Solar for everyone

Solar panels are elitist: They cost a lot of money, and only homeowners with good solar access can usefully install them. This means that renters and people who can’t come up with at least $5,000 to $10,000 worth of cash or credit can’t own them. That’s the problem Colorado House Bill 10-1342 (HB1342): Community Solar Gardens aims to correct.

HB1342 defines a community solar garden (CSG) as “A solar electric generation facility with a nameplate rating of two megawatts or les … where the beneficial use of the electricity generated by the facility belongs to the subscribers to the community solar garden.” A subscriber is a “retail customer of a qualifying retail utility who owns a subscription and who has identified one or more physical locations to which to which the subscription shall be attributed” withing the same county or municipality as the CSG. The bill allows subscribers to change the premises to which a subscription is attributed, and also to sell them to other qualifying subscribers, something which is necessary in case a subscriber were to move out of the county or the utility’s territory.

It’s a worthy idea, although local solar installers are concerned that the superior economics of large installations will eat into their market share, by easing the requirements in House Bill 10-1001 for customer-sited generation. People who own perfectly good sites for rooftop solar may instead choose to buy a CSG subscription because of the convenience and potentially lower price. I think fears that residential customers who are good candidates for rooftop solar might instead subscribe to CSGs are overblown. Although the economics may be better, buying solar in Colorado is not yet a great investment because of the cost an return involved. Instead, I believe people are investing in solar because it gives them satisfaction to think that they are using green energy, and because they want to show off their environmental bling to their neighbors. I know that some people are more interested in the bling aspects of solar panels than the economic aspects, because otherwise there would not be a market for fake panels in Japan, although I don’t know of anyone who knowingly bought fake solar panels in the U.S.

Energy sprawl

My greatest concern with the bill is not that it will cause a move towards large installations, but that it will lead to more ground-mounted installations taking up open space, contributing to energy sprawl. No matter what you think about the economics of photvoltaics, one advantage that they have over almost every other type of electricity generation (both fossil and renewable) is that they can be placed on otherwise unused rooftops and other structures, giving a use to otherwise wasted space. Only energy efficiency and conservation have less physical impact on the environment than rooftop solar. Some people have told me that their air conditioner ran less after they put solar on their roof.

Any law which makes solar more likely to be ground-mounted than rooftop is a step in the wrong direction. I think the bill should be amended to prohibit CSGs from being ground-mounted, effectively limiting them to large rooftops and other structures such as awnings for parking lots. This would also have the effect of doing something to limit the practical size of CSGs to available rooftops, which would probably make the solar installers a bit happier.

The secondary market for community solar garden subscriptions

Provisions for a secondary market for CSG subscriptions are included in the bill, since a subscriber moving out of the county in which their CSG is located will not be able to benefit from their subscription. The secondary market and and other security-like characteristics of subscriptions may make them a useful financial tool for small investors. Most importantly, a CSG subscription is (as intended) an excellent hedge against rising electricity prices.

The only real reason to hold a CSG subscription for the long term is as a hedge against rising electricity prices because, like all utility-subsidized solar installations in Colorado, the utility ends up owning the Renewable Energy Credits (RECs), which are defined as all the “environmental attributes of the electricity.” Although most people with solar panels don’t understand this, the fact that they cannot legally claim the RECs means that they are using electricity that is just as dirty as any other Coloradan, with the exception of direct purchasers of RECs or Carbon Offsets, such as Windsource or Colorado Carbon Fund subscribers.

Although the secondary market for CSG subscriptions is likely to be very illiquid, it will probably become a good direct indicator of local expectations for utility rates. CSGs will not be much use to speculators, however, because there are restrictions in the bill which limit the investment to only 120 percent of estimated electricity usage at the designated physical location of the subscription. Nevertheless, experienced local market professionals with an understanding of market psychology may be able to make small profits trading subscriptions, since the illiquid and unprofessional nature of the market will likely make prices extremely volatile and subject to strong behavioral biases. When electricity rates are rising, subscription prices will likely overshoot their true value as potential subscribers overestimate future increases, and prices will likely undershoot if falling natural gas prices lead to falling interest in CSG subscriptions.

Allowing investors into the subscription market would probably create a more liquid and stable market for subscriptions, but such an outcome is unlikely because of the general public distaste for speculators. It’s also impractical because of the fact that payments to subscribers are at the retail electricity rate, which is considerably higher than the owners of commercial solar farms are allowed, and hence are effectively subsidized by all utility customers, over and above the direct subsidies given to encourage solar in Colorado.

CSG subscriptions have other aspects that will be familiar to investors. The law allows for the CSG to finance the purchase of a subscription (buying on margin.) It also allows the payments for electricity production to either go to offset the subscriber’s electricity bill, or to go to the CSG sponsor. In the latter case, I could see a small subscriber buying a small subscription, and enrolling in the equivalent of a Dividend Reinvestment Plan (DRIP): rather than cash payments, the electricity generation would be used to increase the size of the CSG subscription over time, until the subscriber decided to start taking cash payments. A CSG with a large number of subscribers enrolled in DRIP-like plans might add a new solar module to the farm every month, in order to keep up with the growing subscriber base.

