When he said that oil shipped from Canada to the Gulf Coast would be “sent everywhere”, Obama was regurgitating a mantra of the enviro left and mainstream media outlets (but I repeat myself). Remarkably, his own government disagrees.
The State Department’s very detailed analysis of KXL addressed this specific issue in the market analysis chapter of the Environment Impact Statement. The relevant section, on page 1.4-140 specifically notes that it had received comments throughout the review process claiming that KXL-shipped oil would be exported, and that it felt obliged to respond to these claims. It did so, and delivered a smackdown:
However, such an option appears unlikely to be economically justified for any significant durable trade given transport costs and market conditions.
. . . .
In short, while it is possible that some cargos of heavy WSCB crude could be exported, it is unlikely for a range of economic factors that any such trade flows would be significant or durable in the long run
The supporting analysis basically repeats and supports the arguments I made in my Keystone posts. This analysis is based on an exhaustive review of available data and a firm grasp of refining and transportation economics. Unlike Obama’s, in other words. The analysis states that two alternative models, including one from the EIA (another part of the government) predict no appreciable exports of Canadian heavy crude piped to the US via Keystone, and that this conclusion is robust to various assumptions about available transportation options.
As an aside, a bill to authorize KXL went down in the Senate yesterday, delivering a likely final blow to the dead parrot candidacy of Louisiana’s Mary Landrieu. Her soon to be erstwhile colleagues preferred to kick her to the curb, rather than force Obama to veto KXL. Now, anyways, because the Republicans will almost surely pass the bill in January, after Mary has moved back to Louisiana, that is if she can bear to leave her DC mansion.
The best part of the day was that a group of Rosebud Sioux (you read about them here first!) interrupted the session with protest chants while Elizabeth Warren was presiding. Senator Warren was not amused. Perhaps if they’d chanted in Cherokee she would have been more sympathetic.
Tweeting my post about Obama’s Keystone mendacity unleashed a vortex of leftist idiocy that was stunning even by Twitter standards. Between a visceral and unthinking hatred of Keystone, and the need to rally to the defense of their cult leader (who also has a visceral and unthinking hatred of Keystone), the lunatics felt compelled to swarm from the hive.
One idée fixe was that Obama was right, and the oil is just going to travel down Keystone (spilling huge quantities all the way!), be put on tankers, and sail on its merry way to furriners abroad, especially the Chinese. The fact that the terminus to KXL is located at the heart of the largest concentration of refineries in the US, and refineries tailored to refine heavy crude to boot, could not shake them from their conviction. Apparently refiners in Texas are just going to stand by the Houston Ship Channel and wave as tanker after tanker of oil that they could be refining passes them by on its way to distant markets with much less efficient refineries. It’s rather amusing that some people believe (I won’t say think) that 830kbd is somehow supposed to sneak past the world’s largest concentration of sophisticated refineries tailor-made to process it, and end up in China.
Nor could they be budged by the fact that large quantities of Canadian crude, including oil sands, are already being shipped (via rail, barge, and rail then pipeline) to PADD 3 refineries and refined here. (Canadian oil sands already represent the largest single source of crude imported to, and refined in, the US.) Nor could geography sway them: if you want to ship oil from northwestern Canada to China, going via the Gulf would be a pretty stupid way to do it. Far better to pipe it to Canada’s Pacific coast: indeed, Canada has suggested that’s what it will do if KXL is blocked, which indicates that even that is the 2d best alternative, the best being to refine it in the US. If heavy oil is to go to China, it’s cheaper to substitute Canadian oil for Venezuelan, and have the Bolivarians ship it to the Maoists. (One Einstein said that the expansion of the Panama Canal proves that the oil is destined for China. Er, no. Even after expansion, the Canal can handle only ships with about 1/2 to 1/3 of the capacity of a VLCC that is the most efficient way to ship crude long distances.)
