CHE Fall 2014 US Energy Policy.pdf

8/9/2019 CHE Fall 2014 US Energy Policy.pdf

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Energy Policy

Energy Technology & Policy

Fred C. Beach, Ph.D.

CHE 359/384 & EER 396, Fall 2014


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U.S. Energy Use

11/3/14 2


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The mission of the Department of Energy isnot wholly dedicated to energy

Primary national labs for energy research National Energy Technology Lab (NETL)

National Renewable Energy Lab (NREL)

Weapons/national labs that also conduct energy research Argonne National Lab

Brookhaven National Laboratory

Idaho National Laboratory

Los Alamos

Lawrence Livermore National Laboratory

Pacific Northwest National Labs

Sandia National Labs

Oak Ridge National Laboratory

Fermi National Accelerator Laboratory

Others!


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The U.S. has many government institutionsthat affect energy

Federal

Department of Energy

EIA = Energy Information Administration

Department of the Interior

Environmental Protection Agency US Geological Survey

US Department of Agriculture

Department of Defense

States

Texas Railroad Commission

State Energy Conservation Office

Texas Commission on Environmental Quality

Local: municipal utilities, etc.


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There are also international Institutions

IEA = International Energy Agency

just OECD countries

OECD = Organization for Economic Cooperation andDevelopment

the fully industrialized countries

Does NOT include China or India

has petroleum reserve policies, etc.

IAEA = International Atomic Energy Agency

UN

NATO


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There Are Many Non-GovernmentalStakeholders That Affect Energy Policy

Industry Energy industry

Finance industry

Auto, aviation, manufacturing industries

Labor unions

Environmental and Social Justice advocacy

groups


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Consequently, U.S. Energy Policy IsIncoherent

Inputs:

Many actors

Many stakeholders

Geographic diversity of environmental impacts Geographic diversity of energy resources

Result: no single, robust, coherent energy policy


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Actually, maybe we do have a coherentenergy policy!.


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Executive & Legislative Branches SetEnergy Policy

President Give State of the Union speeches to set priorities

Issue budget requests to emphasize priorities

Set budget directions

Congress Authorize and allocate money to be spent

Set rules


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Major Energy Related Legislation

Clean Air Act (1970)

Energy Policy and Conservation Act (1975) extends oil price controls into 1979

mandates automobile fuel economy standards,

authorizes creation of a strategic petroleum reserve

(SPR) Department of Energy Organization Act (1977)

Powerplant and Industrial Fuel Use Act (FUA)(1978): prohibited the use of natural gas inpower plants

Led to the creation of 80 GW of coal plants


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Major Energy Related Legislation, Contd

Clean Air Act Amendments (CAA1990)

Energy Policy Act of 1992 (EPACT 1992)

Energy Policy Act of 2005 (EPACT 2005)

Energy Independence and Security Act of2007 (EISA 2007)

Energy Improvement and Extension Act of2008 (EIEA 2008)


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EPACT 2005 became law on August 8, 2005 Katrina struck land August 29, 2005

Removed 1.4 MMBD of oil from the market

Rita struck one month later Congressman Joe Barton (R-Ennis), main sponsor

John McCain referred to it as the No Lobbyist Left Behind bill.

EPACT 200 i h i i f


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EPACT 2005 contains authorization for manytax cuts or credits

$4.3 Billion for nuclear power loan guarantees $2.8 billion for fossil fuel production

$2.7 billion to extend the renewable electricityproduction credit

$1.6 billion in tax incentives for investments inclean coal facilities

$1.3 billion for conservation and energyefficiency

$1.3 billion for alternative motor vehicles andfuels (ethanol, methane, liquefied natural gas,propane)


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EPACT 2005 Changes DST in 2007

EPACT 2005 changed the start and end dates forDaylight Saving Time (DST) in 2007

not clear any energy was saved (probably not)

Or, was it the candy companies that wanted more

light on Halloween for more trick-or-treaters todrive up candy sales!.?


