There is a looming battle over the cost of energy between the ‘green at any cost’ versus the ‘green enough at a reasonable cost’ where wind/solar forces will battle natural gas—you can sense the fog of war ahead as the battle is being set up. The graphic above from a recent GTM Research report shows the reality in clear focus.
The policy landscape has been designed to drive toward clean energy policies sometimes without much regard to the cost. It started with environmental groups challenging our polluting ways. Over time those views gained mainstream acceptance and today there is broad public support for the goal of a clean environment, protecting air quality and water quality for the future.
We’ve supported the growth of regulatory requirements since the 1960?s to reduce contaminants and pollutants imposing environmental impact review procedures ahead of new construction of virtually anything today. Congress and the states have passed environmental protection laws that continue to advance this policy agenda. In the ‘good old days’ before our economy crashed business complained about the cumulative cost of these rules, but the public view was conditioned to see it as whining since it rarely affected us directly and we knew from looking around us that things needed to be cleaned up.
We needed this process of redemption to change our ways and correct the mistakes we have made from the days when the air was truly dirty and we dumped all manner of wastes into our waterways. We sinned badly against our environment and it was time to repent, clean up our mess and our act.
That repentant view, however, gave way to a continual push for even more environmental ‘remediation’ not to fix things broken but to impose a view of the way things should be that came to be a tipping point in the battle brewing today. It began building slowly as public support for environmental protection grew. Politicians took notice and jumped on board. Laws were passed to score ‘greener than thou’ points, regulations were adopted to pursue green agendas. Environmental impact statements were required and the process of getting building permits, operating permits and other regulatory approvals moved beyond reasonable mitigation to turn our regulatory permitting process into regulatory extortion.
Congress did not help by approving laws so vague that it essentially gave government agencies vast power to write rules so onerous, prescriptive and intrusive they bore little resemblance to their underlying enabling act. This corruption of the legislative process has led to a corrosive regulatory kudzu covering everything with unintended consequences.
At some point in the process of environmental reformation and repentance we moved from seeking redemption for our past environmental sins and righting those wrongs to pursuing a ‘greener is required’ agenda that tilted the balance and transformed the message into a ‘green at any cost’ prescription. Times were good, business was making money, the economy was solid, people were comfortable so we all were swept along by this greener is better consensus view.
We lived comfortably in that greener is better world for the past decade or so, but stuff happened.
It wasn’t the great recession although that was as close to ‘rapture’ that any of us wanted to get. It wasn’t the loss of jobs, the erosion of our manufacturing base, the rise of China as the production factory of the world, the volatile price of imported oil. Each of these things had a logical explanation.
Something happened that opened our eyes and showed us that we had eaten of the fruit of the tree of regulatory life in the center of the garden and realized we were now naked. The great recession had the effect of breaking all of our comfortable cycles. It changed the rhythm of life for everyone. It forced us to confront reality or face our economic rapture. And when we opened our eyes and saw that we were naked—we were ashamed and afraid.
Oh, Brother! I know, you must be thinking where is this rant going?
Look around you, we still care about our environment. We still believe in protecting the quality of our air and water and leaving this planet a cleaner, healthier place for our kids that we inherited. We do. But our eyes have been opened to the reality that our willingness to accept this cumulative cost of greener is better has turned into regulatory kudzu. You know kudzu, it is that coiling, climbing, trailing plant that grows along roads and forests covering trees with a shroud of dense foliage. It eventually kills its host plant by blocking out the sunlight. Efforts to eradicate it have proved difficult because of its relentless growth and insidious twining structure—and because environmental rules prevent spraying herbicides for fear we might threaten some endangered species.
Regulatory kudzu may be the existential threat to both our economic growth and our environmental sustainability. And that is what the looming battle is shaping up to decide. Will we spray some common sense herbicide on this regulatory kudzu before it chokes the life out of us?
What is the reasonable and appropriate balance between ‘greener is better’ and ‘green at any cost’?
• Has our regulatory kudzu made it so costly, so time consuming, so much of a hassle to build, manufacture, or drill anything in America that our businesses and our jobs go elsewhere to stay in business?
• Must we sacrifice our economic competitiveness in order to have reasonable environmental quality?
• Are these regulatory policies counter-productive in a global competitive market where renewable portfolio standards and solar subsidies in America and the EU are used by China to fund its excess production for export growth causing PV prices to fall so much that they drive domestic US and EU producers out of business to assure global market share dominance?
The coming battle over the cost of energy is being framed by unintended consequences. The forward movement on these separate fronts revolves around energy choices or energy impacts on our economy. But one unintended consequence is that regulatory kudzu is now being forced to compete with global economic competitiveness, the rebirth of manufacturing, domestic energy production growth, energy security and the need for reliable low cost energy to create sustainable jobs and restore America’s global economic competitiveness. The flashing red light of regulatory kudzu overreach is being exposed not just in our environmental regulations but in financial and market rules, health care and labor and other areas as well.
