David O’Reilly Speech on Energy Policy

Still traveling until middle of next week (in London right now, back to Amsterdam tonight, California tomorrow), so limited communications from me until then. Lots going on in the world of energy. Oil has cracked $100 again (and again), which is a major correction in just a couple of months. The House passed a drilling bill, but as Geoff Styles accurately points out (and his detailed look is definitely worth a read), there are some ‘poison pill’ measures that will severely limit the chances that the bill will become law.

In the interim, I was just e-mailed a copy of a speech that Chevron CEO David O’Reilly delivered a couple of days ago on the topic of energy policy. Since I have only skimmed it, I neither endorse nor denounce it. I just thought I would put it out there and let readers have a crack at it.

“The New Consensus”

David J. O’Reilly

Metropolitan Club, Washington, D.C.

September 17, 2008

Good afternoon.

Thank you Wayne, for your kind introduction.

Before I get started, I want to take a moment to express my concerns for the many people of the Gulf Coast who were affected by hurricanes Gustav and Ike. I’m sure I speak for everyone in the room when I say that our thoughts are with those individuals and communities affected by these devastating storms.

As we meet here today, let me assure you the men and women of Chevron and indeed the entire industry are working hard to restore energy to the impacted areas.

This club has been an important meeting place since it was founded during the Civil War … and Abraham Lincoln was leading the struggle to keep this great country intact.

The club has had many distinguished members.

One can only imagine the conversations that have occurred here … about the reconstruction of our country … about the pathway out of the Great Depression … and about the role America should play in the world …

Ideas that have shaped this country have been tested here. They have solidified into important decisions made just steps away in the White House. Teddy Roosevelt, who was a club member, captured the spirit of this place when he said, “In a moment of decision…. the worst thing you can do is nothing.”

I appreciate your willingness to hear from an out-of-towner in the midst of a Presidential election – an important moment of decision for our entire country.

For me, it’s a bit like speaking to a gathering of play-by-play analysts on the eve of the Super Bowl. What can I tell a room full of political pros about this election that you don’t already know?
I’ll give it a try.

Energy will be an important … vote-determining issue in this election.

Polls show that voters consistently rank gasoline prices as their number two concern, second only to the economy. The two are inextricably linked. High energy prices drive inflation and squeeze family budgets. And the availability of affordable energy is a cornerstone of our prosperity.

Americans are now linking the country’s energy challenges with national security and foreign policy concerns. A poll earlier this year noted that reducing dependence on foreign sources of energy was seen as the top strategy for enhancing national security . . . ahead of improving our intelligence operations!

Public concern over prices hasn’t been this high since the oil shocks of the 1970s.

And with good reason.

The global energy market has been reshaped in ways that are deeply affecting our economy – and those effects are intensifying.

This renewed public concern presents an opportunity.

W. Edwards Deming – one of America’s respected business thinkers – once said: “It is not enough to do your best; you must know what to do, and then do your best.”

The good news is, we know what to do. For over five years, informed observers have seen this situation coming, and offered solutions.

The bad news is … public policy has not kept pace.

Our political system doesn’t deal easily with complex problems requiring long-term solutions.

Our political system moves – and was designed to move – when people demand movement.

And therein lies the opportunity.

Right now, Americans want answers. They want action. They are seeking reliable, affordable and abundant energy – they are seeking energy security.

The worst thing we can do is nothing. We have already lost time. The urgency is clear.

There have been steady, inexorable changes occurring in the global energy system. It is being stressed by growing global demand … and all of us are being affected.

We have reached a moment of decision when it comes to energy policy.

In his new book, Hot, Flat and Crowded, Tom Friedman framed the need for change saying “it will be the biggest single peacetime project humankind will have ever undertaken. Rare is the political leader anywhere in the world who will talk straight about the true size of this challenge.”

This election is an opportunity to make comprehensive and realistic changes to our approach to energy. The time is now for the Presidential candidates to put forward real energy plans … not just campaign slogans.

And, it’s time for a real debate.

The questions I get asked more than any other usually start with the word, “Why?”

“Why are we paying so much to fill up our tanks?

“Why have energy prices risen so far, so fast?

“Why don’t you think oil prices will return to $20 per barrel anytime soon?”

For 20 years, oil traded in a relatively narrow band, fluctuating between $15 and $25 a barrel. Sometimes the price dipped, sometimes it rose. But the effects weren’t overly negative . . . and they had no detrimental effects on the economy.

Quite the opposite, in fact: consistently low energy prices were a major factor in the economic expansions of the 1980s and 1990s.

