Energy Economics For a Sustainable Future

By Contributing Writer, New West Unfiltered 7-20-06

By Sean Stalpes

With a diminishing global oil supply coupled with the strenuous rises in oil prices, United States consumers are starting to notice some of the problems that are concurrent with our current energy agenda – and we should. The United States has roughly 5% of the world’s population, but we consume roughly 26% of the oil. Our lifestyles are based on an immediate access to cheap, dependable, and abundant energy sources. Sooner or later, though, the United States will be forced into a substantial increase in the use of renewable energy as either the amount of fossil fuel energy becomes too scarce or our environment can no longer withstand the effects of its combustion.

The good news is that the United States has a plethora of potential for renewable energy generation, from our vast areas of strong winds to the areas of bountiful and intense sunshine that wield tremendous capacities for solar energy. Therefore, it would definitely be in our economic interests to make the transition to a renewable energy economy as soon as possible.

The ominous truth is that the current road traveled by America’s economic policy is on is not a sustainable one. The US is currently running a $64 billion trade deficit, which has led to a consistent fall of the US dollar in international markets over the last few years. Our national debt has reached an astronomical $8.4 trillion as of July 7, 2006. And we are currently a net importer of agriculture, manufactured goods and energy. If we refuse to implement policy that will reverse these trends, we may be surprised how quickly we can lose our status as the world’s superpower. Instead of importing 64% of our oil from a region of the world engulfed in perpetual tumult and volatility, the US has to utilize its abundance of resources to become a global leader in energy. Once oil production peaks – many energy experts project this will occur by 2030 – the prices of fossil fuels will continue to hit unprecedented marks, and we will be left without a sustainable energy infrastructure while much of the rest of the developed world has long-since passed the implementation stages of their growing renewable energy programs.

The US has made feeble attempts recently to initiate alternative energy programs, but with little funding or direction. The Bush Administration is currently advocating two major sources for their alternative energy programs, hydrogen and corn-based ethanol. Unfortunately, both sources are not cost-effective solutions.

Let us first discuss hydrogen. Even though hydrogen may, one day, become the major competitor in the energy economy, that day is far from near. Currently, hydrogen is derived mainly from natural gas, an imported fossil fuel. Also, the technology is not yet good enough to be derived efficiently from any source, whether it is natural gas, coal, or petroleum. Because hydrogen production is expensive to produce and unreliable, it is unlikely that it will be able to compete with the current electric grid. Not until we are able to produce hydrogen from renewable energy sources and at very low cost will hydrogen be able to be fierce competitor in the marketplace. Because are nowhere near a renewable energy surplus and we do not have the technology available to do this efficiently, expectations of near-term hydrogen transitions make no economic or environmental sense.

Our energy crisis is currently too severe to place the majority of the dollars for renewable energy research and development (R&D) into a source that is decades away from being cost-competitive and environmentally friendly.

Corn-based ethanol, conversely, is currently capable of being produced in abundant amounts with great short-term economic benefits. However, corn-based ethanol will be, at best, a stepping-stone to other ethanol-based alternatives such as ethanol derived from switchgrass or directly from cellulose. It is not, by any means, sustainable. It is not energy-efficient, it is not good for the environment, and it will not reduce our reliance on foreign oil. Deriving ethanol from corn is very energy-exhausting, requires a vast amount of cropland, and pollutes water tables with a great deal of fertilizer runoff. In addition, our planet has a food shortage and a rapidly increasing population. With our severely increasing trade deficit, setting aside vast amount of cropland for a conversion process that yields little or no return makes no economic sense.

Global warming, in my opinion, is the greatest economic risk that our society will face in the future. It is one of the most researched and studied scientific phenomena in the world, and there is an overwhelming majority of data the reaches the same conclusion: global warming is not a farce. It is imperative that we, as a society, accept global warming as a risk to our national security. We must accept that this is a phenomenon that can result in horrific catastrophes, and we must take the necessary precautions to mitigate its effects.

Global warming is the result of the greenhouse effect. When solar radiation is passed through the atmosphere, it is absorbed by the earth’s surface. Some of the radiation is reflected, but not all of it escapes. Concentrations of gases, called greenhouse gases, that linger in the atmosphere absorb much of the reflected radiation and reradiate it back to the earth’s surface, which creates a warming effect. It is similar in nature to the warming of the interior of a vehicle. Solar radiation passes through the windows and windshield and is subsequently reflected. A lot of radiation is unable to escape, though, as it is constantly being absorbed and reflected inside a vehicle.

The positive correlation between GHG concentrations in the atmosphere and global temperatures is too close to be ignored. For decades, scientists have studied global warming. The following is a very brief overview of a report developed by the Natural Resource Defense Council analyzing the evidence of global warming and the consequences of continuing these trends of climate change:

As of 2005, the five warmest years ever measured were (in decreasing order): 2005, 1998, 2002, 2003, and 2004 (NASA 2006). What is more, scientists say that 2006 is, so far, the hottest year on record (NCDC). As a result, more frequent heat waves will result in many deaths per year from heat-related illnesses. Wildfires that have been plaguing the western United States will grow more powerful and more prevalent. Rising temperature will inevitably expand the range of tropical diseases. One of the most dangerous threats may come from disease-carrying mosquitoes that will be able to migrate north of their current ranges, even being able to inhabit much higher altitudes (NRDC 2006).

