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Yale 62

You Can Ignore Reality Only by Ignoring the Risk of Unacceptable Outcomes, Page 3 (Carbone)

A Five Step Energy Policy to Balance Energy Reliability with Climate Goals

It should not surprise you that I advocate market-based solutions to solve problems of national interest, rather than executive mandates and legislative activism. Here is an outline of a five-point plan that does not bet the farm on renewable energy to the exclusion of fossil fuels and other energy sources, and provides a backstop if any one or more of the unacceptable outcomes described earlier dictates a mid-course correction.

First, as many commentators have advocated, the administration must pivot to re-establishing our energy independence. That’s not hard to justify. In reality (there’s that word again), hydrocarbons are a globally traded commodity. We do not have the option of curtailing other oil producers’ output if a demand exists for their product. Furthermore, U.S.-produced oil and natural gas are among the lowest CO2-emitting hydrocarbons in the world. So, if somebody is going to bring these products to market, why not us? By doing so, we protect our country from energy blackmail, reduce the environmental impact of fossil fuels, collar inflation at home, maintain a well-paid and highly trained workforce, and help reduce our allies’ dependence on unfriendly energy sources.

Second, the administration must at the same time seek bipartisan legislation to implement what is commonly termed a Carbon Emissions Tax. After decades of lobbying against a carbon tax, the American Petroleum Institute has reversed field and drafted a proposal urging Congress to do just that. In effect, it would put a surcharge on gasoline and other fossil fuels to discourage greenhouse gas emissions. I strongly support this concept for two important reasons:

1) It creates a new “forcing function” that is market-based rather than the administration’s regulatory attacks and capital sanctions designed to shut down the industry.

2) Codifying a carbon tax through the legislative process with very specific regulatory control would assure the oil and gas industry that energy policy will not flip-flop with each new administration. Both of these outcomes will encourage capital investments to restore energy independence and support economic growth.

Here’s how it would work: The API proposal calls for assessing on gasoline wholesalers, power plants and others a tax starting at $35- to $50-per-ton for carbon dioxide generated by the fossil fuels they sell or use. They also recommend annual adjustments for inflation and other factors.

Other key recommendations include rebates for exporters, and tariffs on imports that come from countries without an equivalent carbon tax. They further recommend that the tax funds raised by this plan should be used to help low-income households affected by climate policies, and to invest in new climate-related technologies. Finally, the industry encourages the U.S. government to put a moratorium for several years on any new regulations to limit carbon emissions while it collects data on whether the tax is effective on its own at reducing emissions. I believe that the moratorium on new regulations in the API proposal is very problematic and overshadows the more workable recommendations.

Third, I would scrap the notion of a moratorium and instead create a Carbon Credit Commission (a new CCC) embodied in the legislation and appointed equally by both parties. This commission would be empowered to adjust the carbon tax amount on the basis of clear and well-defined parameters. Obviously, oil producers will reflect this new tax in their market price and manage their output to match supply with demand. But with the federal government able to directly influence U.S. oil-market prices, the commission could effectively titrate the amount of fossil fuel that reaches the domestic market from all global sources.

Two polar opposite examples will help clarify why I think this concept has value. In the first example, let’s assume that the transition to renewable energy is successful, timely, and that none of the unintended consequences occur. In this idealized scenario, the CCC would continue to adjust the carbon tax upward to reduce fossil fuel demand as renewables replace them as more competitive energy sources.

In the alternate scenario, renewable energy is slow to arrive and is burdened by difficult-to-solve problems such as spiraling energy prices, outages, supply-chain limitations, and environmental issues of the type discussed earlier. Under these circumstances, fossil fuels would remain as a reliable backup for as long as necessary. The carbon tax can then be adjusted down to increase oil-industry returns, which in turn will encourage increased supply until renewable conversion plans are redefined.

Fourth, I recommend the CCC be responsible for tracking the development of our renewable infrastructure as well as system outages that require fossil energy substitution. Over time, we would have the data to review and update our energy-conversation schedules, the factors influencing the reliability of renewable energy and, most importantly, how much oil and gas capacity we need to keep in service as a strategic reserve.