A few grudgingly conceded that it would be refined in the US, but that wouldn’t benefit Americans, because then the refined products would be snapped up by the voracious Chinese. That there is EIA data showing that 80 percent of US refinery output is consumed domestically, and that less than 4 percent of US refinery exports (and hence less than 1 percent of refinery output) goes to China (and most of that from PADD 5 on the West Coast) made not a dent. And irony is apparently lost on some people: Canada is the 2d largest importer of US refined products. Meaning that a gallon of Keystone crude is far more likely to wind up in a Canuck gas tank than a Chinese one.
One genius Tweeted a Guardian article saying that most of Keystone oil would be exported. Obama is right! QED! Except that the article clearly meant that it would be exported from Canada. Or would that be Cana-duh?
Nor did the fact that transport of oil by rail is much more dangerous, and poses far greater environmental hazards have the slightest impact on those who are allegedly so sensitive to the fraught state of the planet.
“The House has now signed our death warrants and the death warrants of our children and grandchildren. The Rosebud Sioux Tribe will not allow this pipeline through our lands,” said President Scott of the Rosebud Sioux Tribe. “We are outraged at the lack of intergovernmental cooperation. We are a sovereign nation and we are not being treated as such. We will close our reservation borders to Keystone XL. Authorizing Keystone XL is an act of war against our people.”
In February of this year, the Rosebud Sioux Tribe and other members of the Great Sioux Nation adopted Tribal resolutions opposing the Keystone XL project.
“The Lakota people have always been stewards of this land,” added President Scott. “We feel it is imperative that we provide safe and responsible alternative energy resources not only to Tribal members but to non-Tribal members as well. We need to stop focusing and investing in risky fossil fuel projects like TransCanada’s Keystone XL pipeline. We need to start remembering that the earth is our mother and stop polluting her and start taking steps to preserve the land, water, and our grandchildren’s future.”
It is also bizarre that Keystone turns prog Citizens of the World into ranting America Firster nationalists. Keystone just helps the Canadians! The Chinese! Apparently, the Chinese get the oil, the Canadians get the money, and ‘Mericans get the pollution. When @libertylynx pointed out that some good ol’ made in the USA Bakken oil would be shipped on Keystone (a true fact, as there will be a Bakken MarketLink on-ramp that will pump US oil into KXL), someone responded, YOU LIE!!! (yes, complete with caps and exclamation marks). Some people just can’t handle the truth.
And yes, of course I was accused of being a Fox News watching (not), Tea Party (not), Koch Brothers shill (not). And a racist by implication.
I was almost tempted to see if I could make things truly nuts by figuring out some way to bring gold bugs into the conversation. I decided against it, figuring that it would risk creating a singularity of stupidity that could destroy the universe. (I will tempt fate, probably tomorrow, by writing a post on recent Russian gold purchases, which will bring out the gold bugs and the Russian trolls.)
I have very low expectations on the level of debate on Twitter. Subterranean expectations, in fact. But even given that, I was stunned at the level of insanity, stupidity, ignorance, and venom that the topic of Keystone unleashed. I guess it represents a convergence of prog bugbears (oil, capitalism, “climate change”, criticism of Obama), compounded by the trauma of a rout at the polls.
This may seem like a small thing, but I regretfully conclude that it is a harbinger of something bigger. Obama will spend the next two years dog whistling and throwing red meat to his rabid progressive pack as a part of his post-election, lame duck (or would that be lame loon?) guerrilla campaign. Since he can no longer play Moses, he will become Sampson. Keystone is just one of the columns that he will use to pull down the temple around our ears.
It is going to be ugly, ugly, ugly. And Elizabeth Warren is waiting in the wings.
*This is weird, since this is apparently an Ojibwe (Chippewa for you old timers) word for warrior, and not a Lakota word. The Ojibwe are/were a helluva long way from the Great Plains generally, and Nebraska or the Dakotas specifically. Indeed, it gets better! The Ojibwe and the Lakotas were inveterate enemies. (I am always amused at the romanticization of Indians by prog peaceniks: just who the hell were those warriors and braves fighting before the arrival of Europeans? Other tribes, of course.) The Ojibwe got firearms before the Lakota, and drove the Sioux into the Dakotas.