In the 21st Century, that’s changed. Oil prices have climbed steadily. And the magnitude of the rise has been stunning. Instead of prices in the $20 per barrel range, recently we’ve seen oil prices in the $100 per barrel range.

The answer to the question “why” is a concept I called the “New Energy Equation.” I raised this idea over four years ago here in Washington, and today its implications are more acute than I expected.

There are four reasons that explain why prices have gone up, and why they are likely to remain relatively high.

First is the emergence of a growing middle class around the world which is driving energy demand. There are more than 6 billion people on earth. Everyone in this room is among the so called “Golden Billion,” enjoying a standard of living that many can only dream of.

At the other end of the scale are 2 billion people who have essentially nothing – no electricity, no safe water, living on less than $2/day. In the middle are billions who aspire to our standard of living. The good news is that each year many are beginning to achieve it. But the consequences of this trend are increasing demands for food, goods, services and commodities of all kinds.

Second, geopolitical dynamics continue to put upward pressure on prices. I don’t just mean conflict in the Middle East, although that certainly plays a role.

The situation is far more complicated.

We are seeing a resurgence of “resource nationalism” – the impulse by governments to tightly control domestic resources and exclude foreign investment. As prices increase, these geopolitical dynamics intensify.

Third, new supplies of oil resources are challenging to find and extract. Since we started using oil, most of the easy-to-reach, inexpensive supplies have been used. What’s left is harder to find … more difficult to drill … and more expensive to produce.

And fourth, we have deliberately constrained our own supply by placing limitations on domestic exploration and drilling. In the past 20 years, America’s production has fallen by nearly 4 million barrels of oil a day – this is the equivalent of taking a major oil producing country’s supply off the world market.

And over the same period, U.S. demand grew by more than 4 million barrels per day. Less supply, in a time of rising demand, means higher prices.

Last year global production barely exceeded demand. Spare capacity stood at just over 2 million barrels per day. World oil production barely increased.

Last year, 7 of the top 15 oil producing countries experienced flat to declining production compared to 2006. Among them were Mexico, Venezuela, Norway, and Nigeria.

Although in recent months the supply and demand balance has improved, there are accumulating risks to the supply of reliable, affordable energy in the future.

The fundamentals underlying the global energy market have changed. And they aren’t going to change back.

But there are solutions.

And the necessary actions we must take become apparent when people understand the realities of energy.

Let me provide you with some information about our energy system.

Americans are the largest consumers of energy in the world. And we have benefitted greatly from it. We generate about a quarter of the world’s gross domestic product and consume a quarter of the world’s energy.

We are becoming more efficient in our use of energy. Today, we use half of the energy per unit of GDP compared to 40 years ago.

So where does this energy come from?

Almost 40 percent is oil … about 23 percent each from natural gas and coal … 8 percent is generated from nuclear.

Renewables make up 7 percent … of that hydro power contributes about half.

Less than one half of one percent comes from wind; solar is even smaller than that.

We import about two-thirds of our oil, and 15 percent of our natural gas. All of the rest of our energy – coal, nuclear, renewables – is produced here at home.

Let me dispel one myth. The U.S. is not an energy weakling. Our country is an energy powerhouse.

America is the number 1 producer of nuclear power and ethanol….

We’re the number 2 producer of coal, natural gas and wind power …

And we’re the number 3 producer of oil.

When looking at the energy system from a global perspective … the picture is very similar. Like America, 85 percent of the global economy is powered by oil, natural gas and coal. And by 2030, experts predict we will need 50 percent more.

Now, I want to make one important point … and that point is “scale.” The scale of the global energy system is simply enormous … and destined to get much larger. Today the world consumes, from all energy sources, the equivalent of 10 million barrels of oil each and every hour. That’s about 120,000 gallons per second.

These are key facts about energy. And facts are the antidote to all the myths, half-truths and impossible contradictions, which too often pass for energy “thinking.”

For instance:

We want to decrease our reliance on foreign oil. But we restrict domestic production and call on OPEC to increase its production.

We want less carbon, but are fearful of nuclear power, one of the few scalable sources of energy that generates no carbon.

We want energy companies to invest their profits to provide new supplies, but we threaten to take away those profits through “windfall profit” taxes.

Time and time again, someone tells us that he or she has found the solution to all our problems. Some are purely phony … some are real … but not realistic.

Renewable energy is very real. We need it. It will be an essential part of the future I envision. But it’s not realistic to suppose that it can replace conventional energy in a timeframe that some suggest.

