when Vice President George Bush’s Task Force on Regulatory Relief proposed to relax or eliminate US leaded gas phase out, despite mounting evidence of serious health problems [16].

Since the banning of lead in gasoline, scientific communities are essentially in unanimous agreement that the phasing out of lead in gasoline was the right decision. In addition to paving the way for cleaner automobiles, these regulations have ended a potentially greater environmental disaster. All the lead that went into automobiles did not simply disappear—it settled in the soils next to our highways. Toxic levels of lead in the ground along highways continue to poison children and result in mental retardation even today (see insert Lead (Pb) and its Impact, as Summarized by the EPA).

In perspective, the air quality in our cities is good and generally improving. While the federal government monitors emissions and works to reform emission standards, the public and media tend to follow other issues more closely. Issues such as oil spills and global warming make the news.

The Exxon Valdez oil tanker spill (March, 1989) is one of the infamous oil spill incidents. This oil tanker ran aground in Price William Sound, Alaska, spilling 11 million gallons of petroleum. It is the more infamous because of the costly remediation/penalties (over $1 billion in fine with Exxon claiming $3.5 billion in total expenditures) that Exxon was required to perform as a result of this incident. Five billion in punitive damages was also awarded against Exxon, but this remained to be collected after almost a decade. In 1992, the supertanker Braer spilled 26 million gallons of crude oil in the Hebrides islands. Both of these incidents are dwarfed by the Amoco Cadiz wreck off the coast of France in 1978 with a spill of 68 million gallons.

In view of the Amoco Cadiz incident and the cumulative tens of thousands who died in London’s killer fogs, it is easy to understand the increased environmental consciousness in Europe compared to the United States. For example, the European governments are aggressively addressing potential global warming issues while the US government tends to withdraw from international cooperation on the issue. Neither the US nor the European governments dispute the fact that carbon dioxide levels are increasing in the atmosphere. They do have varying opinions on the implications of these increasing carbon dioxide emissions.

On June 23, 1988, NASA scientists warned Congress about possible consequences from global warming with potential effects of drought, expansion of deserts, rising sea levels, and increasing storm severity. On December 11, 1997, the Kyoto Protocol was adopted by the US President Clinton (a democrat) and 121 leaders of other nations. The republican-dominated US Congress refused to ratify the protocol. More recent comments by President Bush concerning the Kyoto Protocol sound like the comments and actions of the US Chamber of Commerce director and former Vice President George H. W. Bush on the phaseout of lead from motor gasoline.

New Coal Regulations

The European Environment Agency (EEA) documented fuel-dependent emission factors based on actual emissions from power plants in the European Union. [8] summarized in Table 3.5. For every gigajoule (GJ) of electrical power produced, coal may produce up to twice as much carbon dioxide. Coal produces more carbon dioxide because more energy is stored in carbon–carbon chemical bonds in coal rather than carbon–hydrogen chemical bonds in fuel oil and natural gas. Natural gas combustion energy can be converted to electrical power at efficiencies above 50%. Natural gas is a “clean fuel”—very little sulfur dioxide or particulates are produced.

The conclusion that is broadly accepted is that if the goal is to reduce carbon dioxide emissions associated with global warming, the use of coal for electrical power generation is a bad choice. Pollution from coal combustion tends to be high, and China in particular is paying a high price related to health and environment for using coal as a primary energy source.

These trends are well known, and in the United States there is no need for alarmist overreaction. New coal-fired power plants are more efficient than older plants and they must have toxic gas and particulate emission control units that are not required on older power plants should be allowed to yield the return on the investment made into those facilities.

The regulatory approach that has been used for targeted emissions such as nitrous oxides is known as emissions trading. In this approach, the government imposes penalties for exceeding certain levels of emissions; however, “good-performing” facilities can trade or sell credit to “bad-performing” facilities. A merit of this approach is that it can encourage the building of new production facilities that have emissions below regulated limits, and these new facilities can be used to balance older facilities in a company’s (multiple new and old plant) portfolio.

Similar regulatory strategies have failed for carbon dioxide emissions in the United States, where:

While specific legislation on carbon dioxide emissions have failed, the threat of such possible emissions has caused many corporations to include a “carbon dioxide penalty” in their profitability estimates when considering investment options in new facilities. Hence the perceived “threat” and recent availability of relatively abundant and inexpensive natural gas has provided a significant slowdown in new coal facilities in the United States without actual regulatory mandates.

One could speculate that as long as the corporations do not get too ambitious building new coal-fired facilities, that trends will continue to reduced-CO₂ options even in the absence of specific regulations.

Carbon Dioxide Sequestration

Carbon dioxide sequestration refers to an approach of removing carbon dioxide from the air or flue gas from power plants as a means to reduce carbon dioxide emissions in the atmosphere. Figure 3.6 shows the US IRS (US Internal Revenue Service) form used to receive credit by a qualified facility for disposal of carbon dioxide in a “secure geological storage.” An example of a secure geological storage is an underground geological formation that previously contained natural gas. The natural gas has been removed making space for carbon dioxide to be pumped into that formation.

Ironically, one of the best ways to securely store carbon dioxide is to separate the oxygen from it, create a carbon-rich solid, and to bury that carbon-rich solid. The final resting place for that carbon dioxide is essentially coal. The approach of removing carbon (coal) from the ground, burning the carbon for energy, removing the carbon dioxide from the exhaust gas, compressing the carbon (carbon dioxide) so that it can be injected into a secure formation, and then forcing it into the ground is as stupid as it appears in this description.

The removal, purification, and compression of carbon dioxide take energy. Estimates indicate that to remove the carbon dioxide emissions from a 1 GW power plant, half of the electricity would be for sale or a second GW power plant must be built for the removal and disposal process. At least the technology would tend to double the cost of coal-based power production.

While technically possible, the superficial analysis indicates that it does not make sense to take carbon out of the ground to burn it and then to put it back into the ground.

There are other solutions to the carbon dioxide emissions problem. It is the opinion of the authors that carbon dioxide sequestration is an opinion that only “muddies the waters” for good approaches (like nuclear power and electrification of transportation) that can make meaningful reductions in carbon dioxide emissions. Federal support for carbon dioxide sequestration technology is a result of corporate lobbying at its worst!

As far as IRS credit for sequestration, it is only a good approach if such credits are fully paid for by those emitting the carbon dioxide emissions. This translates to an IRS carbon dioxide tax being used to pay for IR carbon dioxide sequestration credits.

Anticipated Breakthrough Technologies

Breakthroughs in grid-based electrical power production are not likely to occur in the next couple of decades. Areas of breakthroughs do exist for community electric power networks, solar devices, and electric-powered vehicles. Considering that (i) about 10% of electricity is lost during distribution; (ii) much of the cost of electricity is associated with grid maintenance and accounting; and (iii) the many “remote” locations are in need of electricity; there are opportunities for off-grid power.

The answers to all of these questions are yes. Will these transformations occur in the next decade? Some are likely to happen in the next decade; others may take longer. The next chapters cover these options in greater detail.