“Understand what this project is: It is providing the ability of Canada to pump their oil, send it through our land, down to the Gulf, where it will be sold everywhere else. It doesn’t have an impact on U.S. gas prices,” Mr. Obama said, evidently frustrated with questions about the Canadian-backed project while he was standing alongside Myanmarese opposition leader Aung San Suu Kyi.
(Using a human rights champion-whom he is going to toss aside-as a prop is a great touch.)
Like a good leftist, Obama apparently aspires to become Lillian Hellman, for every word in that statement is a lie, including “and” and “the”.
Where would Canadian heavy crude pumped through Keystone go? The US Gulf.
Now think hard, people. What is located on the Gulf Coast? Think, think, think.
Got it yet? Of course you do: Refineries! You know, those things that turn crude gunk into stuff we can actually use. I know that even idiot leftists know that there are refineries in Texas, because each of the 4 times a Bush ran for president, they told us ad nauseum about the pollution in Houston/Texas from the eeeeeevvvvillll refineries.
So the “it goes everywhere else” line is a total crock. It comes here, is refined, and fuels our cars, and airliners and homes, and is sold overseas so that we can buy other things foreigners produce that we like to consume.
The only question is: What is worse? That Obama actually believes this crock, or he doesn’t but is willing to say anything to defend an indefensible position?
Obama poses as a great environmentalist. Pray tell, how does relying on riskier forms of transport (tankers from Venezuela and Mexico, barges down the US inland waterways, and rail) rather than pipelines help the environment?
And I am sure it is a total coincidence that Obama booster Warren Buffett, he of the BNSF and Union Tank Car Company, is a major beneficiary of the stonewalling of Keystone.
The mendacity is not all that’s appalling about this statement. One of Obama’s worst habits has been giving allies the back of his hand, while he sucks up to sworn enemies. Canada is a close ally, and has been for decades. Indeed, even now Canada is actually contributing military force to Obama’s otherwise farcical anti-ISIS coalition.
Fat lot of good that it does them. Who needs friends like Canada when you have Iran? Can Canada help Obama build a legacy? No! So what good are they? (Please ignore the fact that the legacy will really be a nuclear arms race in the other Gulf: the Arab/Persian one.)
The sad thing is that we are in for two years of this mendacity. It will be all Alinsky, all the time. Non-stop demagoguery in the service of progressive causes. He lost, but we’ll pay.
So we will have to update Twain. No longer should you say “lies, damn lies, and statistics.” The version that will describe the next two years is: “lies, damn lies, and Obamaisms.”
I avoid the immigration issue like the plague-or Ebola, to update the meme-because (a) I can’t say that I can bring any special knowledge to the subject, and (b) it’s one that inevitably generates more fury than thought, reaction rather than reflection. I make an exception now because of an article that speaks to the Science! debate.
But if you read Munro’s piece, you will find a shocking lack of interest among scientists to test this particular hypothesis. Indeed, the scientists interviewed recoil in fear at the very thought. What’s more, he shows pretty convincingly that this unscientific lack of curiosity is due to the fact that this subject is politically radioactive, and if the hypothesis were not rejected, it would be very, very politically damaging to Señor Obama. So scientists, who exist in a state of abject dependency on Federal funding, would probably rather inject EV-D68 into their eyeballs with a square needle than investigate seriously such a politically explosive hypothesis.
The correlation between Science! and politics demonstrates that the invocation of Science! by politicians and the politically active is inherently untrustworthy. And of course, this is not limited to Ebola and EV-D68. Global warming or climate change or whatever the label de jour is a particularly prominent example.