CSG subscriptions could become a valuable financial planning tool for retirees and others on fixed incomes. Because a CSG subscription rises in value with utility rates, an owner would be better able to budget for the utility bill, no matter how wildly electricity prices gyrate. As subscription prices fall with the falling cost of photovoltaics, I can see the purchase of a CSG subscription becoming standard financial advice for retirees.

CSG subscriptions as securities

Although professional investors and speculators will have at most a limited role in the trading of subscriptions, CSG subscriptions may legally be securities. The legal definition of a “Security” is an investment in an enterprise with the expectation of profit from the efforts of other people. If I’m right and the draft law is not changed, CSG subscriptions will fall under Colorado securities regulations. (Because CSG subscriptions cannot be sold outside the state, they are clearly matter for Colorado security regulators.)

For small CSGs set up by community organizations, this is unlikely to have a tremendous impact, because securities laws include a number of exemptions for sales to a small number of related individuals. (Note that this is not intended as legal advice! I am not qualified to give legal advice, and even a small CSG should need to consult with someone familiar with the relevant laws.) For large CSGs with many subscribers, securities law may actually require the delivery of a prospectus and fall under a variety of other rules about communications that apply to the CSG developer and its representatives. In general, this is probably a good thing, since it provides a strong legal framework under which regulators will be able to sanction unscrupulous CSR developers who might be tempted to cold-call unsophisticated utility customers and over-promise the benefits of a small subscription in a solar garden.

Conclusion

The intent of community solar gardens is a good one, because it allows many more people the opportunity to hedge their electricity price risk. The people in most need of such a price hedge, those living on small fixed incomes, generally do not have both the home ownership and credit that installing a solar system requires. So I’m glad to see Colorado pioneering this concept, and it will be very interesting to see how CSGs and the market for their subscriptions evolve when the final bill passes. With luck, and a few people emailing Claire Levy, the bill’s sponsor, that final bill will have been amended to exclude ground-mounted community solar gardens, and help preserve Colorado open space.

I also hope that some among the majority of my readers who are not in Colorado will suggest your own legislators consider local variations of this idea.

by Tom Konrad, Ph.D.

Promoters of Biochar should ally with fishermen and other groups concerned about ocean dead zones caused by nitrogen runoff.

The folks at the Carbon War Room are trying to save the world by tackling the trickiest problems in addressing climate change.  One of their current focus points is biochar [pdf].  I’m one of very few investment writers who has taken notice of biochar so far, and they called me to ask what I thought needed to be done to bring in private investment dollars. 

Getting investors interested in biochar is going to be tricky.  The problems are three-fold:

1. The science of biochar is not yet well understood.
2. An agriculturalist who uses biochar only gains a fraction of the total benefit; other benefits are positive externalities felt far and wide. 
3. Creating biochar is fairly low-tech (you can get plans for a charcoal burner on the internet, and make one in your back yard.)  This makes it difficult for companies to profit from it by producing and selling superior technology.

My third point about producing biochar being low tech may not turn out to be a problem.  I ran a draft of this article by Jonah Levine, an industry insider, currently Vice President of Technical Sales at Biochar Engineering, a technology startup.  He says, “The biomass industry is used to driving biomass to ash to garner all of the potential energy benefits. Driving off H and N from the biomass and leaving as much C as possible in a continuous, automated process is not simple. The reaction would like to either take off and reduce everything to ash or not start at all.”

If my first two points can be addressed, creating a market for quality-controlled biochar, and portable biochar producing units like Biochar Engineering’s  technology can be produced at a cost low enough that the extra char yield compensates for the extra production cost of the pyrolyzer, then there will be investors interested in biochar, and much more funding will be available.

The Carbon War Room is already supporting research to flesh out the science, and they are working to get biochar included in the World Bank’s biocarbon fund, but I was able to give them one idea: work with others concerned about nitrogen runoff from the overuse of fertilizer to get stricter restrictions or fines imposed for nitrogen runoff.

Nitrogen Runoff

Nitrogen runoff is a massive environmental problem, if not on the same scale as global warming.  Farmers often use more fertilizer than their plants really need because the costs to them of using too little (low yields) outweigh the costs of using excess fertilizer.  Incentives that increase the price they get paid for producing corn and other nitrogen intensive crops only aggravate this tendency, since they increase the benefits of high production without changing the costs of excess fertilizer use. 

The excess fertilizer is not taken up by the plants, and instead runs off into the river system, causing marine dead zones, and contaminating freshwater sources.  This increases the costs of water purification as well as harming people and livestock who drink the untreated water, and is the cause of “blue baby” syndrome.

Biochar and Nitrogen

Biochar, used as a soil amendment, improves water and nutrient uptake by plants.  It has its greatest effects in poor soils, helping the plants access the nutrients that are available, and this effect can last for centuries after the soil has been amended with biochar.  Biochar-ameneded soil should reduce the risks to farmers of using too little fertilizer, and hence reduce the incentive to over-apply, benefiting both the farmers and everyone else in the watershed.

Studies suggest that fertilizer taxes are the most economically efficient way to reduce Nitrogen runoff.  If such taxes were in place, farmers would have a stronger incentive to use biochar in order to make the most of the suddenly more expensive fertilizer.  For environmentalists interested in reducing carbon emissions, this would have the added benefit of reducing nitrous oxide (N₂O) emissions from heavily fertilized soils, for an additional reduction of greenhouse emissions.

