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The High Costs of Doing Nothing, Part II

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"The High Costs of Doing Nothing, Part II"

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In November 2006, California voters rejected Proposition 87, a ballot initiative to raise the oil industry’s taxes by $4 billion for research into renewable energy.

Four months before the ballot, a survey by the Public Policy Institute of California found that 61% of likely voters favored the idea, including 51% of Republicans.

What changed between the survey and the vote? The oil industry pumped more than $60 million into a campaign to defeat the measure. Proposition 87 contained a specific provision that would have forbidden oil companies from passing the tax along to consumers. Nevertheless, a central part of the industry’s message was that Proposition 87 would raise the price of gasoline.

On the Hill and in the voting booth, the specter of higher costs and taxes is the big weapon in fossil-fuel industry’s arsenal against climate action. The question is, what’s the defense.

It is important to acknowledge and to anticipate that putting a price on carbon will raise energy prices. The Center on Budget and Policy Priorities released an estimate last November that carbon pricing to achieve a modest 15% reduction in emissions would cost the poorest fifth of the population between $750 and $950 a year on average. That’s big money to a family living on $13,000 — and fossil-energy costs presumably would grow as carbon caps get stricter.

But we can mitigate those costs:

Among other measures, the federal government should dramatically increase funding for the Department of Energy’s program to weatherize the homes of low-income families. Part of the revenues from carbon taxes or a cap-and-auction regime should be returned to consumers in the form of a rebate or tax cut. The Center on Budget and Policy Priorities estimates that energy price increases at the level it projects could be offset by 14% of auction revenues distributed to families in any of several ways.

Moreover, the price of oil and gas already is rising steeply through no fault of climate action. The average price of a barrel of crude oil was under $12 a decade ago; last week, it hit $100.

Ten years ago, the average price of residential natural gas was $7.45 per thousand cubic feet. In the first 10 months of 2007, the average price was $14.49.

Even without carbon pricing, fossil energy costs will continue rising because of growing world demand and diminishing supplies. We and the other world economies have a choice between two futures. In one, we continue depending on finite resources that are getting more expensive to produce and that are likely to bring resource conflicts as global competition for them increases. In the other future, we phase out fossils in favor of high efficiency and fuels that are abundant, clean and free.

Another important factor in our energy reality is that the true costs of fossil fuels are much higher than the price we pay at the pump or the electric meter. The true costs are hidden by federal subsidies and externalities such as health problems due to air pollution; environmental damages from producing and consuming the fuels; maintenance of the strategic petroleum reserve; and defending Persian Gulf shipping lanes. In other words, we pay not only at the pump, but at the doctor’s office and in our tax bills.

Our national strategy, it seems to me, should be to go aggressively after the domestic and global markets for wind, solar, geothermal, hydroelectric, biomass, and other renewable resources. It’s reasonable to expect that the capital costs of these technologies will go down as we make more of them and achieve economies of manufacturing scale. At some point, the full costs of fossil energy technologies — capital, fuel, carbon pricing and the many other costs that now are externalized — will be higher than costs of those renewable energy technologies that have no fuel charges and low externalities. In fact, if we totaled up the true costs of coal, oil and natural gas today, it would be clear that many of the clean energy technologies we regard as too expensive already are cheap by comparison.

It’s not easy to make these arguments in a first-cost immediate-gratification culture where consumers pay far more attention to the sticker price than to the true costs of their decisions. A Yale-Gallup poll last July found that 71% of respondents were opposed to higher electricity prices and 67% opposed higher prices for gasoline, even while more and more people are concerned about climate change.

In other words, told by Mother Nature, “You can pay me now or pay me later,” seven in 10 Americans would respond, “Do you take Master Card?”

With funding from the Presidential Climate Action Project University of Vermont ecologist Bob Costanza and his team at Earth Inc. are developing an Energy and Environmental Policy Full Cost Calculator to help policy makers estimate the true costs of different resources, technologies and policies. It’s a start.

But consumers need to be mindful of true costs, too. Maybe we should start showing true costs on auto efficiency stickers, fuel pumps and appliance labels. (Think of a gasoline pump that registers not only gallons and price as you fill up, but also per-gallon tax subsidies, carbon emissions, national defense taxes, lives lost in Iraq, and asthma cases.)

Actually, that may not be a bad idea.

Part I is here.

– Bill B.

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13 Responses to The High Costs of Doing Nothing, Part II

  1. John L. McCormick says:

    Bill, you said:

    [In the other future, we phase out fossils in favor of high efficiency and fuels that are abundant, clean and free.]

    Is that future behind the pearly gates?

    Time to get real about the real cost of energy in the now — and future.

    Your promising ‘clean and free energy’ is the kind of hot air that confuses the public and makes us believers suspect. We are all in for some hard times and the public has to know that!

  2. Earl Killian says:

    John L. McCormick questions Bill’s comments about renewable energy, probably the “free” part. While the energy that arrives at the surface of the Earth from the Sun (about 1000W/m^2) is free, it of course takes money to build equipment that converts that sunlight into energy that we can use, such as electricity. The depreciation on that equipment and the O&M to keep it running (e.g. periodically washing the mirrors) is then the cost of the electricity. Right now that cost is “less than 10 cents per kWh” according to Stirling Energy’s FAQ. NREL projects Concentrated Solar Power (CSP) cost is headed to 7 cents per kWh. This seems to be confirmed by the various startups in this area, e.g. Ausra.