A rise in temperature of the oceans is, perhaps, more ominous than the warming of a terrestrial environmental. As a body of water increases in temperature, it also increases in energy. This means that the energy of hurricanes and typhoons will be greater in magnitude as the ocean temperatures rise. Also, a rise in temperature will raise the sea level by expanding the water molecules and melting glaciers and ice sheets. Evidence for this is abundantly clear here in Montana. At the current recession rate, all of Glacier National Park’s glaciers will be gone by 2070.

As citizens and consumers, energy-efficiency is the most cost-effective strategy for minimizing carbon dioxide emissions. Much of this can be remedied simply by shopping wisely. Consumers must remain cognizant of deceptions in up-front costs. Many times, lower-priced electrical appliances are more expensive in the long term due to higher lifetime operation costs. Therefore, when shopping for new appliances, buyers must beware and analyze the economics of what they are purchasing over the long term.

Energy-saving appliances are not only are good for the environment but also they are, often times, the most economical choice. There are also a lot of dollars to be saved by using efficient lighting. Approximately one-quarter of the average American’s electric bill is spent on lighting. According to the Energy Information Agency, replacing 25% of your light bulbs with fluorescents will reduce the average consumer’s electric bill by 50%.

One of the most damaging trends in American energy use is that we continuously offset conservation efforts by large increases in consumption subsequent to a price reduction. A blatant example is the aftermath of the Arab Oil Embargo of 1973. Energy shortages swept across the United States as prices soared. An interest in renewable energy research blossomed, and Corporate Average Fuel Economy standards forced automakers to increase efficiency in American automobiles. When the price of crude dropped, energy was once again cheap and abundant. Consumption steadily rose, houses and cars got larger, and conservation efforts dramatically declined. Today, fuel economy standards are lower than they were in 1985 (UCS 2005).

As we look toward the future of US energy policy, there are many necessary actions that we must undergo in order to protect our environment, our economy, our energy security, and our national security. As a country, we must increase fuel efficiency standards. This will inevitably reduce our reliance on foreign oil, which is important in securing our energy future. One important note to keep in mind is that raising the fuel efficiency standard will help but not completely alleviate our auto emissions problem. There needs to be policy in place regarding EPA inspections on vehicles in all states (Montana does not require an inspection) and to phase out the dirtiest vehicles that are big polluters of our air. For example, Jonathan Adler of the National Review Online writes, “the cleanest half of vehicles account for as little as five percent of [hydrocarbon] emissions.” The positive impact of hybrid technology will only slightly alleviate the 26% of GHG emissions that come from the transportation sector.

Second, we need to implement a federal Renewable Portfolio Standard (RPS) that requires a minimum amount of energy be from renewable energy sources by a target date. These have been very successful on the state level, and Montana is one of 22 states with an RPS. But that means that most states do not yet have an RPS. A federally mandated RPS would require that every state participate in renewable energy generation, and then states could supplement the federal regulation with their own state RPS in order to maximize the renewable resources of each state.

Third, we need to increase funding for renewable energy. One of the major barriers in the progress of renewable energy generation is a lack of funding. For the FY 2006, Department of Energy research and development budget, the DOE saw a 31% increase in nuclear energy R&D appropriations and a 5.9% increase in fossil fuel energy R&D. Energy conservation R&D was cut by 17%, solar and renewable energy R&D were cut by 10.5% -- and this includes a $257 million investment in an initiative to develop hydrogen cars – and clean coal technology saw a cut of 87.5%.

Fourth, we need to develop more programs that involve limiting carbon dioxide emissions. Future policy must be cost-effective and mutually beneficial in order to give them incentive to participate. An example of a cost-effective strategy that is cost-effective in reducing carbon dioxide emissions is a cap and trade policy. The cap is the regulatory amount that serves as the limitation for how much an industry can pollute. The remaining allowable emissions serve as permits that hold financial value. To keep profits high for everybody, companies can buy or sell these permits based on difficulties in the cost of lowering their respective carbon emissions. Some policies even implement subsidies for generation, which, because of the carbon cap, encourages the proliferation of renewable energy generation.

Whatever we choose to do with our energy future, there are some obvious basics of economics and sustainability which will help us move in the right direction. We don’t need to spend $12 billion in subsidies to keep our gasoline and oil prices lower than the rest of the world. We don’t need to give oil companies $7 billion in royalties when they are, quarter after quarter, posting record profits. SUVs, minivans, and trucks can be very useful and practical, but I refuse to believe that we are unable, technologically and politically, to raise the CAFE standard for this class of vehicles above 21 highway mpg.

If our choice is to remain with the status quo with energy policy and consumption, we need to factor some of the imminent and inevitable costs that we will incur. Logical and thorough cost-benefit analyses can serve as guides in our future decisions in energy policy. But they must be done appropriately and without bias. The problem lies with blatant disregard for these previously-mentioned costs. A transition to a renewable energy economy will require government subsidies and tax incentive programs that cover the expensive costs in wind power generation, renewable energy technology development, education programs, carbon emission cap and trade systems. Despite these high initial costs, these actions will yield far less costs and far greater benefits for America’s economy in years to come.


Sean Stalpes is a student at the University of Minnesota. In December, he will receive a Bachelor of Science in Environmental Policy and Law. He plans to work toward a career working with energy efficiency and renewable energy programs.
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