Student Post: Going the Extra Mile for Cleaner Coal: Is It Worth It?

Great River Energy is a Minnesota-based wholesale cooperative that serves roughly 650,000 customers in our area. Since 2007, the company spent $437 million to construct and put into operation a coal-fired plant in Spiritwood, ND. Now, Great River is shutting operations down at the plant.

As we have learned in our readings, burning coal is the economically productive function of coal. Combustion produces steam, which drives a turbine, and this turbine then produces electricity. Coal combustion, however, is also a major source of air pollution. Further exacerbating environmental concerns is that coal is accounts for roughly 50% of the nation’s energy source. To combat the dangerous levels of air pollution resulting from coal-fired plants Congress enacted the Clean Air Act (“CAA”) and established the Environmental Protection Agency (“EPA”) in 1970.

The CAA requires plants to have pollution controls in place to limit their emissions. Well, coal is in great abundance in the United States but it is known as a “dirty fuel.” This basically means that energy companies must expend a greater amount on pollution control if they are burning coal rather than other fuel sources such as oil or natural gas. Additionally, electricity industry incentives have changed so much over the last three two decades that competitive pricing has replaced the once administratively set energy rates. This in turn has led energy companies’ incentive to invest in cleaner, more efficient (and costly) energy sources to wane. An increasing number of states are rejecting applications for new coal-fired plants citing environmental concerns. Thus, the cheaper alternative of coal-based energy has not been growing at the same rate as other power sources.

Coal plants require larger investments, and that is precisely what we saw with Great River Energy’s Spiritwood plant. Great River certainly believed that the investment was well worth it. In the mid-2000s, the company faced a strong growth in demand for electricity, so it decided to build Spiritwood as a long-term, valuable asset to meet this forecasted demand. According to Great River’s web site, Spiritwood also boasts the use of the best, state-of-the-art technology to make the plant “one of the cleanest coal-based power plants in the world.” Its fuel source is lignite coal mined at the surface, and then dried and refined nearby utilizing a proprietary method called DryFine. DryFining is a process in which waste heat from the plant is used together with a proprietary fluidized bed drying process to remove moisture and impurities from the feedstock lignite to produce refined coal. The DryFining method results in less fuel being burned, reduced emissions, and overall lower maintenance costs. Unfortunately, despite all of its innovation, Great River was still subject to the fickle economy and the recession.

Great River stalled the production date of the Spiritwood plant as a result of weaker demand and the recession; however, the company still believed in the value of the plant in the long run. Great River has said that it will delay further operations at the plant at least until 2013. As of last November, plant employees began a “protect, preserve, and maintain mode” that has tacked on an additional $30 million to the nearly half a billion dollar price tag. The budgeted $30 million is to cover the costs of maintenance, and to cover bond interest and depreciation.

Is there a lesson to be learned? Well, Great River Energy was still keeping the environment in mind, and in alignment with federal regulations. The company developed a refinement process and other innovative technologies, at great cost, to more efficiently produce electricity in an increasingly cost- and environmentally-conscious world where oil and (especially) natural gas producers are looking to emerge as the dominant players in commercial and residential energy production. Carbon taxes or offsets have made it more expensive to operate, however, North Dakota and Minnesota provided exemptions and other incentives for the Spiritwood plant.

According Brad Crabtree of the Minneapolis-based nonprofit, the Great Plains Institute, Great River was penalized for its environmental innovations. The extra investment in “resources to do the right thing environmentally and [] build the most efficient advanced-combustion power plant in the Midwest” was largely ignored by the marketplace.

Ultimately, the market has the final say. Despite considerable efforts, the decrease in growth, demand, and electricity prices coupled with the loss of a major would be customer severely weakened the Spiritwood plant’s potential.

Sources:

Great River Energy, StarTribune

Bosselman, et. al., Energy, Economics and the Environment, 3rd Ed.

Student Post: More realistic US oil reserves

With high gas prices, many on the right call for more drilling, exploration, and leasing and many on the left call for investment in renewable energy which will be cleaner and cheaper in the long run. Recognizing that the solution of drilling more holes in the ground will be unlikely to lower gas prices over the long term in any significant way and therefore research in renewables is warranted, it is still helpful to be realistic about how much oil could be recovered and therefore how quickly this switch may come.

That is why I found this article (link at the bottom) from the Institute for Energy Research so interesting. IER is a non-profit group that conducts research and analysis on energy issues that has in the past been funded by groups like Exxon and the Koch brothers which may tell you a bit about why they generally advocate for free market energy solutions and non-intervention by government in the energy markets. Now back to the article.