Our energy system has required massive investment over many decades. To supply the daily needs of 300 million people here in the U.S. with new energy sources requires time and money – lots of both! And it’s unrealistic to think major parts of it can be replaced in just a decade.

Now, I believe we will develop and implement new technologies that will move our economy toward a greater reliance on renewables and alternatives. But the development and application of new technology always takes time.

Look at the computer industry. It took about fifty years from the development of the silicon chip before computers were a widespread part of everyday life.

Will energy alternatives take that long? I hope not. But we need to be realistic.

Even with the rapid growth of renewables, experts estimate that over 80 percent of global energy consumed in 2030 will still come from oil, natural gas and coal.

These conventional energy sources will remain indispensible to meeting demand for decades to come, even as we pursue greater contributions from renewable energy.

The flipside to misplaced hope in alternatives is the notion that we can simply drill our way out of the problem.

We can’t. There aren’t enough domestic reserves … and what there are will take time to develop. But more access will help!

We need to get beyond simplistic solutions – slogans, really – and focus on our primary objective – energy security. The reality is that there are no silver bullets, no quick and easy answers.

Massive scale…. long lead times… tight spare capacity … growing demand … these are the realities we face.

There are solutions. And those solutions are not “either/ or,” …

It’s not a choice between “more drilling or more efficiency.”

It’s not a choice between coal or wind.

It’s not a choice between nuclear or solar.

We need it all!

We need greater efficiency and more renewables… we need nuclear and clean coal … we need wind and oil and natural gas.

Our path to energy security cannot rely on just one option – it must pursue many options.

Last year, the National Petroleum Council published a study titled “Facing the Hard Truths about Energy”.

It laid out five essential and urgent steps to achieve energy security Let me go through them:

First, moderate demand by increasing energy efficiency in all sectors of our economy.

Second, expand and diversify all U.S. domestic energy supplies.

Third, strengthen global and U.S. energy security through a renewed commitment to energy trade and investment.

Fourth, enhance science and engineering capabilities to meet these new challenges.

And fifth, address greenhouse gases through a transparent, predictable carbon policy.

Let me say a little bit more about this last point, because I know how much it is discussed today.

One of the largest contributors to greenhouse gas concentrations in the atmosphere is fossil fuels.

There is no doubt that carbon dioxide concentrations in the atmosphere have increased. And although there is uncertainty about the future impacts on climate, most people agree that it’s not a good idea to continue unrestricted hydrocarbon combustion. And I agree.

But how should we reduce emissions in a realistic timeframe given the scale of the energy system and the growing demand?

Once again, many proposals are being discussed.

Some talk about reducing emissions by 20 percent by 2020. It sounds good! 20 by 20! Others talk about reducing emissions by 50, 60 or even 70 percent by 2050.

Even with the best of intentions, it will be challenging. If we were to shutdown the entire global transportation system today – all cars, trucks, buses, trains, planes and ships, we would reduce greenhouse gas emissions by about 15 percent! That’s one-five percent.

And meaningful reductions will be expensive to achieve.

The International Energy Agency predicts that the real costs to meet greenhouse gas reduction targets will be $45 trillion dollars. That’s above and beyond the investments necessary to meet future energy demand. It’s a cost every one of us in this room needs to understand. Not just a cost on business, it is a cost on society. One that you and I will pay.

We are facing a moment of decision when it comes to our energy future.

And the time to act … is now.

I am confident we can take the right steps forward to achieve energy security. And I am not alone in my views.

The American public is now engaged on energy.

We’re embracing energy efficiency. We’re endorsing the need to develop more of our own supplies – renewables and conventional energy. And … we’re striving to use energy in a more environmentally responsible manner.

When you look at this momentum, it’s easy to see the new consensus building in America about energy.

That’s important because we need collaboration to achieve real progress.

Businesses and consumers need affordable energy. Young and old want renewable energy; Republicans and Democrats seek reduced emissions.

But we need leadership to achieve results.

This election – this moment of decision – is a time for the Presidential candidates to explain how they will lead.

Next week, when they meet at the University of Mississippi, the candidates must clarify their positions.

They need to reconcile campaign promises with tangible actions:

What are their plans for making our economy more energy efficient?
Do they have concrete actions to grow all forms of domestic energy – nuclear … natural gas … renewables … oil … and coal?

How will they de-carbonize the world’s largest economy without undermining energy security or threatening our prosperity?
What’s the cost … and who will pay … for their proposed plans?

We need to hear the debate. And we all need to judge the integrity of their proposals.