Hence, Biochar advocates should team up with groups concerned about the fisheries and health effects of runoff to advocate for higher taxes on nitrogen fertilizer.  When farmers complain, perhaps we can buy them off by using the revenue for a biochar subsidy?

California’s RETI process lends insight into the near-term prospects of solar, wind, geothermal, and biomass.  

In September, California’s Renewable Energy Transmission Initiative (RETI) released their Phase 2A report, which outlined potential transmission corridors to collect renewable energy from Competitive Renewable Energy Zones (CREZ) that had been identified in previous phases. As part of Phase 2A, they also screened each CREZ for environmental impact, and the potential difficulty of obtaining land for renewable energy development.  

I previously looked at the results from Phase 1A and gained some insight into the cost of renewable energy technologies. However, what renewable energy projects actually get built has to do with a lot more than just economics. If it raises too many environmental concerns, such as infringing on endangered Mojave Ground Squirrel habitat, it isn’t going to get built.

Drawing on the spreadsheet “Supplemental Materials, CREZ Data” I put together the following charts, graphing the economics of each type of renewable energy in each CREZ against the expected environmental impact of that CREZ.  

Each circle represents one type of renewable energy at one of 35 CREZs. Concentric circles in different colors appear where a single CREZ offers multiple types of renewable energy development. The only difference between the two graphs is the size of the circles. In the first graph, circle sizes represent the potential annual energy production (GWh/yr) of a CREZ, while circle sizes in the second shows power rating (MW.) Geothermal and biomass resources are relatively larger in the first graph because these are typically baseload technologies generating electricity near peak capacity all the time, while solar and wind are variable.

The cluster of circles in the middle right represent resources outside California: they were not rated for environmental concerns, so I assigned them an arbitrary value in the middle of the range in order to display them on the charts.

Economic/environmental tradeoff?

I found it surprising that there is little evidence of a tradeoff between economic viability of CREZ’s and environmental impact. In fact, the circles in the graphs above are generally clustered along a line from the lower left (high environmental impact, bad economics) to the upper right (little environmental impact, good economics). A tradeoff between economic viability and environmental concerns would manifest itself in a clustering along a line from the upper left (bad economics, little environmental impact) to the lower right (good economics, large environmental impact.)

Considering these four major renewable energy technologies, as they might be deployed in California, there is no real tradeoff between economics and the environment.  The best economics coincide with the least environmental impact. If we were to include energy efficiency in the analysis, the trend would be even more pronounced: energy efficiency has the best economic profile of all, yet avoids the use of energy and hence does less harm to the environment.

The exception here is biomass. The small green dots don’t show a pronounced trend in any direction, meaning that there may be some tradeoff for biomass. Such a tradeoff would not be surprising, because harvesting plant matter on a large scale is bound to have significant ecosystem impacts. Note that biomass here does not include such technologies as waste to energy, which can be environmentally benign, or even an improvement compared to land filling. In this study, the biomass in remote regions that do not yet have transmission, since lack of sufficient transmission was one of the requirements to be a CREZ.

With clean energy, it may actually be possible to do well while doing good.

Energy Self-Reliant States [PDF], a flawed study on local Renewable Energy availability from the Institute for Local Self-Reliance (ISLR) found that 18 of the 50 states could not meet their electricity needs with local renewables. In fact, no state can meet its electricity demand through local renewables without expensive electricity storage. On a national basis, such storage would cost an estimated $13 trillion, or over 65 times the cost of the transmission investments they oppose.

One of the study authors, John Farrell, has been promoting the study as a “Heresy on Transmission.” Rather than a heretic attacking misguided establishment shibboleths, this flawed study attacks a simplistic misunderstanding of why we need transmission. Farrell and his co-author David Morris are either intentionally promoting this misunderstanding, or they simply fail to grasp the reasons behind long distance transmission’s necessity.

Their straw man is the false choice between states relying on local renewables such as PV on rooftops which supposedly would require only “minimal transmission upgrades” and far-off wind farms requiring expensive long distance transmission.  They say, for example,

[I]f Ohio’s electricity came from North Dakota wind farms — 1,000 miles away — the cost of constructing new transmission lines to carry all that power and the electricity losses during transmission could result in an electricity cost to the consumer that is about the same, or higher, than local generation with minimal transmission upgrades.

This ignores most of the benefits which would flow from new transmission lines connecting North Dakota and Ohio. A 1,150 mile transmission line from Bismark to Cincinnati would also connect Fargo, Minneapolis, Eau Claire, Madison, Chicago, and Indianapolis running along Interstate Highway corridors (Google maps.) It also ignores the study’s own finding that Ohio would only be able to generate 29 percent of the electricity it needs with local renewables. 

Incidentally, their national map shows Ohio being able to generate 33 percent of its electricity from local renewables, but adding up their own numbers for the renewables they identify gives 29 percent. I looked closely at their numbers for only six states, so there may be other arithmetic errors as well.