In the article it criticizes the Obama administration for picking the statistic that the United States has 2% of the proven oil reserves in the world as a reason to promote investment in renewables by way of showing we can’t support fossil fuel use without going out into the international market which has proven volatile in the past. However, the article goes on to show that proven reserves are a small subset of the total recoverable oil the United States has. I was particularly struck by the statistic that in 1944 the US had 20 billion barrels of proven oil reserves and as of 2010 it had 20.7 billion barrels of proven reserves. In that interim period the US produced about 167 billion barrels of oil. Now this doesn’t really prove anything going forward but it does show that the proven reserves statistic is a poor measure of how much oil could really be recovered. In fact the article points out that North Dakota’s proven reserves have increased 25 fold over 13 years.

The article states that technically recoverable oil numbers about 1,442 billion barrels of oil in the United States. That is about 75 times the proven reserves statistic. That technically recoverable oil statistic obviously does not mean that we could pull it out of the ground tomorrow or that it would reduce gas prices as some might claim. Much of that reserve requires the higher oil prices we have currently and maybe even higher in the future to be recovered profitably. However, the thing that I believe is the takeaway from the article is that we should be realistic about what reserves we have. This will lead to a more sensible time frame for an eventual move away from fossil fuels, and take out some of the urgency that we have seen in the last decade which it seems has led to some poor policies and even worse investment decisions through government programs.

http://www.instituteforenergyresearch.org/2012/03/13/exposing-the-2-percent-oil-reserves-myth/

Student Post: The Real Cost of Coal

The Harvard Medical School’s Center for Health and the Global Environment wrote a report highlighting the externalities of the use of coal. The report is titledMining Coal, Mounting Costs: The Life Cycle Consequences of Coal.

It focused on the actual costs of coal to society, including things such as land disturbance, public health effects, fatalities in transportation, emissions, mercury impacts, subsidies, abandoned mine lands, and contribution to climate change.

The report estimates the “total annual economically-quantifiable cost of coal” to range from $175 Billion to $523 Billion in yearly additional costs, with a “best” estimate of $345 Billion. Taking these costs into consideration, the report also estimates that the added costs consumers pay for coal-fired electricity is between $0.09 to $0.27 per kWh, with the “best” estimate being an additional cost of $0.18 per kWh.

Measurable Consequences of Coal

The study identified 12 measurable consequences related to the life cycle of coal. The following is a brief overview of several of these consequences:

Underground Effects
Over 100,000 miners have died from mine accidents since 1900 and over 200,000 have died from black lung disease. The costs of these deaths and diseases was largely internalized within the industry, however, as recovery from companies has become more difficult (due to their dissolution) the federal government and states are increasingly bearing these costs through public health services.

Effects to Coal-Mining Regions
There is evidence that in heavy coal mining areas, a higher than normal rate of deaths from lung cancer, heart, respiratory, and kidney disease exists. Some of these costs were historically internalized by offering health insurance and other health benefits to mine workers. However, in the case of community members and other not directly involved in mining operations, it is more likely that these costs are external: i.e. borne by the public in general rather than the responsible party.

Rail Transport Costs
The report claims an average of 246 deaths yearly result from accidents during the transportation of coal, including rail traffic, truck traffic, and power plant operations.Traditional tort principles of negligence provide a fairly direct means of recovery for victims of such accidents. However, monetary compensation for the loss of life is inadequate to account for many objective variables (such as lost economic productivity) and the almost unlimited value of human life.

Air Pollution Costs
The Harvard study estimates that “particulates and oxides of nitrogen and sulfur kill 24,000 people annually”. The value of these lost lives is not definitely ascertainable; however, the study estimates it at approximately 187 Billion each year!

Subsidies
There is a significant amount of government involvement in regulation in the coal industry. From tax cuts, special deductions, and outright subsidies, the coal industry is far from a “free market” economic model.The study emphasized that there are many external costs the use of coal, and these subsidies are a perfect example. Manipulation of tax code, government backed loans, and direct subsidies to companies are all additional costs of coal indirectly imposed on society.

Abandoned Mine Land Reclamation
Abandoned mines are prevalent in North Dakota and other coal-producing areas in the United States. While marked efforts have been made to “reclaim” these areas, the marks of coal mining from decades past can still be seen in numerous locations in western North Dakota.
Conclusion

This Harvard medical report should make people skeptical of claims made by advocates for the coal industry who argue that coal is perfectly safe and with no harmful externalities. While coal-powered electrical generation is vital to meeting the current electrical needs of society, the results of this study are yet another reason to look into moving more of our electrical generation needs to cleaner and more sustainable sources.