    Given that the average retail sales price of electricity is 9 cents per kWh, a cost of 7-10 cents per kWh, it does not appear we need to be “in for some hard times” as John suggests, at least in electricity. Here in California, PG&E charges 13 cents per kWh, which is sufficient to allow 7 cents per kWh to be profitable, I would guess. Yes, bills might go up *slightly* in the rest of the U.S., if the rest of the U.S. doesn’t enact efficiency legislation. If the U.S. does adopt California efficiency standards, and the U.S. per capita kWh falls 45% to California’s per capita kWh, there would probably not even be an increase in bills.

    If John is concerned about gasoline, well the answer to that is to switch to electricity as car fuel. If we assume 35 MPG from the new 2020 CAFE standards, and gasoline costs 3 per gallon (good luck if you think gasoline will cost only that in 2020), then the fuel cost is 8.6 cents per mile. Even at a retail price of 13 cents per kWh, a 1990s technology RAV4-EV using 0.302 kWh/mile has a fuel cost of only 3.9 cents per mile. So driving off of sunshine is like buying gasoline at 1.365 per gallon. Is 1.365 per gallon “hard times”? I don’t think so.

    Of course all of the above assumes we are smart enough to elect the right people in 2008, so that CSP and EVs happen. With Presidents like Bush in the White House, Senators like Inhofe in Congress, we are definitely in for the “hard times” that John predicts.

  3. John L. McCormick says:

    Now, John L. McCormick questions Earl’s comment.

    But, it is more an observation than a comment.

    Earl, you thow up those answers to the massively complex and expensive retrofit America and the developed(ing) world of energy consumers will bear.

    Yes, sunlight is free but the capital cost of installing the collector is more than the average budget of the 60 million individual home owners aare likely to spend on this eve of a likely prolonged economic recession. Don’t ignore the reality of the struggle families are coping with to pay higher prices foar everything. We are already carrying nearly $2 trillion in creadit card debt and many of us have tapped into our home equity to pay bills and send our children to college.

    Yes, I would like to have a Tesla but I have maxed out on my credit. I will have to wait until the price comes down to that of the new Indian people car being marketed in Bombay. And, guess where my old ICE will go if I could afford to buy an EV. That’s right…into the used car lot where someone less fortunate will pay less than the cost of an EV to have affordable wheels to get to their second job.

    The enviros hawking AGW are beginning to look like the eletists

  4. John L. McCormick says:

    Joe please delete the previous post. I am subitting a corrected version. Thank you. John McCormick

  5. John L. McCormick says:

    Now, John L. McCormick questions Earl’s comment.

    But, it is more an observation than a comment.

    Earl, you throw up those answers to the massively complex and expensive retrofit America and the developed(ing) world of energy consumers will bear.

    Yes, sunlight is free but the capital cost of installing the collector is more than the average budget of the 60 million individual home owners are likely to spend on this eve of a likely prolonged economic recession. Don’t ignore the reality of the struggle families are coping with to pay higher prices for everything. We are already carrying nearly $2 trillion in credit card debt and many of us have tapped into our home equity to pay bills and send our children to college.

    Yes, I would like to have a Tesla but I have maxed out on my credit. I will have to wait until the price comes down to that of the new Indian people car being marketed in Bombay. And, guess where my old ICE will go if I could afford to buy an EV. That’s right…into the used car lot where someone less fortunate will pay less than the cost of an EV to have affordable wheels to get to their second job.

    The enviros hawking AGW (I am one) are beginning to look like the elitists we are unfairly branded. Look, I want to see GHG reductions as fast as you, but stop offering up lifecycle costing to people who struggle to pay their phone bill. There will have to be more thinking about how to make people pay more for efficient energy up front because not all of us have the cash or line of credit. And, the real world is looking expensively ugly…as in global recession.

  6. Earl Killian says:

    John, installing the CSP necessary to power our vehicle traffic would cost less than what we spend on Iraq. I assume it would take 30 years, and that works out to about 12 billion per year.

    Also, I wasn’t talking about a Tesla. Our RAV4-EV cost 42K in 2002 (then we got 9K of state rebate, and 4K of federal tax credit). It now has 76,000 miles on it, and it is still going strong.

  7. John Mashey says:

    John:
    Not all solar collectors have to be on individual homeowners’ roofs, even though it’s certainly a good place for many of them.

    There are plenty of reasons to shift to electricity as fast as possible, especially in California:

    I recommend the work of:
    http://www.stanford.edu/group/efmh/jacobson/
    particularly the papers in Section I, which really imply that most auto transport, especially in CA, needs to be electric. [I still think some trucks and machinery will end up needing to run on biofuels in the long term, and I’d certainly rather have biofuels than fossil, but if Jacobson’s results, as in section I.e., hold, the less of *anythng* burned by cars, the better.