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Energy Independence and Security Act of2007 (EISA 2007) Has Two Main Provisions

Signed into law December 19, 2007

TITLE I: Energy Security Through Improved Vehicle Fuel Economy

Raises CAFE standards to 35 mpg by 2020

Obama used executive order to change the standard to

35.5 mpg by 2016 (2009)

54.5 mpg by 2025 (2011)

TITLE II: Energy Security Through Increased Production Of Biofuels

Establishes renewable fuels standard (RFS) of 36 billion gallons ofbiofuels by 2022

15 Bgal/yr from corn starch

21 Bgal/yr from advanced biofuels

16 Bgal/yr for cellulosic biofuels

1 Bgal/yr of biomass-based diesel

4 Bgal/yr are undetermined??


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Major Energy Related Legislation: EnergyImprovement and Extension Act (EIEA 2008)

Extended the PTC in-service date for certain wind andrefined coal facilities until 12/31/09

Expanded PTC to include marine and hydrokinetic

renewable energy facilities placed in service on or before12/31/11

Extended the ITC placed-in-service sunset date for solar,fuel cell, and microturbine property until 12/31/16

Expanded the ITC to include the tax credit to small wind-

energy systems and geothermal heat pumps

M j E R l t d L i l ti


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Major Energy Related Legislation:American Recovery and Reinvestment Act

(ARRA) of 2009

More than $60 billion in clean energy investments

Emphasis on shovel ready

$11 B for smart grid development (40 MM smart meters).

$5 B for low-income home weatherization projects.

$4.5 B to green federal buildings & cut govt energy bill.

$6.3 B for state & local renewable energy and energy

efficiency.

$600 M in green job training programs.

$2 B in grants for next generation batteries/energy storage.

Source: www.whitehouse.gov


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Different Types of Policy Support


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American policymakers have several tools toaffect energy production and use

Access (or not) to resources: oil, gas, shale, wind, hydro, etc.

Environmental constraints and/or performance standards

Strategic Petroleum Reserve (SPR)

market purists do not like SPR (its market meddling)

multi-country management of reserves through IEA Market mechanisms:

Information

Energy guides (for appliances!)

Energy Star ratings

Free/cheap energy audits of homes!

Drive prices lower/higher (e.g. carbon taxes, subsidies)

Subsidies


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Energy Subsidies Are Not New

1916: Tax incentives to drill for oil

1926: Depletion allowance to encourage oil andgas exploration

1930s: Federal financing of hydroelectric dams

Virtually all U.S. energy resources have receivedor currently receive subsidies.

Source: Texas Comptrollerhttp://www.window.state.tx.us/specialrpt/energy/subsidies/


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There Are Several Forms of Energy Subsidies

Direct Expenditures to Producers or Consumers:

Rebates for efficient appliances, grants, etc. Tax Expenditures: reduce the tax liability for

specified actions on production, consumption orconservation

Research and Development: affects futureconditions

Loans and Loan Guarantees: for certain

technologies that have trouble obtainingconventional financing

Electricity Programs: Tennessee Valley Authority(TVA), Bonneville Power Administration (BPSA),

etc.

E S b idi H D bl d B


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Energy Subsidies Have Doubled Between2007 and 2010

Source: EIA, 2011

Fuels production had two big winners

Biofuels

Wind

Conservation and end-use were the other bigwinners

E S b idi H D bl d B t


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Energy Subsidies Have Doubled Between2007 and 2010

Subsidy Category FY2007[Billions of

2010 dollars]

FY2010[Billions of

2010 dollars]

T&D $1.1 $1.0

Electric Fuels &Technologies

$6.6 $10.9

Non Electric Fuels $6.2 $10.4

Conservation, End Useand LIHEAP

$4.0 $14.8

Total $17.9 $37.2

LIHEAP = Low Income Home Energy Assistance ProgramSource: EIA, 2011

Most Major Fuels and Technologies Receive


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Most Major Fuels and Technologies ReceiveSignificant Subsidies