On the eve of the Civil War, Abraham Lincoln observed: “Public sentiment is everything. With public sentiment, nothing can fail; without it, nothing can succeed.”

Today, public sentiment supports action on energy policy.

That action should lead to a future of greater energy efficiency … enhanced supplies of all forms of energy … and reduced emissions.

While I am concerned about the urgency of the situation today, I’m also optimistic.

I believe that, by the time my grandchildren are my age, our energy system will look much different. But we must get started now.

Our standard of living and our nation’s security will be shaped by the energy policy of our next President.

Our new consensus on energy has a common goal – for America to be secure. We need to work together to achieve it.

Thank you.

30 thoughts on “David O’Reilly Speech on Energy Policy”

  1. I agree with most of what he said. But he still seems to imply that our problems are due to domestic drilling restrictions. I don’t care if we drill every square foot, it doesn’t get to the heart of the problem.

    You can not go on increasing the population and increasing the use of finite resources forever. I suppose it’s not human nature to plan for this type of thing. We’ll just keep trying to grow until it all comes crashing down.

  2. We don’t HAVE to rely on fossil fuels for 80% of our energy needs in 2030 if we choose not to. There are inexhaustable sources of cheap energy just waiting to be tapped. Robert’s spoken of a need for a Manhattan style project for solar power. Space based solar power could power the earth for at least several billion years. Hot Rock technology has the potential to do the same. The helium-3 contained in the top 4 inches of the moon’s soil could conceivably power the planet for 1000 years with clean nuclear power. If the government poured some serious money into each of those efforts,one of them is bound to pay off. With a cheap,inexhaustable energy source,the world can be powered by the grid. Wireless technology will allow our vehicles to get power directly from the grid within the next 15 years. Build it and they will come…

  3. I thought O’Reilly was very clear that drilling alone is not the solution to sustained future energy supply in the US. The US domestic resource potential is just not there. He did favor increased exploration in the US, but I thought that was just one of the many points he made.

    Maury, you may be right that we could move off fossil fuels sooner with greater effort…. but we can’t mandate science. Even with huge investments in time and expense, those alternatives may not come into play as soon as we’d like. That doesn’t mean we shouldn’t make the investment.

    I think this is O’Reilly’s point. We have to cover all bases. including fossil fuels. I believe it would be a huge risk, as a matter of policy, to ramp down on fossil fuel exploration, production, and research, on the assumption that something else will work in some arbitrary time frame.

    A goal is one thing. Mandating a switch to alternative energy sources is another. Such a mandate might be advisable, even if unit costs are significantly higher, at some point in the future, but I think the specific technologies would have to be proven and scalable before making such a far-reaching policy decision.

  4. I agree with everything you’re saying armchair261. Except the part about mandating science. The Manhattan Project showed we can do anything we put our minds to. It’s just a matter of resources and the will. The moon landing is another example of what we can do with the right motivation. And we can’t count on someone else doing it either. If the U.S. doesn’t solve this problem,the world will most likely be stuck like Chuck 20 years from now. Maybe sooner. That “lucky billion” he spoke of will be out of luck,and the other 5 billion will fare even worse. To me,our choice is the brightest possible future for the planet or the darkest. I don’t see much in between. We either act decisively….and soon…or humanity takes a long,inexorable dive off the proverbial cliff.

  5. I guess we’ll just have to disagree on this point Maury. I think you’re right on some types of problems (those with more of an engineering slant to them). Others may be solvable but take far longer than we think (that devil in the details). Still another group may be solvable, but require technologies that themselves need to be developed. Still others may be unsolvable.

    If for example, Queen Victoria went wild over Babbage’s difference engine, and mandated a version that could calculate a thousand times faster but fit on a desk, she wouldn’t have seen the result in her lifetime. It didn’t come until the development of completely new and unsuspected technologies over a century later.

    If we mandated anti-gravity devices by 2100, we might find after trillions of dollars that it’s just not possible to do.

    I suspect that many of these alternative energy technologies might fall in my category 2 above. A lot will be in category 1.

  6. That’s just it armchair. We don’t need huge advances to do any of these things. We already know solar based energy can provide the power. We have the technology. It’s just a matter of getting it done. We know geothermal can provide more energy than we’ll ever need. We can drill deep enough. Making a closed loop shouldn’t be 25th century science. But,asking a handful of people to make it happen with a few million measly bucks could take decades. We don’t have that kind of time.