The states along this hypothetical route are North Dakota, Minnesota, Wisconsin, Illinois, Indiana, and Ohio. The study found that these states can generate the following percentages of local demand with in-state renewables:

If each of these states attempted to meet their local electricity needs with the renewables in the study, Ohio and Indiana would still need to import some electricity from other states. Although Ohio would not need to import power from as far away as North Dakota, they would have to tap into Minnesota’s wind resources if demand were to be satisfied along this corridor. An attempt to meet that demand with the nearest resources might look like this:

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You’ll note that the total above exceeds 600 percent because the states with renewable energy surpluses have much lower local demand. The magnitudes of this demand are my best guess. Keep in mind that I did not choose this corridor to make my example work; the suggestion came directly from the transmission example in the study.

The Consequences of Timing

By the study’s own methodology, both Ohio and Illinois need interstate transmission, because they cannot generate all their renewable electricity locally.  Yet, as I will demonstrate, even though North Dakota and Minnesota would be generating electricity for export, they will often need to import renewable electricity as well.  

Using the Correlation Maximization tool on Energy Timing (note: Energy Timing has been taken down, see comment here.), I generated the best portfolio of North Dakota wind and solar farms to meet the needs of Square Butte Electric Coop, an electric utility in Grand Forks, N.D.  The results are shown below:

Composition of Optimal Portfolio of North Dakota Renewable Energy: 

This combination of three wind farms represents the best fit between electric output from existing wind farms and solar sites in Energy Timing’s database, and local demand.  Even though this is the best fit, the correlation between supply and demand is only 13.2 percent. Solar sites do not appear in the optimal portfolio because they do not lead to a better fit.

As you can see from the bottom graph, wind output is strongest in the morning, when demand is relatively low, and falls off in the afternoon, as demand rises.  Hence, unless North Dakota builds far more wind farms than it needs to supply local demand (an expensive proposition which could only be justified by electricity exports), they would not have enough electrify in the afternoon and early evening, when the wind typically dies down.  This would be the situation on a typical day.  On any given day, wind power is even more variable than it is on average, leading to large and frequent swings from oversupply to undersupply.

In the case of Minnesota electrical demand, solar sites turn out to be a better fit than wind sites.  In reality, if Minnesota were to attempt to meet local demand with renewable energy, a mix of wind and solar sites would be used, since wind is so much less expensive than solar.  But since solar sites are the best fit for local demand, a mix of wind and solar would produce a worse match than the 24.5 percent correlation we see in the scenario above.

Benefits of Transmission

We can now see how both Minnesota and North Dakota would benefit with a high capacity transmission connection between the states. In the early morning, before the sun rises, Minnesota will not be producing any domestic renewables, so it makes sense to import electricity from North Dakota, where production is far in excess of demand all morning. Minnesota will in turn be able to supply excess solar power to North Dakota in the afternoon before the sun gets low and cuts solar output.  

In short, even though both Minnesota and North Dakota can easily produce enough local renewable electricity for their needs, the timing of that electricity causes problems of both oversupply and unmet demand. If we build transmission connecting states regions, these problems are reduced, and less storage is needed to make up the difference.

As we increase the interregional connections, we will be able to bring in power from farther afield that better meets demand.  For instance, both these states don’t have enough local renewables in the evening, even when combined. The worst period is just around dusk, from about 5 p.m. to 8 p.m. CST, before the wind begins to pick up at night in North Dakota. But in the sunny Mojave Desert of southern California, the sun is still up (it’s two hours earlier, Pacific Time), and large Concentrating Solar Power (CSP) plants can use relatively cheap thermal storage to continue producing power for hours after sunset.

We can also see that both North Dakota and Minnesota typically have spare production capacity in the summer months, so they could export electricity back to the Southwest during these months, when Southwest electricity demand peaks due to air conditioning loads.

As we increase the length of regional transmission networks, each state along the path gains, both as an electricity exporter and as an importer depending on the season and weather conditions. Ohio does not need to pay for giant transmission lines from North Dakota to import which “could result in an electricity cost to the consumer that is about the same, or higher, than local generation.”  North Dakota, Minnesota, Wisconsin, Illinois, and Indiana would also benefit from such a line, and all could be asked to contribute.

Costing Storage vs. Transmission

The study’s authors also invoke electricity storage to “solve” the problem of timing, saying

Some renewable fuels, like sunlight and wind, are variable. Thus, the estimates, especially for wind, assume a significant level of storage or on-demand distributed generation.

Unfortunately, they make no attempt to account for the price tag of such storage. They state only, 

This report does not examine storage and its implications, but in our analysis of variable renewable energy potential, we assume that sufficient storage is available.

“On-demand distributed generation” could come from natural gas or biomass. Renewable generation relies on the availability of the natural resource, few of which can be stored. Even incremental hydropower is typically not on-demand, because it is usually the result of adding generation to existing dams and comes with obligations to maintain flow rates.

Biomass based power is typically baseload, not on-demand. Furthermore, the study authors explicitly rule out the large scale use of biomass for electricity because they expect the amount of biomass-based electricity to be “modest.” Even if large scale, on-demand distributed biomass based generation were available, it would only be available in those states with a large biomass resources.  See the map below.

Natural gas is an incomplete response to climate change in that it is a fossil fuel, may not even be available in the necessary quantities, and must be imported by the vast majority of states.  What is the point in pushing for reliance on locally generated renewable electricity if it only increases our dependence on imported natural gas which may not be available and produces greenhouse gas emissions? 