Fuel Direct Tax R&D Loans &

Guarantees

Electricity Total

Coal $0.04 $0.6 $0.7 $0 $.09 $1.4

NatGas $0 $2.7 $0.1 $0 $.06 $2.8

Nuclear $0 $0.9 $1.2 $0.3 $0.2 $2.5

Renewables $4.7 $8.2 $1.4 $0.3 $0.1 $14.7

Smart Grid $0.5 $0.06 $0.2 $0 $0.2 $1.0

Conservation $3.4 $3.2 $0 $0 $0 $6.6

End-Use $5.7 $0.7 $0.8 $1.0 $0 $8.2

Total $14.3 $16.3 $4.4 $1.6 $0.6 $37.2

All values in Billions of FY2010 dollarsSource: EIA, 2011

M t f th I d S b idi W


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Most of the Increased Subsidies WereTemporary In Response to the Economic

Crisis

Two major pieces of legislation withsubsidies:

Energy Improvement and Extension Act (EIEA) of

2008 American Recovery and Reinvestment Act of 2009

(ARRA)

Designed to phase-out over time

ARRA Was Responsible for a Significant


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ARRA Was Responsible for a SignificantPortion of Subsidies

Fuel Total ARRA Portion

Coal $1.4 $0.1

NatGas $2.8 $0

Nuclear $2.5 $0.1

Renewables $14.7 $6.2

Smart Grid $1.0 $0.5

Conservation $6.6 $6.3

End-Use $8.2 $1.5

Total $37.2 $14.8


Renewables (and Conservation) Are the Main


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Renewables (and Conservation) Are the MainBeneficiaries of Recent Subsidies

Fuel Direct Tax R&D Loans &

Guarantees

Electricity Total

Biomass $0.1 $0.5 $0.5 $0 $0 $1.1

Geothermal $0.2 $0 $0.1 $0 $0 $0.3

Hydro $0 $0 $0.1 $0 $0.1 $0.2

Solar $0.5 $0.1 $0.3 $0.2 $0 $1.1

Wind $3.6 $1.2 $0.2 $0.1 $0 $5.0

Other $0.1 $0 $0.2 $0 $0 $0.3

Biofuels $0.3 $6.3 $0 $0 $0 $6.6

Total $.7 $8.2 $1.4 $0.3 $0.1 $14.7


In 2006 Fossil Fuels Received Most of the


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In 2006, Fossil Fuels Received Most of theSubsidies

Subsidies increased for non-fossil fuelsbetween 2006 and 2010, while subsidiesfor fossil fuels roughly stayed the same


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Many Subsidies Were NOT Included In The Tally

Limited Liability for nuclear power

Price Anderson Act

Capped at $12B per facility

Tax credits for manufacturing Total for 2010 was $13B

Oil and gas earned ~1/4 of those credits

Depreciated acceleration (for all types)

Source: EIA, 2011


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Many Subsidies Were NOT Included In TheTally, Contd

Market externalities

National security costs (for oil)

Environmental impacts (for fossil fuels)

Indirect expenditures Highways (for oil)

Below-market oil royalties (oil, coal)

Below-market forest service timber sales (biomass)

Certain trust funds (for pipelines, waste disposal,etc.)

Source: EIA, 2011


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Largest Subsidies For Particular Fuels CanBe Determined Multiple Ways

Total subsidy this year: Nuclear, wind, andethanol

Largest prior subsidy: Hydroelectric dams

Total subsidy integrated over time: Fossil fuels

Normalized subsidy this year per kWh or BTU ofenergy produced this year: Solar, wind and

biofuels are highest


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Largest Subsidies For Particular Fuels CanBe Determined Multiple Ways, Contd

Subsidy as fraction of total expenditures on thatfuel and technology: Nuclear and ethanol

Indirect Subsidy: Oil

Waived Externality Costs for national security: Oil

Waived externality costs for environmentalimpacts: fossil fuels


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Are The Subsidies and Other Policy LeversWorking?