  7. My bad. I meant to say space based solar power.

    “The project will work by storing sunlight-based energy in plates made from a sintered powder of metals, such as chromium and neodymium. When weak laser light is shined onto the plate, the stored energy is transferred to the laser where its strength is amplified by a factor of four. In one test, a 0.5-watt laser was amplified to 180-watts by the plates. Scientists have thus far been able to garner 40-percent of the solar energy produced, and they hope to have a system ready for satellite mounting by 2030.

    The project has another clear advantage over terrestrial solar projects in that it will not be subject to cloudy conditions or nighttime darkness. The device will be able to collect solar power 24 hours a day. By improving the solar-to-laser efficiency and having solar collectors from 100 to 200 meters long, they’ll be able to match a 1-gigawatt nuclear power plant.”


    2030 is too late imo. By then,we’ll need 50% more fossil fuel than we do now. That ain’t gonna happen.

  8. “A single kilometer-wide band of geosynchronous Earth orbit experiences enough solar flux in one year to nearly equal the amount of energy contained within all known recoverable conventional oil reserves on Earth today,” the report said.

    “The country that takes the lead on space solar power will be the energy exporting country for the entire planet for the next few hundred years,”


  9. I concur that the U.S. has to move forcefully to energy independence, and that is is doable, not a pipe dream.
    The fact that oil is concentrated in thug states is a reality. They do not like us.
    That said, I do ot think it is a crisis. Consider this: If U.S. drivers reduce miles by 10 percent, and drive cars that are just 10 percent more efficient, we cut our gasoline use by 20 percent.
    That change alone would throw nearly 3 mbd onto world markets.
    That said, I would like to see us move to EVs. If the lithium batteries work, that should be a national policy, achieved through tax breaks and gasoline taxes. Our grid can be supplemented by nukes, wind, solar, geothermal.
    The minor stuff is whether to drill or not. Go ahead and drill, if you can get the R-party to say okay in Florida, which you will not.
    The move to EVs would result in declining demand for oil every year, for decades on end, as ICEs were retired.
    The $700 billion a year in oil savings recycled back into our own economy would not hurt either.
    Really is there anything to argue about?

  10. So where does this energy come from?
    Almost 40 percent is oil……
    Less than one half of one percent comes from wind;

    A little misleading. I have an old DOE US energy consumption chart which shows how primary energy (generally heat) provides useful energy. Oil does provide 40% of primary energy but only 15% of useful energy. And while wind may provide less than half a percent now, it doubles every three years (or faster). At this rate wind will surpass oil in 15 years.

    The problem is not resource — wind is plentiful and much cheaper than oil. The problem is our cars are hardwired to burn only oil. Change that and oil loses its “specialness” which allows thug states to charge a 1000% premium. Voila – energy security!

    Overall this is a good speech and Mr. O’Reilly is 100% correct that we have plenty of domestic energy. The sooner as we make Putin, Hugo, Ahmedinejad, et al compete against South Dakota wind, Texas nukes, Montana coal, etc. the better. The law of supply and demand will rein them in much more effectively than any diplomatic initiative ever could.

  11. I think a lot of these technologies will be feasible, maury, and many already are. Technically speaking.

    But to really succeed, each new technology has to pass three hurdles: 1) it needs to produce significantly more energy than it consumes in the production, 2) it has to be affordable, 3) someone has to be able to make a profit on it.

    Otherwise I don’t think they’re going to be sustainable. They’ll be cool science projects, or else emergency energy rations.

  12. But to really succeed, each new technology has to pass three hurdles: 1) it needs to produce significantly more energy than it consumes in the production, 2) it has to be affordable, 3) someone has to be able to make a profit on it.

    Yes. Also:

    4) it must scale to 1000 TWh

    Wind qualifies. Solar might soon. Nuclear can do it if politics allow. Geothermal needs hot rocks tech which is still unproven. But clean, domestic and renewable electricity provide zero energy security until we build cars which can use it.

  13. Agreed on #4.
    But I should have also added “without government subsidy” to #3.
    Would most current wind and solar installations in the US be profitable without their tax advantaged status?

  14. armchair261:3) someone has to be able to make a profit on it.

    I disagree – I live in Nebraska :
    “Nebraska is the only state that generates electricity entirely by publicly-owned power systems. As of May, 2008, the statewide average price for all sectors from all electric utilities is the fifth-lowest rate in the country, based on the latest federal figures.”

    While this CAN be done, the real question is ‘WILL it be done ?’


  15. “Otherwise I don’t think they’re going to be sustainable. They’ll be cool science projects, or else emergency energy rations.”