Student Post: The Clean Air Act and Trans Boundary Pollution

Within in this section of the book it was mentioned that the mining of coal can have severe effects on the environment, which reminded me of another class where we discussed the problem of regulating pollution across the borders of different states and Indian country. This problem arises out of the natural spread of pollution across man-made borders through the movement of wind, water, and various other modes of transportation. To help limit the different environmental laws among jurisdictions, the federal government passed different Acts which help set more uniform standards. In regards to coal production, the Clean Air Act would be one of the more applicable environmental laws used, and is also a great example of an Act with Trans boundary effects.

In implementing the Clean Air Act, the Environmental Protection Agency created a three class system in which each state can determine what class they wanted to be part of and thus which standards to be applied to them. The three different classes that were used are: class I areas, which would have nearly any negative change in air quality be considered significant; class II areas, which would have deterioration accompanying moderate well-controlled growth be ok; and class III areas, which would allow deterioration right up to the national minimum standard. Some of the determining factors for the designation of these classes were the environmental, economic and social effects that designation would have on the area, but despite the variation in these factors the vast majority of the United States is still identified as a class II area.

One of the major factors of why the majority of the United States is designated as class II is because one state’s designation can affect the amount of pollution that another state can produce. Let’s pretend that North Dakota was a class II area and Minnesota was a class I area. If North Dakota had a coal facility that was producing an amount of pollution that was ok under class II standards, but not for class I standards, Minnesota could potentially force the facility to meet class I standards despite being physically located in a class II area. For this argument to work Minnesota would have to show that the pollution from the coal facility is dropping the air quality within Minnesota’s borders to a standard below a class I designation.

The benefit of this system is that pollution is a trans-boundary problem and there needs to be a way for different states and jurisdiction to resolve their issues for different environmental standards. There is of course the problem that a downwind state can theoretically have a lot of control on the upwind state’s economy through imposing higher or lower environmental regulations. This problem is less likely to occur do to the fact that that state will also be bound by those same environmental regulations, effectively causing the same problem for their own state. Where the problem arises is if the state or jurisdiction doesn’t have the same economic or environmental goals as the bordering jurisdiction, which can be seen in some cases between the State and Indian country regulations. Despite what may appear to be unfair regulations, I overall believe that their needs to be some kind of check on upwind jurisdictions where it may be easier to justify higher levels of pollution because you don’t have to deal with the accumulated side effects and this Act helps provide that check.

Student Post: We’re Doing This for Your Own Good

We’ve talked about the plan of increasing taxes on gasoline and then reducing payroll taxes so that workers have an incentive to use that extra income to adjust their transportation decisions so they can keep some of that extra income.

I see a few problems with this method of kicking up the search and implementation of non-gasoline fuels, but I’ll focus on only one. This plan gives workers too much leeway with their extra income. The workers could use this extra income to fund other forms of transportation fuels; that’s one option. However, given the state of the other options, it seems more likely that workers will go with gasoline because it’s easier than hurdles of the up-and-coming fuels. Some alternative fuels require buying a new vehicle or upgrading an older vehicle to run on a new fuel would likely more than offset the tax break. And, because there are so few fueling stations, workers would have to overcome psychological hurdles too. Workers are likely to either spend their days worrying about where to find the new fueling stations or fretting about whether their car will be able cover all the miles of their commutes on a single charge. Given these psychological hurdles and Americans’ proclivity for the status quo, the best bet is that this extra income will go to purchasing the higher-taxed gasoline. With these psychological hurdles, it seems like if we really want to find fuels other than gasoline, this extra income needs some steering.

By dropping the second part of this plan, the extra income from the gas tax goes to the government. Now I might be naïve, or a socialist, or think like those soft Europeans, but I think by giving this tax revenue to the government and requiring this income actually fund fuels besides gasoline we could get to fuels besides gasoline faster. This money would infuse the emerging markets with the capital they need to build their physical infrastructures or brainwash us (Americans) into believing these alternative fuels are fun, easy to use, and potentially not as bad for the planet. Now, there are likely decreases in other areas of government income because this tax will affect how consumers spend their money. So the government may receive fewer dollars from sales taxes because we may have to cut back on buying things like the latest and greatest iProduct. But remember, we came from a generation without cellphones or computers and somehow they survived long enough to bring us into existence. Essentially, if we want fuels other than gasoline, we’re going to have to pay somehow. If we’re too set in our ways to change, even for a cause we claim to support, it makes sense to have someone (Uncle Sam) twist our arms a little to get there.

This might sound like an assault on freedom of choice or, even deeper, on free will, but people don’t have the best track record exercising those powers to benefit others. Enron. Another example is a psychological experiment I read about.