Item 2007 2010

Total Energy subsidies [Billions] $17.9 $37.2

Energy consumption [Quads] 101 98

Energy production [Quads] 71.4 75.0

Production is up, and consumption is down


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The State of Texas Also Provides EnergySubsidies, Mostly for Oil and Gas

In 2006, Texas provided $1.4B in energy subsidies Of that, 99.6% was for oil & gas

That subsidy was 1.5% of the $95B industry

High Cost Gas tax exemption was worth ~$1B in2006

Property tax abatements


Th St t f T P id S ll


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The State of Texas Provides SmallerSubsidies to Renewables

Indirect support for wind & solar via transmissionlines to CREZ (Competitive Renewable EnergyZone) locations

Total is ~$8B spread out over several years and several

energy forms Typically no direct support for wind, solar, etc.

Some local tax abatements

Indirect support via a Renewable Portfolio Standard (RPS)

that required renewable capacity to be built Ongoing discussions of a 0.5 GW solar mandate



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The City of Austin Also Provides Subsidies

Free energy audits

Home weatherization assistance

Rebates for rooftop solar panels

Low- or zero-interest loans for energy-efficientappliances such as air conditioners


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Federal Policy Details


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Federal Financial Incentives for ProducingPower From Renewables

Production Tax Credit (PTC)

Investment Tax Credit (ITC)

Cash Grant from the U.S. Treasury in lieu of ITC (New incentive)


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The Production Tax Credit (PTC)

Started with EPACT 1992 : A 10-yr inflation-adjusted tax credit at 1.5 /kWh

Depends on how much electricity isproduced

Source: http://dsireusa.org/incentives/incentive.cfm?Incentive_Code=US13F

Solar is not included on this list!!!

Resource Type In-Service Deadline PTC

Wind (extended as part of fiscal cliff) 31-Dec-12 2.2/kWhClosed-Loop Biomass 31-Dec-13 2.2/kWh

Open-Loop Biomass 31-Dec-13 1.1/kWh

Geothermal Energy 31-Dec-13 2.2/kWh

Landfill Gas 31-Dec-13 1.1/kWh

Municipal Solid Waste 31-Dec-13 1.1/kWhQualified Hydroelectric 31-Dec-13 1.1/kWh

Marine and Hydrokinetic (150 kW or larger) 31-Dec-13 1.1/kWh


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Production Tax Credits (PTCs) Are Big Driversof Renewable Energy

Allowed to expire in2000, 2002, 2004

Renewed at end of 2008

Extended by ARRA 2009

Source: AWEA


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The PTC Lowers the Cost of Production

It does not lower the PRICE of power, it lowers the COST

It provides an income tax credit to project owners, whichsupplements the projects other two revenue streams:

Renewable Energy Credits due to Renewable Portfolio

Standards Selling the power to a utility or in the open market

Example: Cash-rich utility owes $100M in taxes

Buys wind farms that generate 1 billion kWh annually

$22M tax credit; they now owe only $78M in taxes Cash-rich, tax-burdened companies LOVE wind

BUT, economic crisis dissolved many tax liabilities

Investment Tax Credit (ITC) For Commercial


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Investment Tax Credit (ITC) For Commercial,Industrial, & Utility Sectors

Solar, fuel cells, and small wind: 30% of qualifying costs

was 10% for solar prior to 2005

Geothermal, microturbine, and CHP: 10% of qualifying costs

Must be in place by the end of 2016, except geothermal (noexpiration), and the solar credit reverts to 10% instead ofexpiring at the end of 2016 (unless it is renewed)

Realized in the year in which the project begins commercialoperations, but vests linearly over a 5-year period

Depends on how much money is spent (in contrast with PTC)

Because Of Economic Downturn Far Fewer


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Because Of Economic Downturn, Far FewerCompanies Have Tax Liabilities That Could

Benefit From The PTC And ITC

ARRA allows a project owner to receive cash grant instead ofITC

Project must be in service during 2009 or 2010 or, if

construction began in 2009 or 2010, before January 1, 2013.