    Let me give you an example where it’d be economical then kingofkaty. From Mr. O’Reilly’s speech….

    “The International Energy Agency predicts that the real costs to meet greenhouse gas reduction targets will be $45 trillion dollars.”

    I bet we could put enough solar arrays around the earth to meet our energy needs,AND cut the sun’s rays the required 2% to ameliorate the effects of global warming for a fraction of that $45 trillion. We could probably do it for less than the $700B Bush just asked Congress for to bail out wall street. And it wouldn’t be throwing money away either. The electricity could be sold on the wholesale market.

  16. If we ever get beyond the “pie in the sky” energy fantasies from Pelosi and her ilk, and get down to earth with what we actually have right now and what we need right now, we may get past the fossil fuel bottleneck.

    Unfortunately, even commenters here at this fine blog tend to dwell too much on wishful thinking, and too little on easily quantified supply and demand issues.

    For example to claim that a source of power supplying about 0.5% of total will easily scale to a baseline mainstay of power is fantasy. Likewise to say we have the technology to provide all the power we need from space, is fantasy. If you have the launch facilities and the hardware for space-based and ground-based infrastructure, then why are you holding back. Get to it.

    Using the mantra “Manhattan Project” is just repeating magic spells, hoping the magic still works. You are comparing apples to oranges.

    The days of WWII style cooperation between science, industry, the military, and civilian governments are long past. That incredible integration rested on powerful personalities, when all we have today are Oprahs and Obamas.

    Alyssa del Fin

  17. “Likewise to say we have the technology to provide all the power we need from space, is fantasy.”

    NASA said we had the technology way back in the 70’s. Maybe it got locked away in an archive somewhere? The Pentagon doesn’t think it’s fantasy. They’re trying to make it happen.

    “Using the mantra “Manhattan Project” is just repeating magic spells, hoping the magic still works.”

    Yeah,that was some serious hocus pocus they pulled off. They just don’t make wizards like we had in the good ole days. Guess we should all just buy a horse to get around and light farts to read at night.

  18. Of course anyone living in a dry desert area such as the US Southwest could live off the grid using solar power, as long as they are willing to cut back enough on electrical consumption. It takes discipline, and helps to have a well-insulated and situated house, but it is easily done by anyone who wants it badly enough.

    “Guess we should all just buy a horse to get around and light farts to read at night.”

    Or, you could light an equivalent, such as any one of your comments.

  19. anonymous from Nebraska-

    I wouldn’t make a distinction on whether a private or public entity is making the profit. Is the state of Nebraska coming out ahead in this deal? Or is it coming at a net cost to Nebraskans relative to other alternatives?

    The Spanish and German solar industries are heavily subsidized, and voters are paying for it. Voters are getting restless, and it’s not clear whether those subsidies will be extended. If the public is paying a premium for energy relative to an easily available alternative, then I think it’s an unstable situation. Would solar survive in Spain if oil dropped to $20? What if the German economy was really suffering and politicians were looking for sources of revenue?

  20. Ah, but the German economy *isn’t* suffering: it’s growing rather nicely (for a developed country) and unemployment has nearly matched it’s all-time low; under 5% I believe. The government has it’s budget issues but one significant source of revenue is Germany’s well-known, rather stiff tax on petroleum…which has been a significant driver of the type of energy efficiency and discipline in use of resources often discussed in this forum.

    In addition, (I’ve mentioned this before but I feel compelled to repeat it until it sinks in) Germany is now installing new generation capacity equivalent to one nuclear reactor per year…from solar power alone…in a country with solar radiation levels matching ALASKA. Sure the sun doesn’t shine at night, but the wind does blow and Germany is still number 1 in cumulative installed wind capacity.

    But good heavens voters are paying for it! Well of course they are, who else? And if Germany (or the USA or any other country) gives up on renewables because they aren’t cheaper than (heavily subsidized) fossil fuels, consumers and voters will be better off in 5 years? No, not a chance.

    Folks, Maury is right…and we don’t even need to push solar into space (yet). Solar, Wind and Geothermal can already make an enormous contribution to energy independence and security. EVs will provide the missing component: energy storage.

    We need to push renewables and EVs heavily and provide them with an environment where predictable, reasonable financial returns are possible. And if that means another 10-20 years of subsidies, well tough cookies. Do we want energy security and independence or don’t we?

  21. The reference to the German economy was hypothetical.

    Keep in mind that renewables only account for about 1/16 of German energy supply. To get voters to pony up for a fully scaled up renewable grid would be an entirely different proposition. I think the renewables would have to be close to cost competitive to fossil fuels to pull that off.