Given the not only daily, but seasonal mismatches between local electricity production and demand, states which are locally self-sufficient in electricity would have to invest in a month or more worth of storage. While electric vehicles may be able to provide some daily or hourly storage, they will not be available for seasonal electricity storage, since the vehicle owners will need to drive them, and so cannot keep them fully charged for months or even days on end.

The cheapest large scale electricity storage solutions, (Pumped Hydropower, Compressed Air Energy Storage, and Molten Salt Thermal Storage) typically cost $10 to $50 per kWh of storage.  Unfortunately, all three of these options are limited in where they can be located, so restricting transmission will also restrict the use of these cheaper forms of storage. The cheapest battery and flow battery storage technologies cost about $100 to $150 per kWh. To be generous, I will assume that all states can build as much electricity storage as they want at $50 per kWh, or $50,000 per MWh. I will also assume that geothermal, hydropower, combined heat and power, and efficiency gains will mean that solar and wind will need to supply only 50 percent of our current electricity usage. 

According to the Energy Information Administration, total electricity production in 2007 was 4,156,745 thousand MWh. An average monthly production was thus 346,395,000 MWh, and the cost of a month’s worth of national electricity storage to meet half of a month’s demand would be $8,665 billion under the assumptions above. In contrast, the ILSR study states that “FERC, Congress, and environmental groups … rush to accelerate the construction of a new $100-$200 billion interregional transmission network.”  

If such a network cost $200 billion, and reduced the need for storage by only 10 percent, then it would have paid for itself more than eight times. Given less conservative (and I think more realistic) assumptions of reducing the need for storage by 50 percent, and a per MWh cost of storage of $75,000, a regional transmission network would pay for itself in reduced storage needs by 65 to 1.

Conclusion

To me, 65-to-one, or a savings of approximately $13 trillion, seems worth the price of stringing wires. For comparison, $700 billion has been spent on the war in Iraq since 2001. In other words, the ILSR study is suggesting that we pay for eighteen wars in Iraq in order to avoid building an interregional transmission network, costing about as much as we spent in Iraq in 2008. 

In fact, the price for local self-reliance on renewable energy would likely be higher. Thirteen trillion dollars does not include the cost savings that the report’s authors tried to address: Transmission allows us to exploit less expensive renewable generation. Furthermore, the variability of both wind and solar generation can be vastly reduced by combining the output of dispersed wind and solar farms. Less variability reduced the need for costly spinning reserves to stabilize the grid if wind power suddenly drops or a cloud passes above a solar farm.

Not all self-styled heretics are fighting a just cause against an oppressive consensus.  To the extent that a consensus exists in favor of an improved national transmission grid, it is based on sound science and economics.  It is unfortunate that so many environmentalists are seduced by the mirage of renewable energy self-reliance.

In response to my recent article digging into green jobs, a reader sent me a copy of a March paper by Andrew Morriss et al at University of Illinois that attempts to debunk green jobs myths.  While I see major flaws in most green jobs papers I read, many of the myths cited by this paper are irrelevant to what I consider the most important questions:

1. Can government intervention to clean up the energy sector create jobs and boost the economy?
2. What interventions are likely to be the most effective or harmful?

Other “myths” are simply not myths; the flaw arises because the debunkers are economists, and approach the subject from the perspective of economics.  The problem is that the energy market is neither free nor efficient, so the traditional economic assumptions about how supply and demand regulate price simply do not apply.  I’ll deal with the myths in the order they are presented by Morriss et al.

Define “Green Job”

From the paper:

Myth 1: Everyone understands what a “green job” is.

Fact 1: No standard definition of a “green job” exists.

My Thoughts:  The hundreds of billions of dollars to be committed are designed to promote cleaner energy.  Who cares how green jobs are defined?  The important question is Question #1 above: Regardless if the jobs are defined as “green” or not, will more jobs be created by promotion of cleaner energy, or by some alternative sort of spending?  My last article answered this question in favor of clean energy.

Productivity of Green Jobs

From the paper:

Myth 2: Creating green jobs will boost productive employment.

Fact 2: Green jobs estimates in these oft-quoted studies include huge numbers of clerical, bureaucratic, and administrative positions that do not produce goods and services for consumption.

My Thoughts:  If cleaning up the energy economy simply creates a shift to the less efficient use of labor, then it is not worthwhile.  

However, labor efficiency is the wrong metric.  Higher labor efficiency can nearly always be achieved with greater use of capital or energy.  For instance, driving to work is statistically more labor-efficient than taking light rail.  If I take light rail, then the pro-rated labor needed to run the rail system goes into the cost of getting me to work.  If I were to drive, my labor in guiding the vehicle would not be counted in work statistics, because I am not paid for my efforts (even though I’m probably not enjoying myself much.)  Nor is the capital investment in my car included in the calculation, (although the road I drive on probably is) because it is a private, not business of government expenditure.

Green spending is likely to be more energy-efficient than other spending: reducing energy use one of the main goals.  Capital spending may go up or down, and labor usage may increase, as labor is substituted for fossil energy.  The goal should be to find those sectors which most effectively substitute spending on labor (a renewable resource of which we currently have more than we are using) for spending on fossil energy (a nonrenewable resource which causes harm to the environment.)