I find it sickly ironic that the administration and its defenders invoke Science! as a magic incantation to ward off rational debate. The translation of Science!, when used by an administration hack or flack is “Shut up, you bloody peasant! Defer to your betters, regardless of how asinine they are. Do not question the Great and Powerful Oz.” It has come to the point that an invocation of Science! immediately discredits the sincerity of the invoker. It is especially ironic when the bearer of this message is a liberal arts or J-school grad (or both!) who probably exerted considerable effort to avoid taking a serious science class during their entire education.
Another institution corroded by the acid of politics, especially in recent years. (Another is civilian-military relations: I will address that dreary story in a future post.)
The road to hell is paved with good intentions. A couple of examples from environmentalist attempts to mitigate climate change.
The first relates to ethanol. In its infinite wisdom, in 2010 Congress mandated the use of renewable fuels with lower CO2 content than corn ethanol to meet the renewable fuel standard it created in 2005. Sugar ethanol from Brazil fits the bill. But given the blend wall and other limits on ethanol usage, this created an excess of corn ethanol in the US, and created an incentive to export excess corn ethanol from the US to Brazil, and import sugar ethanol from Brazil.
As a result, since the start of 2011, the United States and Brazil have shipped over 1 billion gallons of ethanol back and forth – more than 500 million gallons each way. The emissions generated by the shipping have worsened the carbon footprint of both fuels.
Thomson Reuters Foundation found that this overseas trade has produced more than 312,000 tonnes of carbon dioxide (CO2) since the start of 2011, based on an industry method used to calculate greenhouse gas emissions from shipping. This equals a ratio of one tonne of CO2 emitted for every 10 tonnes of ethanol transported between the two countries.
Not to mention its just wasteful and stupid to expend real resources-fuel, labor, capital-to swap ethanol between hemispheres.
Not to mention that corn-based ethanol is a monstrosity.
The second example: electric cars. Yes: No noxious fumes or CO2 come out of the (nonexistent tailpipe) of an electric vehicle. But if you take into account emissions over the lifetime of the vehicle-including the CO2 emitted to generate the electricity that charges the batteries of electric cars-and the other environmental impacts of their construction-including battery disposal and the environmental costs of mining rare earth metals, etc.-it’s likely that electric cars have as bad or worse environmental effects as fossil-fuel powered ones.
Government policies have substantially encouraged the use of renewable fuels, and the development of electric cars, for the purpose of improving the environment. But the actual effects of these policies often fall far short of the intended effects, and quite frequently have the exact opposite effect, or unintended consequences that are more costly than the intended environmental benefits.
This illustrates several points. First, policies frequently create perverse incentives that induce market participants to undertake actions contrary to the intent of the policy: this is what is going on in the ethanol trade. Second, we live in a second best world. The theory of the second best implies that when there are multiple “market failures” (i.e., multiple unpriced harms), mitigating one of them (e.g., reducing CO2 emissions) is not necessarily a good thing, because it can exacerbate the other market failures. That’s the lesson in the case of electric vehicles.
It’s my sense that these problems are most likely to occur when legislators and regulators attempt to dictate technologies, rather than affect incentives through taxes on harms (e.g., CO2 taxes). That seems to be particularly true of the first problem. It’s less clear that’s true of the second problem. For instance, a monomaniacal focus on CO2, whether implemented through taxes or cap and trade or dictating technology, tends to have substantial perverse effects because there are other unpriced harms and benefits. The encouragement of wind power, for example, results in environmental damage in the form of massive bird kills and abandoned wind turbines.
Economics is sometimes called the dismal science, originally because of the Malthusian connection. But the name has stuck long after economists have left Malthus far behind. And for good reason. We’re killjoys, with a habit of pointing out that things people do with the best of intentions often fail to realize those goals, or worse, are actually counterproductive.
There’s lots of angst in Euroland over the plunging price of European Union CO2 Allowances. Trading activity has crashed along with prices. And the Eurocrats are casting about ways to “fix” the “problem.” And Eurocrats being Eurocrats, their mooted fixes are interventionist monstrosities that make a mockery of the idea of a “market” for CO2.