    A quote from Physics Today:

    “Now, though, with so many solar panels on so many rooftops, critics say Germany has too much of a good thing — even in a time of record oil prices. Conservative lawmakers, in particular, want to pare back generous government incentives that support solar development. They say solar generation is growing so fast that it threatens to overburden consumers with high electricity bills.”

    Or this from Greentech Media.com:

    “And therein lies the danger: Generous subsidies tend to be well used and end up costing more than expected.

    Germany is a good example of the dangers of success.

    The country offered a feed-in tariff that paid a higher rate for the generation of renewables, including solar power, making it cheaper to own solar power than to buy conventional electricity.

    The high cost to the government led to a backlash, with politicians questioning why the solar industry still needed such high subsidies, and the tariff has declined faster than expected – although not as fast as many had feared (see Solar Prices Set in Germany).

    “Germany really only needed to get [solar] to price parity, and it went over that,” Pernick said. “The incentive has got to be there for the solar manufacturers and the value chain to drive down pricing. If a subsidy is too large, it has a reverse effect.”

    Spain has seen another case of successful-subsidy backlash.”

    Don’t get me wrong. I support subsidies for alternative energies, it’s a goal we have no choice but to follow. I also think a higher gas tax like Europe’s would be a good thing for the US, although we have to keep in mind that transportation options are better in Europe, as unlike the younger US, cities there weren’t built with internal combustion engines in mind. I’m just very skeptical that renewables will work on a large scale unless they are, or are very close to being, cost competitive.

    Finally, I don’t have figures on oil industry subsidies, but my guess is that they are a lot less important than most people imagine (unless you are counting indirect costs like military presence in the Middle East, for example). Do you have some references there?

  22. But I should have also added “without government subsidy” to #3.

    This would eliminate all energy sources. I’m OK with eliminating all subsidies, including free carbon permits. You can use as much coal, NG, petroleum, etc. as you want as long as you return the carbon back into permanent underground storage. How would that affect your #3?

    Would most current wind and solar installations in the US be profitable without their tax advantaged status?

    Wind would. The wind tax credit is 1.8 cents/kWh for 10 years. Since wind turbines stay in place over 30 years, it works out to about half a penny per kWh. It's peanuts. Of course if you commit billions and the credit expires at yeared you certainly want to install in December instead of January.

    Germany is different. German feed-in tariff for solar is well over 50 cents per kWh. Wind is lower but still not cheap. If the US converted every kWh to renewable at a half penny subsidy the annual cost would be $20b. Compare that with $500b+ we pay to import oil. Germany is looking at a much bigger hit. Of course Germany's plan is to scale down the subsidy over time as economies of scale kick in.

    Solar is not generally cost-effective today. Raw cost is around 20 cents/kWh vs. 5-6 cents for wind. But note that fuel cost alone for single-cycle natgas powerplants was recently 13 cents/kWh. Add O&M and depreciation and we were above 20 cents for a while. So solar is not far from competing purely on cost for summer daytime power in the US Southwest. Promised cost reductions from thin-film PV, CPV and new solar thermal technology could tip the scales.

  23. “This would eliminate all energy sources.”

    OK I was being a little fuzzy there…. I meant that the technology should be able to thrive without selective government tax advantage, i.e. in a level playing field. But then as your carbon disposal comment shows, it might get tricky to define just what is meant by “playing field.”

    From your description, it sounds as if wind would be marginally profitable today without subsidies. I guess the better question would be, would a wind installation typically have positive NPV without subsidy?

  24. How many cities can rely upon wind as baseload power? Or solar? Other renewables such as biomass and geothermal offer better promise, but with wind and solar you need to install a generating capacity of 4 times the load or more–assuming reliable utility scale storage, which doesn’t exist yet. In what world will that approach ever be economical?

    This “if you subsidize it, they will come” mentality is another way to enact “affirmative action” for wind and solar. It may not be ready for another 20 years, but let’s pretend it’s ready today, and pay out of pocket accordingly.

    That type of “affirmative action financing” is what helped create the subprime mortgage debacle spreading out of Wall Street. Let’s ignore basic economics and act as if wishful thinking is all we need, eh?

