Saturday, March 11, 2017

America First Energy Plan: Is it even a plan?

The official website of the White House features a tab on Issues, and the top item on the list is President Trump's “America First Energy Plan (AFEP).” It’s hard to consider this one-page document as a plan.  It does not spell out the energy needs of the country for the foreseeable future, nor does it describe what combination of energy sources will be used to meet those needs. What a contrast from the Energy Policy Act of 2005 of President Bush or the Climate Action Plan of President Obama!

I visited this website hoping to learn what incentives or disincentives the new administration will use to favor the development of various energy sources—specifically, I was curious about its stance toward nuclear power. No luck! There was no mention of nuclear power or for that matter any other energy source except coal, oil, and gas. There’s a multi trillion-dollar global market need for CO2-free electricity, that is best addressed by nuclear energy and it would behoove the U.S. to gear up for it.

AFEP recognizes the essential role of energy in our lives and global economy, and the need for “responsible stewardship of the environment.” Protecting clean air and clean water, conserving our natural habitats, and preserving our natural reserves and resources will remain a high priority.” So far so good; it is hard for anyone to disagree with these platitudes, although one of the first executive actions by Trump reversed a rule forbidding dumping of coal ash in waterways—how is that demonstrating environmental stewardship? 

AFEP blames burdensome regulations like the Climate Action Plan of the Obama administration for the plight of the US energy industry, specifically the coal industry.  According to the U.S. Energy Information Agency (EIA), coal production in the U.S. has dropped by a third since 2008, from 1.1 billion tons to 740 million tons in 2016. President Trump has repeatedly asserted that removing restrictions imposed by the Environmental Protection Agency (EPA) will bring back the coal industry. I have previously written that the coal industry is hurting mainly because coal has lost its competitive edge to natural gas. The fleet of coal-fired plants in the U.S. is aging, and the demand for electricity in this country has been mostly flat—around 4,000 TWh/yr since 2006. As old coal plants are slowly phased out they are being replaced by those fired with natural gas. Advances in fracking have increased the availability of gas, and depressed its price such that producing power from gas is cheaper than from coal. 

To be sure, complying with the EPA emissions standards for oxides of sulfur and nitrogen, particulates, and other pollutants adds to the cost of coal-generated power, but we certainly do not want to revert to the days of widespread acid rain or smog choking our cities. That would not be “responsible stewardship of the environment.” Obama’s Climate Action Plan limits the emission rate of a new power plant to 400 grams of CO2 per kWh of electricity generated.  The relatively high carbon intensity of coal-fired power plants (greater than 850 grams CO2/kWh) would essentially preclude building any coal-fired power plant except those that would capture and use or sequester the produced CO2. However, repealing the Climate Action Plan is not going to spur the building of coal-fired power plants. Fuel choice for a new power plant is largely an economic decision, and on this basis gas-fired plants will clearly be favored.

AFEP lays out a vision of plentiful energy and jobs that will be unleashed by tapping into an “estimated $50 trillion in untapped shale, oil, and natural gas reserves.”  I know that the U.S. has large reserves of oil and gas, but $50 trillion worth of reserves stretches credibility. The BP Statistical Review of World Energy lists U.S. oil reserves at 55 billion barrels and natural gas reserves at 369 trillion cubic feet.  At $50 per barrel of oil and $2.6 per thousand cubic feet of natural gas, the listed reserves add up to just $3.7 trillion—a far cry from the $50 trillion! 

The term “reserves” has a special meaning; it refers to only those geologic accumulations that can be recovered using current technology at current prices. The U.S. has a significantly larger deposit of oil and gas resources, but they are not classified as reserves. At a high price of oil, say $120/barrel, many of these deposits could be considered reserves. But with the emphasis on domestic drilling for oil and gas and plentiful availability of these, the prospects of oil price rising to those levels is low. To be sure, there is a positive side to having abundant low cost energy. It makes the energy-intensive U.S. industries more competitive and spurs manufacturing of goods for export.

The U.S. Geological Survey periodically estimates the oil and gas resources and these get reported through the U.S. Energy Information Agency. The latest estimates for the resource base of oil and gas are 24 billion barrels of shale oil and 750 trillion cubic feet of shale gas. Monetizing them would yield an additional $3.1 trillion for a total of $6.9 trillion—still nowhere near the $50 trillion number touted in the AFEP.

Perhaps the administration is also including the oil shale resource, which is estimated to be 1,500 billion barrels, and could conceivably generate $50 trillion. But oil shale—not to be confused with shale oil or tight oil—is a rock that bears the precursors to oil called kerogen. The kerogen must be heated to produce the oil because the geology has not done the conversion. Fracking will not produce oil from this resource; it will require mining the rock and retorting it, or somehow heating it underground and collecting the oil. The process is very expensive and certainly not something that could be commercialized when oil sells for $50/barrel.

I can forgive conflating reserves and resources, or oil shale and shale oil, in newspaper articles but not in a national energy plan. But then again, I am not surprised by the blatant exaggeration of the reserves and the emphasis on increasing fossil fuel production with total disregard to the rising CO2 levels in the air and concomitant ocean acidification. After all, the administration appointed as the head of the Environmental Protection Agency(EPA) Scott Pruitt who doubts that global warming is being caused by anthropogenic CO2 emissions and has on many occasions challenged the EPA in courts. The administration has indicated that it will cut funding for NOAA, the agency that monitors the state of the planet’s climate. It will no longer require natural gas companies to measure the amount of gas that leaks from their wells and pipelines. These decisions are cause for concern.

In the AFEP there is no mention of sources of electric power like, hydro, wind, solar, and nuclear that have essentially no CO2 emissions. The new administration will likely reverse the requirement that car manufacturers increase the fuel efficiency of their fleets to 54 mpg by 2025. To meet this stretch target, car manufacturers will have to start building many more electric vehicles. Without the pressure to increase fuel efficiency, U.S. car manufacturers will abandon their electric vehicle programs and cede leadership of this emerging market to their European and Asian competitors. That’s not putting America First.

As I mentioned above, global demand for electricity is on the rise and not by just in the developing nations. Even in the OECD countries the demand for electricity will rise as the transportation sector gets electrified and more of the service sector moves to cloud-based services. Server farms deployed by Google, Facebook, Microsoft or Amazon require around a gigawatt of steady uninterrupted power, the size of a nuclear reactor. Renewable sources like wind and solar cannot deliver this power as they require gas-fired power plants to back them up, and hence in practice they turn out to be not entirely carbon-free sources. Advanced nuclear technologies that are inherently safe and proliferation-proof can deliver this energy but market forces currently do not favor investments in them in the U.S. With government support, some of these designs are being developed in Korea, China, and India. There is an opportunity here for the Trump administration to support the necessary R&D on these new nuclear technologies in the U.S. and get them ready for commercial deployment both here and abroad. That would help the U.S. regain leadership in this vital area.

An earlier version had an error in the estimate of US oil reserves.  I have corrected that, but my bottom line conclusion remains the same. March 13, 2017.