The reason for the price decline is blindingly obvious. The European economy is sputtering, and lower industrial activity translates into lower output of CO2, and hence lower demand for emissions allowances.
In other words, the Europeans wanted to reduce CO2 emissions, and they got their wish. Just not the way they intended: a bad economy accomplished their mission for them. If they’re so intent on reducing CO2, you’d think they’d be happy.
But no, of course, they’re not. They were hoping that economic activity would be robust, and that the resulting demand for allowances would keep the price high, thereby making powering this activity by fossil fuels more expensive. This, in turn, would lead to greater reliance on no-carbon renewables like wind and solar. In this version of Euro Disneyland, where wishes come true, windmills and solar panels would be powering a thriving economy: they would have their low carbon cake, and their economic growth ice cream too.
But no such luck. The sluggish economies, and the resulting low price of CO2, have delivered a body blow to the economics of renewables.
And that’s where much of the angst is coming from. If it was all about reduced CO2 output, it shouldn’t really matter how you get there. But of course investors in wind, solar, etc., want to support those investments, and the cratering of the CO2 price is very bad news for them.
So the angst is about protecting investments in renewables.
How are they going to go about this? There have been proposals to delay the issuance of some new allowances for a couple of years to support the price, but these were shot down in the European parliament. That delay-“backloading”-was considered by many to be prelude to canceling them altogether.
Such interventions make a mockery of the idea of a carbon market. The man-made “supply” of allowances is subject to change at political whim, and becomes contingent on price, and how that price affects political constituencies. This adds a huge element of risk to trading in this market. It also adds a huge element of risk to any investment that depends on the price of CO2. This can include not just wind and solar, but conventional power plants, and any other investment (e.g., refining or chemical manufacturing) that emits CO2. And once the EU allows the economic interests of industries to drive supply decisions so as to affect price, all these affected parties have an incentive to influence the process. That consumes real resources, and given the unpredictable and shifting nature of political equilibria, adds to the uncertainty over future supply.
In other words, these man-made carbon markets are not time consistent. Unless the EU can commit not to change supply in the future, the “market” will largely involve speculation on future policy, with a huge degree of feedback. Speculations about policy will affect prices, and prices will affect policy, which will affect prices, and on and on. (Example: the price of CO2 allowances fell by 50 percent when the Euro Parliament rejected backloading.)
Which is wickedly ironic, given Euro attitudes about speculation.
That’s no way to make a market. And come to think about it, any “market” that is a completely political construction is almost a contradiction in terms. It can be at best a simulacrum of a market, at most a form of “market socialism”, but not the idealized market socialism of years past, but a market socialism buffeted by special interest politics and political economy considerations.
FWIW, I am one of the “experts” on the WSJ’s new “The Experts: Energy” feature. The first installment was a week ago. The next one, about renewables, runs next Monday-tax day! Yay!
The question was: “What is the most promising renewable?” My first instinct was to respond with the punch line from the very non-PC joke Ty Cobb told to a journalist who interviewed him late in life: “I feel like the country boy whose Mama told him to say something nice to his prom date, and he told her: ‘you don’t sweat too much for a fat girl.'” But I resisted the temptation to say that on the WSJ: here, not so much resistance. But you’ll just have to wait a week to see what I said. Snarky, but not quite so snarky as that.
It wouldn’t be quite so hard to answer the question: “What is your least favorite renewable?” Here, we have to have separate categories for electricity generation and motor fuel.
With respect to electricity, the runaway winner is wind. Economically: a turkey. Environmentally: it kills turkeys. Well, maybe not turkeys, but it does slaughter countless winged creatures. Not that enviros will tell you that. Rather, they are willing participants in a conspiracy of silence to cover-up the avian and chiropterian holocaust.
First, the economics. Really. I don’t have to go find these things. They find me.