  25. A couple of additional things are worth noting regarding Germany’s experience with feed-in-tariffs:

    1. As critics often note, Germany doesn’t get a lot of sunshine. In fact California gets on average more then twice as much sunshine as Germany. That means the system you think (after converting Euros to Dollars) costs 50 cents per kWh is really costing only *25* cents per kWh, if you are in an area of Calfornia getting at least 2000 kWh/m2 of solar radiation over the course of the year…which is most of the state. Grid Parity for solar is a lot closer than most people think. Investment banks like LBBW and Goldman Sachs are predicting grid parity in major developed countries by 2014 or sooner. This is helped by economies of scale and incentives to drive down cost (the central effect and feature of Germany’s feed-in tariff) and rising energy prices.

    2. The “cost to taxpayers” in Germany for the scale up of solar power is about 2,5 Euros per house hold per month…about the cost of a loaf of bread. I consider that a reasonable fee for driving up energy security and cleaning up the energy mix. What do you suppose is the monthly “fee per US household” for the war in Iraq? Don’t forget interest on the national deficit.

    3. The reaction of conservative politicians against the “high cost” of Germany’s feed-in tariff is pure political pandering and positioning. A substantial portion of the German house of representatives receive “consulting” fees from Germany’s major utilities. And those utilities are frightened of renewables. Not because of any ill-effects on the grid (Denmark has surpassed 20% wind-share in their energy supply and the grid still functions just fine) but because the utilities feel the threat to their hegemony and business models. I wish they’d stop trying to hinder the train and board it instead. It’s leaving the station, like it or not.

    3. Another reason conservative German politicians sometimes try to scale back feed-in tariffs is that they want any funds for clean energy to go to nuclear, which Germany has pledged to exit within the next 20 years. If the installation of renewables in Germany keeps accelerating as it has in recent years, nuclear will be a non-issue.

    4. This brings me (finally) to a direct criticism of O’Reilly’s speech. To say that nuclear power is carbon free is misleading in the extreme. Uranium rods don’t grow on trees. To get a fissionable rod, one must mine large amounts of uranium, transport them, refine them, and process them to rods. When the rods are exhausted there’s still the issue of encapsulating the waste, transporting it, storing it and guarding it from terrorists until it becomes non hazardous (many decades at the very least). All of these steps are dirty, energy-intensive, and toxic to boot. And just like oil most of the “easy” big deposits of uranium have already been harvested to drive nuclear weapons buildup during the cold war. Uranium is still all over the place (even sea water) but is increasingly diffused and of lesser quality than in the big deposits. As a result nuclear power (the whole chain) becomes more carbon intensive per kWh every year. At some point, it will exceed the emissions of natural gas-fired power plants.

  26. al fin, you are right to raise the issue of base-load power but please consider:

    1. Energy mix is just that: a mix. If solar and wind can become cost competitive with peak power, that’s a a good enough reason to put them in them in the mix, particularly when you consider that peak power is fired not only by natural gas, but also by coal and light diesel. Other renewables like hydro and biogas (waste-to-fuel), wave power, and geothermal are suitable for base-load coverage, though they certainly need to be scaled up to match demand.

    2. Obviously the scale up isn’t going to happen over night. It must be an orderly transition; like a long-distance race. Set your sites (e.g. a high percentage of renewables in the future mix) get into your stride (stable, reliable financial returns, steadily declining subsidies) and then stick to it until you reach the finish line. Whining about how far the finish line is or waiting for technology to deliver a better set of running shoes won’t get us any closer to the finish line. On the contrary, waiting may make it that much harder because we have to run that much faster to make up for lost time.

  27. Having read many LCA on electricity production, nuclear is ‘essentially’ ghg emission free. Furthermore, nuclear is much better in reality than the assumptions on paper. Wind and solar is about the same as nukes on paper but the reality is much worse since wind and solar does not work very well. They break too soon and stop making electricity.

    My interest in LCA is mainly in biomass. The progress in improving energy production while reducing ghg is impressive.

  28. KitP, if you’ve read an LCA on nuclear power that:
    – includes the entire nuclear power chain, from mining and refining through waste disposal and (important! decommissioning and disposal of the power plant itself)
    – has survived peer review,
    – compares these costs to *todays* solar panels

    then please post the link, because I’d really love to read that document.

    To my knowledge, very few LCA documents dealing with nuclear power even consider uranium mining, let alone the cost of power plant decommissioning and disposal. When solar power is analyzed, those costs are nearly always factored in; yet another example of the uneven playing field between renewables and nuclear/fossil fuels. When you buy a solar power plant based on modules from First Solar (US-based technology- and low-cost leader!) the price of the modules includes disposal and recycling of the panels. Did I mention they are the low-cost leader in solar power? This is the standard that nuclear power must meet to substantiate it’s ever-repeated claim to cleanliness.

Comments are closed.