As I previously discussed, spending on energy efficiency programs such as weatherization  are ideally suited to substitute labor for energy.  Weatherization gets the largest share of the energy spending from the stimulus bill.

Modeling 

Myth 3: Green jobs forecasts are reliable.

Fact 3: The green jobs studies made estimates using poor economic models based on dubious assumptions.

The forecasts for green employment in these studies optimistically predict an employment boom that will take us to prosperity in a new green world. The forecasts, which are sometimes amazingly detailed, are unreliable because they are based on: a) Questionable estimates by interest groups of tiny base numbers in employment, b) Extrapolation of growth rates from those small base numbers, that does not take into consideration that growth rates eventually slow, plateau and even decline, and c) A biased and highly selective optimism about which technologies will improve. Moreover, the estimates use a technique (input-output analysis) that is inappropriate to the conditions of technological change presumed by the green jobs literature itself. This yields seemingly precise estimates that give the illusion of scientific reliability to numbers that are actually based on faulty assumptions.

My Thoughts: As often with the arguments against greenery, the critics equate greenery with exciting new (and expensive) technologies such as solar PV.  Some of the proponents fall into this trap as well.  And everyone should be uncomfortable with relying on attributing any level of accuracy to a study even though it claims to be precise.  Precision is impossible in economic forcasting.

In fact, the majority of the spending will be going to old, proven technology with a long track record.  Building weatherization and mass transit have been around and evolving for over a century, and these two alone get well over half of the spending.  Cofiring of biomass is also a proven and very cost effective technology.  All of these will reduce, not increase the overall cost of energy, without waiting for technology improvements.

No, we won’t get the number of jobs we expect, but for the purpose of decision-making, we only need to be confident that we’ll get more jobs than if we had not acted.

“Free” Markets

Myth 4: Green jobs promote employment growth.

Fact 4: By promoting more jobs instead of more productivity, the green jobs described in the literature actually encourage low-paying jobs in less desirable conditions. Economic growth cannot be ordered by Congress or by the United Nations (UN). Government interference in the economy – such as restricting successful technologies in favor of speculative technologies favored by special interests – will generate stagnation.

Myth 6: Government mandates are a substitute for free markets.

Fact 6: Companies react more swiftly and efficiently to the demands of their customers/markets, than to cumbersome government mandates.

My Thoughts: The government already interferes on a massive scale in energy, to support the fossil fuel industries.  Electric and gas utilities are either government regulated (IOUs), government-run (munis), or government-sponsored non-profit cooperatives (REAs.)  Unless you live in Lubbock, your electric utility is a monopoly. Our transportation infrastructure is government-built and maintained (or government-sponsored, in the case of toll roads.)  Rules, taxes, and incentives specifically targeted at fossil fuels are legion.  

Deriding “government interference” in an industry with so much government involvement already is ludicrous.  Nothing can happen in the energy industry without “government interference.”   The trick is to make sure that any change is change for the better.  “Hands off” is not an option.

Yes, green spending produces a higher proportion of low skilled jobs than would spending on capital intensive fossil fuels.  But green spending creates more jobs at every skill level than spending on fossil fuels, making workers at every level of skill better off.

A typical instance of the authors’ blind faith in markets appears in the section titled “Markets vs. Mandates.” “The implication of the necessity of a mandate is that profit-seeking building owners are too foolish to make investments in energy saving despite the alleged short-term paybacks.”   Yet this is precisely what happens, if not because building owners are foolish.  It happens because renters, not building owners derive the benefits from the efficiency investments, and because many building owners lack the skills and information necessary to make informed decisions.

Instances of profit-seeking building owners not making efficiency improvements abound. When the building owner does not pay the utility bill (as with most rentals), there is no incentive to make such improvements at all. Even in owner-occupied buildings, how many building owners know what improvements will be cost effective, or make it a priority to find out? Without adequate information, no improvements will be made.

Anti-Trade

Myth 5: The world economy can be remade by reducing trade and relying on local production and reduced consumption without dramatically decreasing our standard of living.

Fact 5: History shows that individual nations cannot produce everything its citizens need or desire. People and countries have talents that allow specialization in products and services that make them ever more efficient, lower-cost producers, thereby enriching all people .

To the extent that we’re not just exporting the manufacture of energy-intensive goods to other counties, I agree with this caveat.  However, to the extent that transport requires large amounts of energy, some of the arguments for re-localization make sense, or where the production of the good (such as oil) is controlled by non-market forces (Russia, Venezuela, OPEC, etc.) free trade (which is rooted in the assumption that markets operate efficiently) does not make sense.

If we could actually create an increase in domestic oil, the conservative proponents of domestic drilling (whom I think of as the “Local Oil” movement) would have a point, despite the fact that they use the same anti-trade rhetoric.  Unfortunately, since total production of domestic oil is capped by our already-diminished reserves, the Local Oil movement is simply asking for more domestic oil today, at the cost of less domestic oil for our children.  In contrast, today’s local farmers can avoid taking food from their children by using sustainable farming practices.

Free trade makes sense in free (or at least reasonably efficient) markets where total supply is not limited.  Inefficient markets may rob us of the benefits of free trade.  When the total supply of a commodity is finite, as with fossil fuels, we can never have true “free trade,” because one set of participants has no voice in the transaction.  Future generations have no say about what they give up in future consumption when we consume a finite resource today.