The Battle for Low Cost Domestic Energy Security
The Rebirth of American Domestic Energy Production is Sustainable. After decades of growing American dependence on imported oil, America turned the corner using American technology and quiet American persistence the growth of unconventional oil and natural gas using horizontal drilling and hydraulic fracturing to unlock the previously uneconomic energy treasure under our feet. With that technology America turned back imported liquefied natural gas (LNG) as a replacement fuel for declining conventional natural gas supplies. American became a net exporter of energy in 2010 for the first time in decades. The growth of domestic energy production and its rippling effect in job creation across places we scarcely imagined possible is changing our attitudes. When North Dakota, West Virginia, Ohio, Pennsylvania can join the traditional big energy producing states of Texas, Alaska and California in benefiting from this rebirth of domestic energy production we have a genuine Spindletop on our hands.
The American War on Coal is a both an Economic and Regulatory Failure. The tsunami of new regulations designed to undermine the economics of coal fired generation as a power supply source in America is a failure. Despite all the proposed new regulations pancaking on top of our already strong laws, the US EIA says that coal will still be a significant contributor to America’s power supply mix through at least 2035. But guess what? All that coal we have decided not to use in America is being exported to China where you can be assured it will not likely be used in as an environmental responsible manner as we would have used it. Do you see the point? We have elected to impose on ourselves the cost consequence of shutting down more than 80,000 MW of low cost coal fired power generation to reduce greenhouse gas emissions in America to reduce global warming or moderate the climate crisis (in Al Gore speak du jour) so that China and other emerging countries can buy that coal now exported by US companies unable to use it at home. The US Court of Appeals has now stayed the Cross State Air Pollution Rule implementation, one of the most onerous of these new rules, meaning the court found the opponents of the rule are more likely than not to prevail in their appeal. How do you spell S-T-U-P-I-D again?
The Holy Grail of Grid Parity has Arrived. For years we have been told that wind and solar energy would come down in cost and when they reached grid parity (able to compete head to head without subsidies with natural gas combined cycle power generation) we would be victorious in energy transformation. Grid parity has arrived. Thanks the massive expansion of export production of photovoltaic panels and wind turbines in China designed to suction up all the renewable energy subsidy monies in markets where state regulators imposed renewable portfolio standards forcing utilities to buy renewable energy—many times above the market cost of alternatives—the price of PV panels and wind turbines are at or near grid parity in many markets. In Europe, the costs of these above market feed in tariffs are unsustainable and being cut back. In the US subsidies of any kind are increasingly suspect by a public that fearing rising federal debt and deficits and many states will soon reach their RPS goals and declare victory—except California which upped the ante to 33%.
Grid Parity is Our Friend. Not only will grid parity pricing of solar and wind energy reduce the need for subsidies and thus restore the domestic market for the next generation of wind and solar projects using America’s best technology rather than China’s least efficient, grid parity pricing will more effectively undermine the economics on new coal and new nuclear power projects than anything the government regulators can imagine. Faster, better, cheaper and with none of the regulatory kudzu overreach in the current war on coal. The long term sustainable impact of this reliance on market forces is America will get both more clean renewable energy using the best technology, it will get less dirty coal and more clean natural gas generation. It will accelerate the transition from large, hugely expensive baseload nuclear power to smaller, safer, modular small nuclear projects.
And then there is this, an epiphany is coming to light even in California.
In California in December 2011, the California Energy Commission released its draft 2011 Integrated Energy Policy Report, the biennial statement of California’s energy policy strategy. The reaction of the utilities was decidedly skeptical. In filing after filing they pointed out the cumulative cost of California’s energy policies are going to result in substantial rate increases. They worry about the flight of business out of state to avoid the burdens in a fragile economy. They worry about losing their opportunities for growth sufficient to cover the costs of all these regulatory burdens.
It was not a fierce battle but it was a shot across the bow. The time of economic reckoning or rapture draws near. Get back to a reasonable balance fast is the plea. Fight regulatory kudzu. Resist being so green that everything turn brown from disuse. We are searching for a new energy and environmental consensus—one that is balanced with environmental quality and economic competitiveness given equal weights.
Gary Hunt is President, Scalable Growth Strategy Advisors, an independent energy technology and information services adviser and a partner in Tech & Creative Labs, a disruptive innovation software collaborative of high tech companies focused on the energy vertical. He served as VP-Global Analytics & Data at IHS/CERA; global Division President at Ventyx, now an ABB company; and Assistant City Manager-Austin Texas responsible for Austin Energy and Austin Water.
photo: Peter Heilmann