Not available to any governmental agency, tax-exempt entity,or rural electric cooperative

NOT for LCRA, Austin Energy, CPS, Pedernales ElectricCoop, or Bluebonnet Electric Coop


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Recent Policies Have Also EmphasizedBiofuels

Mandates

Direct expenditures (to subsidize production)

Tax expenditures (tax credits for consumers)

Discontinued

Tariffs on imports

Discontinued

Legislation Under Consideration:


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Legislation Under Consideration:Federal RPS

Federal RPS (renewable portfolio standard)

or RES (renewable electricity standard)

or CES (Clean Energy Standard)

clean might include nuclear, clean-coal, etc.

Requires that a portion of fuel mix or capacitymeets certain standards

Uses REC (renewable energy credits) that you

can trade to meet RPS requirements

US Energy Policy Has Historically Been A


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US Energy Policy Has Historically Been Acheap Energy Policy

Emphasis has historically been on price andaccess (as opposed to origin, environmentalimpact, etc.)

Recent policy shifts have emphasized Domestic sourcing

Reduced environmental impacts

Minimized resource depletion

Cheap can be coherent and self-sustaining asan approach if long-term effects are included


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Government Has a Few Ineffective PolicyLevers

Setting prices

Specifying or prohibiting the use of particularfuels and technologies

G H A F Eff i P li


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Government Has A Few Effective PolicyLevers

Setting standards Establishing the rules of the market

Protecting Intellectual Property

Funding the innovation system

Setting Standards Is A Constitutionally-


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Setting Standards Is A ConstitutionallyEstablished Role of Government: Article 1, 8

The Congress shall have Power To!fix theStandard of Weights and Measures

Justification for:

NIST (National Institute for Standards and Technology) Appliance performance requirements

CAFE

Building codes

Emissions Standards (e.g. cap and trade)

Lightbulb Efficiency Standards From EISA


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Lightbulb Efficiency Standards From EISA2007 Started in 2012

Standard based on lumens (out) per watts of power(in)

Did NOT ban incandescent lightbulbs However, conventional incandescents do not comply

Advanced incandescents also meet the standard

CFLs (compact fluorescent ligthtbulbs) and LEDs (Lightemitting diodes) easily meet the standard

Expected to save $6B annually for lighting Will save Texans money for air conditioning, too

Will cause heating bills in the northeast to increase


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EISA2007 Specified A Phase-In Schedule forthe Lightbulb Standards

Lumens TraditionalWattage (W)

Maximum RateWattage (W)

Minimum RateLifetime

EffectiveDate

1490-2600 100 72 1000 hrs 1/1/2012

1050-1489 75 53 1000 hrs 1/1/2013

750-1040 60 43 1000 hrs 1/1/2014

310-749 40 29 1000 hrs 1/1/2014

Standard for general service lamps : generally >25% savings

Specialty bulbs (3-way, heavy-duty, appliance, etc.) are exempted)

Good for American manufacturers


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Cap and Trade


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Cap and Trade

Demonstrated to reduce acid rain in the 1990s SOxand NOxemissions lead to acid rain Coal combustion leads to SOxand NOx

Combination regulation & market system

Worked well to reduce SOxemissions utilities switched to low-sulfur coal

power plants added sulfur scrubbers

NOxemissions stayed high because Diesel

cars & trucks were excluded and increased


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Cap and Trade: Allowances & Credits

Large emitters are given a particular allowancefor how much pollution they can release

Clean sources earn credits for emitting lessthan their allowance

Dirty sources that emit more than theirallowance buy those credits from clean sources

Allowances are tightened over time

Creates a financial incentive to be a clean

source allows dirty sources to exist without devastating their

business

Cap and Trade for Acid Rain Was A Huge


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Cap and Trade for Acid Rain Was A HugeSuccess

The Acid Rain Program has produced remarkable anddemonstrable results. It has reduced SO2emissions faster and at

far lower costs than anticipated, yielding wide-ranging health and

environmental improvements. In fact, a 2003 Office of Management

and Budget (OMB) study found that the Acid Rain Programaccounted for the largest quantified human health benefits over