On my fifth and final point, I am disappointed by the administration’s apparent gag order and absolute avoidance of nuclear energy in their climate policies. Obviously, the administration believes it must be careful not to rattle the anti-nuke lobby or to create any distraction away from a single-minded focus on renewables. This exclusion persists despite important technology breakthroughs in the design and economics of small modular reactors (SMRs). The U.S. aside, nuclear power is on the rise in many other countries to supplement renewables as fossil energy substitutes. After the “Yellow Vest” uprising in France, the government revisited their 2014 commitment to nuclear energy in preference to renewables. They now produce a world-leading 70 percent of their electricity from nuclear facilities. (The U.S. is currently at 17 percent on a comparable basis). France’s neighbor Germany has stayed on the Green Party script by closing down all coal and nuclear generation. Consequently, energy costs have more than tripled in Germany, and are now three- to four-times per kilowatt hour higher than in France. There are already signs that Germany’s energy disadvantage threatens the competitiveness of its heavy industries in global markets, especially steel production and vehicle assembly. Applying this experience to the U.S. economy, at some point the administration will need to come to terms with the benefits of nuclear energy, and roll over the environmental lobby to expand its use. It won’t be easy, and we may not be here to see it, but I will go on the record believing that nuclear energy, and not renewables, will become the most workable solution to our climate crisis.

In conclusion, the big take-away here is that a world scared witless doesn’t make rational and economically sound decisions, so it should be no surprise that it hasn’t managed to make a significant dent in greenhouse gas releases. Globally, last year saw the most CO2 emissions ever recorded after $5 trillion spent over the last two decades on climate policy. Despite all the hype, no one really knows what this climate transition will look like. There are no widely accepted, economically viable alternatives to fossil fuels in the market. No one knows where these alternatives will come from, what they’ll be, or when they’ll arrive. Pretending otherwise ignores reality and invites several unacceptable outcomes that are likely to occur if we are premature in abandoning fossil fuels as our primary energy source.

Since domestic oil was first discovered in Titusville, PA, 163 years ago, fossil fuels have enabled the creation of an economy that is the most advanced and prosperous the world has ever seen. To expect that federal, state and local governments will manage an uninterrupted and smooth transition to renewable energy in the years between now and 2050, let alone 2030, would be a gigantic overreach at best, and an unprecedented display of government efficiency. We need a more rational and widely accepted energy policy that is not based on this false premise, one which reflects the strengths of our capitalist economy, not the irrational command-and-control economy we are flirting with today.

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12 comments to You Can Ignore Page 3

  • Chris Cory

    I don’t begin to follow all this, but am very grateful to you for laying it out so others can comment. Results could be a Yale ‘62 framework for energy in our futures. (I continue to blather, as you see.) Can anyone lay out the three or four summary steps that would derive from such thought?”

  • Ken Merkey

    You are spot on, Tony. We are not going to get there with such a high reliance on renewables. We forget that most of the renewable technologies are very much in their infancy stage. For example, we are now discovering that wind turbine blades may have a useful life of less than 4 or 5 years due to corrosion on the leading edges. In Primm, Nevada we already have another Solyndra. A billion-dollar solar project has been shut down because they could not control the overheating of the salt medium used to transmit the energy. (30 years ago, the DOE funded a similar concentrated solar demo project at USMC Barstow, CA. They proved that the salt medium could not be adequately controlled.)
    One of the key benefits of energy independence is national security. We should never have to rely on anyone outside of our borders to supply us with energy.
    I am totally with you on nuclear energy. When are we going to stop this infantile, emotional resistance to an energy source that has proven itself to be safe, economic and reliable?

    There is one other aspect of energy production that is crucial to us and the rest of the world and that is fertilizer. If we shutdown natural gas production (and pipelines) where are we going to get the ammonia and urea to not only feed our citizens but all those third world countries that absolutely are reliant on it?

  • Arthur Mann

    A well written and researched article. I am a little dubious about the material required for a wind turbine though.
    It would make a great series for our local newspapar.
    For the past 20 years I have invested in and encouraged Dr. Randall Mills who grew up in southern Lancaster County.
    His theory and test results and his current plans to begin production of the “Suncell” early next year offers cheap electricity based on the conversion of hydrogen atoms to “hydrinos” where the electron orbit is catalyzed to drop to fractional orbits releasing a huge amount of energy.
    Mike Jordan (now deceased) was on the staff with me at Rickover’s Naval reactor group. At the end of his career he was president of Westinghouse and he was a major investor and on the board. James Woolsey (CIA) is on the board.
    Check out “Brilliantlightpower.com”

    • Anthony Carbone

      Art
      Thanks for your comment. If you recall, the last time we had a meeting of minds was at our 50th reunion when we both spoke on doing business in China. My comments on “China Rising” still apply today although we continue to hope for a more level playing field that is simply wishful thinking (like a commitment to reduce fossil emissions).
      On your comment re wind mill material requirements, I found that reference on an article posted on the Prager University web site. Note that the quantities cited in my commentary refer to a wind mill farm, not a single machine . That may address your doubt in this regard.
      Stay well.

  • Ken Merkey

    good article on wind turbine blade erosion:

    https://weatherguardwind.com/leading-edge-erosion/

  • Larry Price

    A very thoughtful article. However, permit me a healthy skepticism on two issues.