    I’m sympathetic to drastic changes that hammer poor people, but I guarantee, I can imagine few things that will make life tough for poorer people than bruning oil as fast as possible into the jaws of Peak Oil.

  8. Earl Killian says:

    Some calculations, in case they help:
    2006 U.S. electricity sales: 3,817 TWh (TWh = 1,000,000,000 kilo watt hours)
    2006 U.S. electricity sales if California efficiency standards had been in place in the rest of the nation: 2,086 TWh (1631 TWh saved)
    Land area required to generate this much power with CSP: 8,500 sq. mi.
    U.S. fossil fuel electricity in 2006: 2,868 TWh
    U.S. fossil fuel electricity in 2006 if California efficiency standards had been in place, and the savings deducted from fossil plants: 1237 TWh
    Land area required to just replace this fossil fuel electricity with CSP: 4,830 sq. mi.
    CSP potential in U.S. West rated “premium” or “excellent” according to NREL: 1,642 TWh on 6,091 sq. mi.
    (they also have another 456 TWh in the “good” category)
    2005 Vehicle Miles Traveled in U.S.: 2.7 trillion
    Land area required for Concentrated Solar Power to replace 2.7 trillion miles of gasoline at 35 MPG with electricity: 3,607 sq. mi.
    Land area required for switchgrass ethanol to replace gasoline: 224,794 to 632,755 sq. mi.

  9. John L. McCormick says:

    280,000,000 registered vehicles in the U.S.:

    1.4 billion tires (includes the spare)

    740 billion pounds of scrap

    Numbers can be fun but you still have not addressed the credit problems of families struggling to meet monthly payments.

    Heck, lets all just walk to work and save oil and the atmoshpere. I am losing you Earl and a 42K investment is my son’s college tuition.

  10. Earl Killian says:

    John L McCormick,
    (a) What do tires and scrap have to do with it? I am talking about changing the new car sales and letting normal retirement of old vehicles taking care of the fleet change.
    (b) The last time I looked at the numbers, we naturally replace our vehicle fleet in 12-18 years [1], so using 30 years for the transition, we need 12-18 years to get the plug-in cars being a large fraction of those sold
    (c) 42K was for a vehicle that Toyota made only for the California market, sold only as many as they needed to get sufficient ZEV credits (about 1575). With national sales over several years, and volume on the costly battery packs reducing cost, the price would come down.
    (d) Families struggling to meet monthly payments usually buy used vehicles. They would buy plug-ins when they are resold in the second-hand market.
    (d) Let’s look at the vehicle purchase price plus the fuel cost over 150K miles:
    Toyota RAV4: 21,250 + 150Kmi/24MPG*3.50pergal = 43,125
    Toyota RAV4-EV: 42,000 + 150Kmi*0.302kWh/mi*0.061/kWh = 44,741
    Close enough that any cost improvements from volume production would make the EV cheaper to use. (The electric rate used is PG&E’s E-9 off-peak rate, which uses a dedicated meter just for the EV.) Also, BEVs lack air and oil filters, transmissions, mufflers, catalytic converts, radiators, and so on, and those are high maintenance items, so maintenance costs should be less with BEVs. Also, 3.50 per gallon is probably low for the 12 year period it will take to run up 150K miles at 12.5K miles per year, given the rate at which gasoline is going up.
    (e) Let me reiterate John Mashey’s comment about the effects of doing nothing on poorer people being much worse than electrifying our transportation system.

    [1] The number of passenger cars in 2004 was estimated at 136 million, with 6 million motorcycles, and 92 million non-car 2-axle vehicles (mostly light trucks and SUVs), or 234 million vehicles. Sales were 7.5 million, 1.1 million, and 7.5 million respectively. So you can see that it takes 18 years to turn over the passenger car fleet, 5.5 years for motorcycles, and 12 years for the other 2-axle vehicles.

  11. D-pop says:

    Too bad we dont have 30 years …….

    How many vehicles on the road? What if there was a mandated reduction of fuel use by 30% (rationing), starting next month. How many tons of carbon would we save?

  12. Peter Foley says:

    Why not take some the present gas taxes and spend them on some pure and applied research? No new taxes required. Have you ever heard of the Laffer curve?
    The huge tax on the poor that AGW cult/groups want is becoming apparent. Carbon Taxes as a new revenue source for Pork barrel spending. Let the free market work and it come up with a replacement for fossil oil.
    Please list the subsidies for each fuel? I’m calling B.S. on this idea. Maintenance of the strategic reserve? it is lot cheaper than not having it–but publish this HUGH unknown number. We defend our rights on all the seas–we’re importing more valuable freight from China, The cost of freedom is never free. The idea that our present economic infrastructure is unhealthy? Is just beyond ludicrous, We have the cleanest healthiest large society ever, at any time. Have forgot what our cities were like even 50 years ago? Is there room for improvement, yes.

    National strategy should center around ensuring we have abundant, reliable(not solar, wave, or wind) power. That is for the near term, coal and nuclear power–get over it.

  13. Eco says:

    I think the idea of free fuel is a little naive. Neither solar or wind are free.

    Costa Rica wants to be the first carbon neutral country by 2021.