An actor is hooked up to a machine. The subject believes the machine gives the person a shock (the subject doesn’t know the person hooked up to the machine is an actor). The psychologist performing the test tells the subject to shock the actor whenever the actor answers a question incorrectly. The psychologist tells the subject to increase the strength of the shock with each incorrect answer. In this experiment, the psychologist would ask the actor questions and the actor would answer the questions incorrectly to the point where the subject believed he or she was delivering a lethal shock to the actor. Nearly all of the subjects delivered this shock. The psychologist would simply tell the subject to deliver the shock. If the subject questioned the psychologist, the psychologist would respond by telling the subject he had to follow through with what the experiment required. The subjects were interviewed after the experiment and were asked why they went along with killing someone because they were told to, not forced or coerced, but simply told to. Most said because it was easier to follow directions and the psychologist was an authoritative figure.

This could be an analogy for our relationship with gasoline. No one is forcing us to buy it, but we keep buying anyway because it’s easy; it’s what the carmakers tell us to buy; and the government rationalizes the choice economically with subsidies.

Student Post: Electric Cars! Or not...

Watching the movie “Who Killed the Electric Car” in class on Thursday brought up a few interesting ideas that I hadn’t thought much of recently. With the discussions we have had in class about various types of cars and how much pollution should be allowed, I found the film’s view of electric cars to be a nice refresher on their history.

The first part of the film that went through the history of electric cars really surprised me. I had no idea how prevalent electric cars had been when the automobile industry really started up. With the lower costs of oil and all of the reasons stated in the film, it is easy to understand how electric cars faded in the past, but it was interesting to see how the film went about explaining how the more recent round of electric cars met their end.

With the more recent rise and fall of GM’s EV1 and other companies’ similar attempts at electric cars still in the recent past, it’s interesting to see the path that automakers have taken us down. With all of the technological advances we’ve had since the 1900’s, it’s amazing that we haven’t figured out how to get cleaner and more efficient vehicles on the road.

Regardless of who is to blame for the recent failure of pure electric cars, I would think that the automobile industry will soon be forced to develop better vehicles that either get dramatically improved gas mileage or that are better hybrids with electricity, hydrogen, or whatever power source they can come up with. Increased gasoline prices are becoming a bigger issue again, and consumers will be doing everything they can to save money.

The film and the discussions we have had in class have also caused me to think more about public transportation. In much of America it seems there is no practical way to make it useful on a large scale, but in bigger cities there is a lot of room for improvement. With the technology that is out there for electric or hydrogen vehicles, why can’t public buses and trains run on this cleaner energy? If public transportation is advertised and promoted as being environmentally friendly in these ways, more people might be willing to take the electricity-powered bus rather than drive their own gasoline-powered car.

I realize that there is currently a lack of infrastructure to really put that into effect, but it can’t be a bad idea to consider broader transportation issues like that instead of only thinking about individual cars.

Student Post: Differences between American and Irish Household Energy Uses

In the current climate in which we find ourselves in the US, there seems to be a trend toward reducing consumption of energy and installing energy efficient appliances and systems that require less energy. In Europe, it seems that people have been more energy conscious for a very long time. In Ireland, for example, where my wife spent a good part of her life, energy was an area where people tried very hard to reduce their consumption. In Ireland, people rarely, if ever use a dryer to dry their clothes; they still hang their clothes to dry. In fact, many of the dryers that are found in Ireland leave a lot to be desired by American standards. Drying your clothes in an Irish dryer has about the same force as having an asthmatic breathe hot air on your damp clothing.

There are a number of ways in which energy efficient methods are found in the average Irish home. One way people dry their clothes is by hanging them in racks placed in the same closet as the water heater and furnace. In this way, the residual heat from the furnace and water heater heats the room and dries clothing.

Another interesting difference between Irish and American household energy uses regards hot water consumption. In the US, we have large hot water heaters that keep a large supply of hot water hot all the time. In Ireland, this is not the case. In Ireland there is what is known as an immersion, which is a water heater that heats water for smaller uses. When you want a shower in Ireland you must turn the immersion on to bath which heats a larger quantity of water. This practice is outlined in a rather funny routine by Des Bishop an Irish-American comedian in the following clip: http://www.youtube.com/watch?v=52bna-tn_dY (warning-there is some adult language).

Recently, Electric Ireland announced that it would introduce a new “low user standing charge” where households that used less than two units of electricity per day would be subject to a fee of some 15 cents or some 60 Euros a year. (See the following link: http://www.independent.ie/national-news/esbs-low-usage-fee-will-hit-mostly-holiday-homes-3032901.html) This charge will affect mostly homes that are left vacant and holiday homes. This charge is levied, according to Electric Ireland, in order to make up for losses due to reading meters and other service costs. I had never heard of such a thing, and found it odd. I found that there is the same thing in the US.