I could go on and on, but let me just point you to Germany. Germany has made a huge bet on wind. Huge. And it is becoming a huge economic albatross (speaking of birds) around Merkel’s neck. Two articles this weekend point that out, both from sources that are usually pretty enviro-friendly.
With consumer power bills increasing and Merkel facing elections in September, Germany’s energy policy is rising on the political agenda. The cost of developing wind farms in the North Sea has surged following construction glitches and delays in linking turbines to the grid.
“The entire energy switch has derailed,” Marc Nettelbeck, an analyst at DZ Bank AG, said this week by phone from Frankfurt. “The difficulties connecting offshore wind farms to the power grid reduces their profitability and renders the original investment calculations of utilities invalid.”
Merkel has sought to spur development of wind farms at sea — where gusts are typically strong enough to keep turbines generating around the clock — because most renewable sources can’t provide constant, or baseload, power like nuclear plants.
The connection setbacks are “problematic for baseload power capacity and can lead to the failure or delay of the energy switch,” Nettelbeck said.
EON, the country’s biggest utility, said last month it will lower clean-energy investments to less than 1 billion euros in 2015 from 1.79 billion euros last year. RWE will cut annual renewables spending in half to about 500 million euros in the next two years.
The EU’s biggest economy has long been a champion of renewable power, a haven investors could depend on.
This made it a green leader well before it decided to phase out nuclear power after the 2011 Fukushima disaster in Japan, and drive its renewable generation up even further.
Though it is not very sunny nor even that windy, Germany now accounts for nearly half of Europe’s solar power capacity and 30 per cent of its wind power.
Renewable power – mostly wind, solar and biomass – made up a formidable 22 per cent of Germany’s electricity generation last year.
But, with the levy added to German power bills to help pay for this growth nearly doubling to €0.053 per kWh – and an election looming in September – environment minister Peter Altmaier has unveiled plans to freeze renewable subsidies for two years. He has also said future rises would be limited to 2.5 per cent a year after that.
Other proposals to reduce costs include a requirement for renewable generators to sell their electricity to buyers under long- term power purchasing agreements – a far less attractive option than the current system of selling power to the grid and getting paid a set tariff.
These new measures are supposed to take effect from August, but face so much political opposition that nothing may happen before the election.
Still, the consequences have been swift. One big municipal utility with substantial renewable investments, Munich’s Stadtwerke München, has already suspended new clean power projects.
Wind is a diffuse energy source. Wind production is greatest at night, and smallest when it’s hot. Meaning that it is there when you don’t need it and isn’t when you do. Load tends not to be located in windy places, meaning that it requires a substantial investment in transmission. And wouldn’t you know (a) this is expensive, and (b) people don’t like transmission lines. Wind is also intermittent, and requires backup traditional generation (fossil fuel or nuclear).
Other than that, it’s great.
But it’s so environmentally friendly, right? Aren’t these small prices to pay?
Why don’t you go ask your fine feathered friends that question?
Wind turbines A/K/A bird cuisinarts, bat blenders.
MasterResource and Watts Up With That? provide chapter and verse about the number of flying creatures killed every year by wind turbines. The numbers are in the 10s of millions in the US alone, not to mention Europe. Each turbine kills several hundred birds per year. In some locations, bats are major contributors to the body count.
Moreover, ethanol burned in an engine produces more than twice as much ozone as the equivalent amount of petrol. Ground-level ozone is a big cause of smog. And, while good at boosting a fuel’s octane rating, ethanol packs only two-thirds the energy per gallon of petrol. As a result, motorists get fewer miles per gallon using fuel blended with ethanol than with undiluted petrol. So, even if blended fuel is cheaper per gallon than petrol (thanks to ethanol’s subsidies), the overall cost of using it tends to be higher
Not to mention (which the Economist does) that ethanol mandates are screwing up the gasoline market, and inflating the price of motor fuel in the US.
