Natural gas, helium, offshore wind power, and cap-and-trade design issues

Michael Giberson

A handful of stories of interest:

  • The boom in shale gas has been a boon to homeowners who use gas, local economies with the resource, and manufacturers who make stuff with it, but it has “upended the ambitious growth plans of companies that produce power from wind, nuclear energy and coal. Those plans were based on the assumption that supplies of natural gas would be tight, and prices high.”
  • So I wonder about the implications of low natural gas prices for ambitious off-shore wind power plans. My general attitude is that so long as it is shareholder money being risked, not ratepayer money, then go for it.  Unfortunately, renewable power policies will ensure that ratepayers and taxpayers end up covering all or most of the excess costs. Anyone willing to guess whether the external benefits from these projects is sufficient to justify the high cost?
  • The nation’s strategic helium reserve is running out. Peak helium? No, just awkward federal pricing policies as the government winds down its stockpile according to the Washington Post. Related: a new helium production facility being built in Wyoming. What I didn’t know before: helium is generally found commingled with natural gas, though only a few fields have high enough concentrations to make recovery economical.
  • Policies change over time, and the transitions between old and new regimes can either go smoothly or not. If a national cap-and-trade program were to be established, we can be sure that the program will be changed from time to time.  Scholars at Resources for the Future have examined how the EPA has handled policy changes affecting the NOx and SO2 cap-and-trade systems. Short answer: sometimes well and sometimes badly.
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2 thoughts on “Natural gas, helium, offshore wind power, and cap-and-trade design issues

  1. “The Clean Air Act, which was last amended in 1990, requires EPA to set National Ambient Air Quality Standards (40 CFR part 50) for pollutants considered harmful to public health and the environment. The Clean Air Act established two types of national air quality standards. Primary standards set limits to protect public health, including the health of “sensitive” populations such as asthmatics, children, and the elderly. Secondary standards set limits to protect public welfare, including protection against decreased visibility, damage to animals, crops, vegetation, and buildings.” (http://www.epa.gov/air/criteria.html)

    The US Supreme Court ruled in April, 2007 that EPA had the authority to regulate the emissions of CO2 and other greenhouse gases under the Clean Air Act of 1970, as amended. The Supreme Court decision was based on the potential endangerment which could be caused by climate change driven by CO2 and other GHG emissions, rather than on direct human endangerment resulting from exposure to these gases.

    EPA issued an Endangerment Finding regarding greenhouse gases in December, 2009. (http://www.epa.gov/climatechange/endangerment.html) The language reproduced above states that EPA must now set an NAAQS for CO2 as well as the other listed greenhouse gases. The contemporaneous EPA Cause or Contribute Finding was limited to new motor vehicles, though they are obviously not the only sources of CO2 and other GHG emissions of concern. For example, the UN Food and Agriculture Organization (UN FAO) has determined that “the livestock sector generates more greenhouse gas emissions as measured in CO2 equivalent – 18 percent – than transport.” (http://www.fao.org/newsroom/en/news/2006/1000448/index.html)

    EPA has already been petitioned to set the NAAQS for CO2 at 350 ppm. (http://www.biologicaldiversity.org/programs/climate_law_institute/global_warming_litigation/clean_air_act/pdfs/Petition_GHG_pollution_cap_12-2-2009.pdf) Dr. James Hansen of NASA-GISS and others assert that 350 ppm is the maximum safe atmospheric concentration of CO2. This assertion is based on the outputs of climate models, rather than on any rigorous experimental demonstration of endangerment. EPA could elect to set the NAAQS at some other atmospheric concentration.

    Fortunately, the NAAQS process includes an “escape hatch” for exceedances resulting from “pollution” from non-state sources, including non-US sources such as China and India. Unfortunately, each US state would have to comply with the NAAQS, with the exception of “pollution” from non-state sources, even in the face of continuing increases in emissions from those non-state sources.

    An NAAQS set at 350 ppm would arguably require not only the total elimination of CO2 emissions by each US state, but also the installation of facilities deemed capable of reducing atmospheric CO2 concentrations by ~40 ppm below current levels during the compliance period. Presumably, the capacity of the US facilities to remove existing CO2 from the atmosphere would be limited to the capacity to remove CO2 from “state sources”.

    Historic NAAQS compliance periods have been less than 10 years. A similar compliance period for CO2 would make the “83% by 2050″ touted by the Obama Administration pale in comparison. This would be the case, not only because the required investments would have to be made over an extremely compressed time frame, but also because many potential technologies, which might have become economically viable both for producing energy without CO2 emissions and for removing CO2 from the atmosphere, would likely not be commercially available during the dramatically shortened compliance time frame.

    Regardless, absent a dramatic change of course by the developing world, the actual atmospheric concentration of CO2 would continue to increase, though arguably at a somewhat slower rate than would otherwise have occurred. That means that an NAAQS set at 350 ppm could not possibly be achieved in reality without rapid and coordinated action by all of the nations of the globe to both halt current emissions and to install and operate facilities to remove CO2 already in the atmosphere. The discussions at COP 15 in Copenhagen in December, 2009 suggest that such action is highly unlikely, absent some cataclysmic event(s).

    The International Energy Agency (IEA) has estimated that the investment required to stabilize atmospheric carbon concentrations at ~450 ppm by 2050 would be ~$45 trillion over and above the business as usual scenario; and, could be more than double that amount if technology advances do not occur as rapidly as they project. (http://www.iea.org/techno/etp/fact_sheet_ETP2008.pdf) The investments required to stabilize atmospheric carbon concentrations at ~350 ppm by 2050 are not estimated, but would certainly be more than $100 trillion, since the emissions reductions required would double and additional investments would be required to remove carbon already in the atmosphere. A dramatically shortened compliance time frame would increase these investments significantly.

    I remain convinced that the ultimate intent of the AGW CO2 “mitigation” effort is the total elimination of anthropogenic carbon emissions. Should EPA actually establish an NAAQS for carbon dioxide at a concentration at or below ~400 ppm, that intent would be confirmed; and, the timeframe for compliance would be dramatically shortened compared with the timeframes contemplated in the various House and Senate bills proposed in the US.

    The FACT that the atmospheric concentration would not actually be stabilized at that level, since accomplishing that is clearly beyond the capability of the US, would have no bearing on EPA’s enforcement of the NAAQS. The only advantage of an NAAQS which is clearly unachievable in reality would be its susceptibility to being overturned by the courts, which still appear to retain the ability, if not the willingness, to separate fantasy from reality.

  2. Cap & Trade design is very simple and straightforward, unless of course you are a federal elected official.

    Once the original cap has been determined (eg, the peak annual emissions level in a “healthy economy”), the final cap has been determined (eg, zero) and the time frame has been determined (eg, 2050), the difference in emissions levels (eg, 100%) is divided by the time frame (eg, 40 years) to determine the annual rate of decline of the emissions cap (eg, 2.5%).

    In a market economy, the Trade component is also straightforward: you have surplus allowances; I need allowances; we negotiate a price and sign on the dotted line. The involvement of allowance “traders”, while almost certain in an efficient market, is nonetheless optional.

    Beyond those two straightforward components, all other aspects of a Cap & Trade program are some form of “tax”, “rent-seeking”, “winner-picking” or “income redistribution”.

    PLEASE NOTE: The above required less than 1 page of text.

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