Pie-in-the-Sky

Myth 7: Wishing for technological progress is sufficient.

Fact 7: Some technologies preferred by the green jobs studies are not capable of efficiently reaching the scale necessary to meet today’s demands.

Absolutely true. We can’t decarbonize the economy this decade.  We need to start now with the established, cost-effective technologies we have today, such as energy efficiency, electricity transmission, wind power, geothermal, and mass transit which are capable of scaling and bring both jobs and economic benefits today.  As new technologies such as solar become cost effective, we will have the infrastructure in place to allow them to scale.

The gigantic scale of the job is a reason to start as soon as possible, not to delay.

In my next Greener Money column for Smart Energy Living Magazine, I look into the economics behind Presidential and green claims that the stimulus package and the Climate bill just passed by the House can both create economic growth while cleaning up the economy. I found most of the rhetoric coming from the greens to be disappointing. For the most part, it touts the numbers of “Green Jobs” which will be created, without looking at the cost. For instance, while the report from the American Solar Energy Society does a good job defining “green job” and counting them, it does not look at what would have happened if we put our resources elsewhere.

Probably the most incredible claim I heard from on the green side came from Jigar Shah, who told me via email that spending on solar photovoltaics produces “more jobs per federal dollar invested” than other green technologies. He did not respond to two requests for his source. I found this claim hard to believe, because solar manufacturing is very capital intensive, and manufacturing jobs are likely to be high-skill and highly paid. The labor-intensive installation is unlikely to completely make up for capital intensive (and often overseas) manufacturing. Clean energy investments which are not capital intensive, such as weatherizing homes, are likely to produce more jobs because 1) less money is spent on equipment and more on labor, and 2) the workers are typically paid less.

The cost of creating a job

The best national report I read was Green Prosperity, which was sponsored by Green for All and NRDC, and written by the economists Robert Pollin, Jeanette Wicks-Lim, and Heidi Garrett-Peltier at the Political Economy Research Institute at the University of Massachusetts, Amherst (PERI). This report used data from the US Commerce Department Input-Output tables and IMPLAN to look at the potential for job creation from each $1M of spending in various industries, some of which is presented below in table 3 from the report:

TABLE 3. BREAKDOWN OF JOB CREATION BY FORMAL EDUCATIONAL CREDENTIAL LEVELS

Note that while clean energy spending creates more high paying jobs than fossil fuels, clean energy is even better at creating jobs for low skilled workers: Everyone stands to gain, but those who have the most trouble finding jobs have the most to gain.

Comparing clean energy industries

Un fortunately, even this report does not detail the differences Jigar Shah was alluding to: the difference in job creation between clean energy investments. Where can we best deploy our stimulus dollars for the greatest effect? I contacted the authors of the study, and HeidiGarrett-Peltier was able to provide the following job creation numbers for industry sectors they considered in their research:

Here, “Green Program” is a weighted average of the six energy industries, with the weights approximating the anticipated spending contained in the stimulus package and the climate bill. They did not look at the credential level job creation benefits of the clean energy sectors individually.

I find it very encouraging that the two best job-creation sectors (Transit/Rail and Weatherization) are also the sectors which get the lion’s share of investment; this is why the Green Program as a whole produces more jobs per million dollars spent than any of the sectors besides these two.

Will the jobs last?

All this discussion is about a stimulus to the economy, in order to jump start it and get it going again. The Green Prosperity Report considered only jobs created by the direct effects of the spending, and the indirect effects of increased spending by people whose earnings increased due to higher earnings. These new jobs are only likely to last as long as the spending continues, after that, the hope is that the economy will have begun producing jobs again without federal stimulus.

Nevertheless, there will be ongoing effects that will help the economy long after stimulus spending has ended, and the impressive job creation numbers above do not consider these effects, which “dominate the job creation figures” according to Howard Geller, the Executive Director of the Southwest Energy Efficiency Project (SWEEP), and co-author of a study on job creation from energy efficiency measures in Colorado. Weatherization was just one type of energy efficiency measure the SWEEP study looked at, although the other sectors above were not considered because of SWEEP’s focus on energy efficiency.

He says, “I don’t think renewables are going to have nearly as much impact [as efficiency]. Using the same input/output model, you won’t get nearly the job creation from the energy bill savings. It’s the cost effectiveness of EE that leads to the savings and long term job creation.” So, to the extent that measures are cost effective, they will produce ongoing savings and job creation. Of the spending sectors listed above, Biomass is likely to be the most cost effective of the energy generation technologies (Wind, Solar, and Biomass), if the money is used for biomass co-firing in existing coal plants, and both Wind and stand-alone Biomass will be more cost effective than Solar (see my article What Does Clean Energy Cost?.) Only Biomass co-firing is likely to be able to compete with weatherization for long term job creation effects among these three.

The ongoing job creation effects of smart grid are unknown, since no one has done it before. However, giving people better information about their energy usage has been shown to reduce their consumption as much as 15%, so there should be some long term effects.

For transit spending, the benefits depend on if the transit improvements will be effective enough to allow people to reduce their car ownership: According to the Green Prosperity study, the marginal cost per mile of travel on transit is about the same as the marginal cost of auto travel, but large gains are available from any reductions in car ownership.