    A carbon tax is vitally needed. As you properly point out, most of the reduction in carbon emissions has been due to the substitution of natural gas for coal. We cannot go on depending on serendipity like that. But what we need is a reasonable tax which will guide the market away from high carbon sources to low carbon sources. But once a tax is adopted, it becomes subject to gaming. Some future do-gooder decides that if a penny is good, a pound is even better and increases the tax to levels that are puntative. Thereby destroying the fossil fuel industry.

    The last figures that I saw indicated that the United States accounted for 25% of world GDP and 18% of world carbon emissions. As we don our hair shirt, our percentage of carbon emissions will decline almost to the irrelevant point. World carbon emissions will increasingly be determined by all those new coal plants in China and India. And all of our sacrifices will have been futile.

  • Anthony Carbone

    Larry, great to hear from you.
    On your second paragraph, I absolutely agree with your concern that the U.S. is over-committed to eliminating fossil fuels relative to the scope and pace that other large emitters are pursuing this objective on a global basis. Hence my disenchantment with the Paris Climate Accord.
    On your first paragraph, a carbon tax is very controversial within the oil and gas industry, many whom view it in the same light as the cigarette tax that has escalated to a point that smoking has become an unaffordable habit for most people. My point is, many others clearly share your skepticism that a carbon tax is one more step in a determined effort to price fossil fuels out of the market. I am willing to take that risk for two reasons: 1) fossil fuels will be our major source of energy for decades to come; and 2) abusing the tax will hit consumers hard at the gas pump, heating and cooling their homes and in the price of food products. Our current “inflation experience” is a pre-view of coming attractions if domestic oil and gas prices are taxed out-of-synch with global supply and demand.

  • Bill Weber

    Larry Price said what I had been thinking as far a reliable data on the total world wide carbon emissions caused by the increasing use of coal fired plants in India and China. If, in fact, our reductions in carbon emissions pale in comparison with the increases from other nations, why are we subjecting current and furure generations to unnecessary hardships?

    Where is the logic and reason in our world of today?

    • Anthony Carbone

      Bill…welcome to the debate.
      In my view, “logic and reason” have been overcome by government policy designed to retain power and increase our dependency on the benefits and incentives afforded by these policy initiatives. Take EV cars for example. You are going to buy an EV sooner or later because that is what the auto companies are incentivize to produce. No matter that every independent analysis of a forced transition to EV’s will result in many of the outcomes I discuss in part 2 of my commentary. Logic and reason will ultimately return when the current Green Advocacy comes crashing down on our economy, defensibility and standard of life. As Churchill famously said: “You can always count on the Americans to do the right thing after they have tried everything else.”

  • Kim Stanley Robinson’s “Ministry for the Future” introduces a blockchain-based carbon currency called “carboni.” Finance—esp. macroeconomics—turns my mind to peanut butter. So, I’d be interested in some expert opinion on the potential effects of Robinson’s “carboni” currency scheme in comparison with Tony Carbone’s (& al.) carbon-tax ideas.

    I’m also looking for others who might find Robinson’s “Ministry for the Future” a useful dialectical tool for exploring how we can best respond to a rapidly climate-changing future.
    —garyerichardson@gmail.com

  • Art Roberts

    Tony, your terrific article is well researched and logical. You should offer it for publication in national forums.

    I agree that renewables will become increasingly unable to meet the ever growing demands to eliminate fossil fuels. Based on what we know today nuclear power in conjunction with renewables is our best hope for reducing our dependence on fossil fuel. I don’t have a better idea to offer but I fear that a CCC would be very prone to politicization and therefore hard to keep on track. It would have to have independence much like the Federal Reserve has today. Setting goals for the CCC would be much harder than for the Fed. Low interest rates and low unemployment are commonly understood, although subject to debate at times. An acceptable rate of transition from fossil fuels to other sources of energy is much more in the eye of the beholder. There would have to be a broad national consensus among the people and politicians to establish parameters for the CCC, otherwise the CCC would become one endless fistfight. Sadly, we seem to have very little consensus on anything today. It may have to get a lot worse before a solid consensus develops.

    Still, you present the problem well and offer possible workable solutions. We need to engage the entire nation in the debate.

    • Anthony Carbone

      Art, a very valid and thoughtful response. I think you highlighted the underlying weakness in any climate management proposal, including mine, that survives the legislative process without strong bipartisan support. Witness the pending climate package embodied in the “Inflation Reduction Act” that will most certainly fail to achieve its stated objectives for just this reason. Bipartisan consensus is embodied in step two of my proposal. However, I agree with your premise that this outcome awaits public rejection of the Green mania, and that could be a long way off.

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