And definitely not to mention (which the Economist does not, at least in this article), that the subsidy- and mandate-driven demand for ethanol has increased the demand for corn, thereby increasing corn prices, and food prices generally. The biggest victims of this? The poor, notably in developing countries, who spend a very large fraction of their income on food.
Wind and ethanol are monstrosities. Moreover, governments-through subsidies and mandates-are the Frankensteins who created these monsters. (At least the original Dr. Frankenstein created only one monster.)
To the extent that fossil fuels create externalities, it is best to provide incentives to reduce their consumption, and to encourage the production of substitutes, through taxes (taking into account the heavy tax burden that fossil fuel consumption already incurs). Then let market participants determine the most efficient way to mitigate these externalities. Instead, for decades governments have attempted to pick winners, and constructed an elaborate system of subsidies and mandates that have been driven by politics and politicking, and which have led to the massive stimulation of the worst of the non-fossil fuel technologies: wind and (corn-based) ethanol. In so doing, they have picked total losers.
What’s more, the subsidization of inefficient technologies, actually suppresses the incentive to develop more efficient technologies (where efficiency includes the environmental costs). This unseen impact is arguably as devastating as the seen effects-and those are bad indeed.
Obama and his acolytes flatter themselves as sophisticates, reality-based devotees of science. They look to Europe for inspiration. If only they would actually pay attention to the reality of Europe, as opposed to their fantasy vision.
Obama brought his supporters to paroxysms of joy-near orgasms, in fact-with his call in the SOTU speech for action on “climate change.” Action that he said he would take if Congress does not-the Constitution be damned.
More than a decade ago, Germany and Spain created similar laws to aggressively promote the adoption of renewable energy. The two countries were again marching in step on Thursday—this time to fix a web of subsidies and compensations they created for green energy that had the unintended effect of driving up household electricity bills.
. . . .
Fearing a voter backlash from anger over the lopsided financing of green energy, Ms. Merkel’s government on Thursday proposed putting a cap on the green-energy surcharge until the end of 2014 and then restricting any rise in the surcharge after that to no more than 2.5% a year. The government also plans to tighten exemptions, which would force more companies to pay, and achieve a cut in green subsidies of €1.8 billion ($2.42 billion). The plan is a quick fix pending comprehensive reform after the election, government officials said.
. . . .
The Spanish parliament took a similar step on Thursday, passing a law that aims to curb rising household electricity costs by cutting aid to the renewable-energy industry.
Renewable-energy producers “are going to receive less revenue, but these measures are better for consumers” said Energy Minister José Manuel Soria.
In other words, Germany and Spain are retreating posthaste from their former grandiose commitments to green energy.
But despite this rather flagrant example of the economic bankruptcy of subsidies for renewables, Obama is intent on playing the David Farragut of greendoggles: Damn the reality! Full speed ahead!
It’s bad enough that Obama ignores what is going on in Euroland. He should have plenty of examples closer to hand. Like Solyndra. (Do you really need links? Seriously?) Like Tesla (ditto). Compact Power. LG Chem: read it and weep. You’d get more satisfaction out of taking $175mm in $100 bills and setting them alight.
But we are likely to be subjected to yet more of these monstrosities, because there is nothing that the reality-based community likes to do more than deny reality. Especially when it stares them in the face.
Not only are we almost certain to chase green unicorns, we may well deny ourselves of very real energy sources. This weekend saw protests against the Keystone XL pipeline, and I would say that the odds are better than even that he delays or kills it: the cabal of enviros and Warren Buffett will be pretty hard for Obama to oppose. (The calculations of my earlier post imply that Keystone XL-which will last for decades-will pay for itself in less than 600 days-and that’s conservative because a good fraction of the $20mm/day in surplus generated by Cushing-Gulf pipelines is attributable to the oil that Keystone XL could transport.) In contrast we’ll be paying for greendoggles for many multiples of 600 days.