$70 billion annually of any major federal regulatory program

implemented in the last 10 years, with benefits exceeding costs by

more than 40:1. EPA Administration, 2003

It Is Possible To Use


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It Is Possible To UsePolicies To Mitigate

Large-Scale

EnvironmentalProblems

Triggers marketresponses

Technologyintegration

EPA Administration, 2003


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Carbon Taxes and Cap and Trade Have


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Carbon Taxes and Cap and Trade HaveDifferent Features

Cap and trade: focuses on point sources (utilities, refineries)

only for large, centralized industrial users (preferred byAPI)

easier to implement across borders

Fixes emissions: markets set the price

Allowances (give away the right to pollute) vs. Auctions(sell permits for the right to pollute)

Allowances: politically popular and reduces inequitiesfor the most burdened, but rewards polluters

Auctions: raise revenues that can be used for R&D,

debt payments, etc.; NOT popular Carbon Tax: spread the price around to all end-users

reaches all carbon users in economy (preferred by utilities)

hard to implement across borders

Fixes the price: markets set the emissions

A Carbon Tax Will Increase the Cost of


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A Carbon Tax Will Increase the Cost ofGasoline

1.0

0.9

0.8

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0.0

100806040200Carbon Price [$/ton of CO2]

The price on gasoline increases linearly with the price of carbon.For every additional dollar per tone of increased cost for CO 2,

gasoline prices increases approximately one cent per gallon.

Investing in Innovation and Protecting


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g gIntellectual Property Are Important Policy

Levers

Protecting Intellectual Property Is A


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Protecting Intellectual Property Is AConstitutionally-Established Role of

Government: Article 1, 8

The Congress shall have Power To!promote the Progress of Science and useful

Arts, by securing for limited Times to Authorsand Inventors the exclusive Right to theirrespective Writings and Discoveries;

Justification for:

USPTO (US Patent and Trademark Office)


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Examples for Discussion

The Early U.S. Electric Power Grid

The Two Cone Hughes Drill Bit

Directional Drilling

The Grid War


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The Grid WarEdison v. Tesla

Thomas Edison Nikola Tesla

1093 US Patents 456 US Patents


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The Hughes Two Cone Drill


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Economic Advantage of


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gHughes Two-Cone Drill Bit


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Directional Drilling

R&D Is An Important Policy Lever And


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R&D Is An Important Policy Lever AndIndicator of A Nations Priorities

Energy R&D Is Much Lower Today Than Its


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Peak, But Has Increased The Last Few Years

Source: AAAS

Public and Private R&D Investment Has

Declined from 10% to 2% of Total US R&D

Federal R&D Funding (not including Defense)


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in billions of constant FY 2012 Dollars

Source: AAAS

Department of Energy hardly means Energy


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We Believe We Can Fix Our Addiction With


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Technology

President Bush, State of the UnionAddress, January 2006: We have a seriousproblem: America is addicted to oil,which is

often imported from unstable parts of theworld. The best way to break this addiction isthrough technology.

85% of Americans say the U.S. is addicted to oilSource: Pew Survey Report, Feb. 2006

History of Federal R&D Emphasizes New


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History of Federal R&D Emphasizes NewSources of Supply and Technologies

The U.S. has invested over $100 billion incumulative energy-related research anddevelopment 1978 and 2006 (constant 2000$)

~$40B spent in total R&D Funding FY1985-2006 from

DoE

10-20% of total R&D at DoE was to reduce energyconsumption, with the rest for new sources ofsupply

Conservation/efficiency investments increasedbetween 2006 and 2010

Sources: National Academies, Sims-Gallagher,

Kammen & Nemet, EIA

Fusion is 50 years away and has been


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Fusion is 50 years away and has beenfor 60 years

An Office of Technology Assessment panelconcluded in 1987 that after 40 years and$20B of fusion research, it was at least 50

years away Same conclusion in 1992

Same conclusion in 1997

No experimental reactor has even achieved break-

even conditions Vaclav Smil, Energy at the Crossroads


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CHE Fall 2014 US Energy Policy.pdf

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