Conclusion

Green investments will be good for both the economy and the environment. Nevertheless, any additional federal spending will use borrowed fund that have to be repaid. Hence, we should focus on spending in sectors with both large job creation potential, and long term impacts. Clean energy as a whole has excellent job creation potential and long term impacts, but some sectors are better than others. Although the climate bill which passed the house is not everything we might want, it’s nice to know that most of the spending is going to the right places.

This weekend, I heard the head of the Colorado Governor’s Energy Office speak on what the state administration is doing on energy policy (PDF). Our current governor, Bill Ritter, ran on a three-part platform: working to fix Colorado’s healthcare, transportation, and energy policies. Last year, the administration mostly focused on energy, and although healthcare and transportation will get more attention this year, there are already several energy bills on the legislative slate. This is because “Nobody is certain what to do about transportation or health care, but we do know what to do about Energy.” This scenario may also be familiar to residents of California.

Since we do know what to do about energy, do the remaining U.S. presidential candidates? From the news coverage, I have to admit I’m far from certain. My impression has been that most of the Democrats and John McCain among the Republicans have been talking a good game, but repeated mentions of potentially problematic technologies and policies such as “clean coal,” biofuels, carbon cap-and-trade, nuclear power, and even coal to liquids, leave me wondering if even the best of intentions might lead to bungled energy policy.

If I were president …

There is no doubt that energy policy is complex. Nevertheless, energy policy much more tractable than solving our nation’s healthcare crisis, the looming unfunded costs of entitlements such as Medicare and Social Security, or even what to do about the mess in Iraq. In short, I feel I know why Al Gore isn’t running for President again.

It is true that many of the candidates have health care plans as well as energy plans. but until some other unsuccessful presidential candidate reinvents himself (or herself) by trudging around the nation with a slideshow about healthcare, I doubt our next President will be able to do more than apply a band-aid to any of these problems. (I sincerely hope to be wrong on this.)

In contrast, energy policy, while complex, provides clear opportunities for improvement:

1. Improved energy efficiency provides winners all around.
2. Strengthening our national grid is essential to large-scale renewable energy development.
3. If a carbon cap is chosen over a carbon tax, it needs to be carefully designed to avoid rewarding polluters without significantly reducing pollution.
4. The entire life-cycle of transport fuels needs to be considered to ensure they don’t do more harm than good.
5. All externalities of transport solutions need to be considered to avoid unintended consequences, such as higher fuel economy encouraging driving and hence contributing to congestion and accidents. We need better transportation systems and smart growth more than we need better cars.
6. “Clean coal” and nuclear are likely to be much more expensive when true costs are taken into account than cleaner options with less active lobbyists.

Admittedly, several of my points are controversial, but they’re less controversial than turning off life support on a brain-dead Florida woman. And they’re orders of magnitude more important.

Grading the candidates

I’m doing this exercise partly for my own benefit; I don’t know how the candidates are stack up against each other, and I still have a caucus to participate in. What follows are my grades of the remaining candidates on each of the seven above criteria. Keep in mind that I give candidates low grades on “clean coal” and nuclear if they support subsidies for these technologies. I assume that the candidates who are not currently talking about energy policy will not attempt to do anything about energy policy.

Democrats:

All of the democrats have put real effort into their proposed energy policies, but only Obama considers it one of his highest priorities. Links are to sources other than the candidates policy statements.

Republicans:

Rudy Giuliani and Mike Huckabee seem to consider energy independence (a chimera) more important than reducing carbon emissions. Ron Paul shifts the subject to property rights, while Mitt Romney waffles about whether climate change is caused by human action. Given this backdrop, I cannot take any of their energy policies seriously.

While John McCain also emphasizes energy security important, he puts priority on combating climate change. If you are a Republican who cares about this issue, he is the only one likely to take any meaningful action.

Conclusions:

I’m surprised to find that Barack Obama is the best candidate for the clean energy voter. I started this project remembering the furor he aroused with his support of coal-to-liquids technology, but his subsequent “clarification” that he was only interested in low-carbon coal to liquids seems to have taught him a lesson about transport fuels, and that early misstep may have led to a more comprehensive look at the tricky issues of transport fuels. This may be why he now takes the lifecycle costs of transport fuels seriously, while they aren’t really on other candidates’ radar.

Obama is also the only candidate who explicitly calls energy one of his highest priorities. I can’t say I’m in love with any of the candidates (note the almost total lack of “A” grades). John Edwards earned the sole “A” because he panders towards interest groups. On energy efficiency, he managed to hit one of my hot-button issues squarely, but then he went and blew it by pandering to the ethanol and “clean coal” lobbies.

A major part of Clinton’s platform involves forcing oil companies to invest in renewable energy, an idea that does not fit into my rating schema. I think this is a bad idea, because reluctant investors are unlikely to make intelligent investments. Even without Clinton’s plan, oil companies that understand peak oil will invest in alternatives, and oil companies that do not will decline along with their reserves.

With my discomfort with Obama’s initial endorsement of coal-to-liquids, and Edwards’ habit of pandering to every interest group at the expense of his own coherence, I used to lean towards Hillary. I’m now convinced that Obama has the best grasp of the issues involved.

Republican clean energy voters have a much easier choice: only John McCain is willing to confront climate change.