It is quite instructive to view the contrast between the European’s concession to reality, and Obama’s denial thereof. Just when the Euros are beginning to concede that green unicorns may not exist, Obama is hell bent on chasing them.
The Spanish government’s latest bid to cut its growing debts to the country’s energy sector is expected to slash profits at renewable energy companies as Madrid continues to grapple with a €28bn deficit built up through years of subsidies.
Spain’s most recent reform to the energy sector will force renewable energy operators to choose between a fixed price or market price for their power – and remove a previous subsidy – while renewables subsidies will also be delinked from consumer price inflation and instead aligned with Spain’s core inflation measure.
Shares in Acciona, Spain’s second largest wind power operator, have tumbled almost 20 per cent, with Abengoa, Spain’s largest solar thermal power plant developer, also falling sharply since the changes were announced at the end of last week.
Energy Future Holdings Corp., the struggling Texas power company involved in a record leveraged buyout, could end up splitting as it faces significant choke points on debt and seeks counsel from Wall Street restructuring advisers.
The former TXU Corp. has been getting advice from big-name law firms and investment banks ahead of May, when it must start making cash payments on certain debt. In addition, the company faces nearly $4 billion in debt maturing in October 2014. The Dallas-based company was purchased by the private-equity firms and others in 2007 for $32 billion plus about $13 billion of debt.
After a series of complicated transactions over the past several years that rearranged its finances, the company now appears poised to start contemplating a major debt restructuring, be it through a bankruptcy filing or another means, according to a person close to the situation.
The article rightly notes that the collapse in natural gas prices has cratered generating margins (spark and dark spreads, and especially the later). This is the main reason for EFH’s problems, but not the only reason. The large increase in wind generation-which benefits quite nicely from federal subsidies-has put downward pressure on power prices in Texas, and has led to negative pricesfor powerwith some regularity. This is particularly important because Texas operates an energy-only market, with no capacity market, meaning that capital costs must be recouped from energy prices. With wind subsidy-supressed prices, traditional generation has a hard time paying for itself. As PUC Commissioner Donna Nelson said:
Federal incentives for renewable energy… have distorted the competitive wholesale market in ERCOT. Wind has been supported by a federal production tax credit that provides $22 per MWh of energy generated by a wind resource. With this substantial incentive, wind resources can actually bid negative prices into the market and still make a profit.
We’ve seen a number of days with a negative clearing price in the west zone of ERCOT where most of the wind resources are installed…. The market distortions caused by renewable energy incentives are one of the primary causes I believe of our current resource adequacy issue… [T]his distortion makes it difficult for other generation types to recover their cost and discourages investment in new generation.
The impact is greatest in the western part of the state, but wind weighs on prices throughout the state. Except when it’s hot, because that’s when the wind doesn’t blow-but the power is particularly needed. And wind also imposes substantial reliability challenges, requiring backup generation resources-which find it difficult to recoup costs due to prices that are often artificially low due to the wind subsidy.
The subsidies completely distort price signals, which in turn distort investment incentives and raise the serious risk of shortages of reliable generation resources that can operate hot or cold, rain or shine.
It’s no secret why FERC is likely to rule against the homeowners in Iowa and Minnesota. The Obama Administration’s green vision is to make wind and solar an ever-larger share of U.S. electricity production, regardless of costs. Think high-speed rail for the electric power network. The only way to make that happen without a political backlash is to spread the costs far and wide.
Wind and solar power are too expensive to compete with natural gas, coal, nuclear and hydropower without government help. The wind lobby already won an extension of its $12 billion production tax credit as part of the recent tax increase. More than half the states also have renewable energy standards forcing residents to purchase wind power. And now the greens want another subsidy for transmission lines.
Because wind makes such economic sense. The fact that subsidies (and, in some places, the indoctrination of children) are required to support wind development tells you just how much economic sense it makes. It is a greendoggle of the first order, and one that you might want to think about when the lights or AC go out, especially in Texas on a hot summer’s day.