In December 2009 Copenhagen will host the Climate Change Conference in what is hoped by many to be the single most important environmental event since Kyoto back in 1997.
Media and politics is dominated by a great deal of half-truths and erroneous beliefs about our global energy economy and its impact on our environment. Above all, the impact on our much revered GDP growth is generally being exaggerated. This is particularly apparent when held against the fall-out created by the irresponsible handling of other issues and industries such as the current hot beds, finance and health. A well-informed, well-coordinated plan to clean up our planet and invest in future energy generation has the potential to create millions of jobs globally and to substantially improve our quality of life.
Whether or not global warming is caused by carbon emissions, the fact is we are polluting our planet. Today’s global energy policies are ill coordinated and mostly ill conceived. An economic analysis of the energy industry—reveals some shocking shortfalls and surprising conclusions. In a series of short articles I will try to provide a basic background to facilitate a more informed discussion on the subject.
Although certain alternative energies hold great hopes for the future, most are unlikely to become a valid alternative to fossil fuels for the foreseeable future. As a group, excluding hydropower, they account for no more than 1.3% of current energy production, and it is unlikely they’ll reach the 5% mark by 2030. An acceleration beyond that point should not be ruled out, but a number of technological and economic constraints are inherent in all currently available alternative energies.
The alternative economy can under no feasible circumstances make a serious dent into fossil-fuel energy production in the next 30 years, nor can nuclear or hydro power. They will remain an alternative for a long, long time, for reasons as various as physical availability, supply channel complexities, technological constraints, intermittency, high capital costs, and high inherent energy intensity.
If we are truly serious about cleaning up our planet decisively and immediately, the only feasible short-term solution I can see is to reduce the polluting qualities of fossil fuels, coal in particular. The cleaning of coal (carbon capture and storage, or CCS) as well as an accelerated extraction of coal-bed methane have a potentially much larger impact on carbon emissions than any renewable energy resource (including wind) over the next few decades.
Coal accounts for one quarter of total global energy consumption and over 40% of electricity production. It is our largest polluter and, according to Westhall Capital, emits 30% more pollutants than oil and almost double the pollutants of gas. Roughly, coal is responsible for 40% of global emissions of carbons and other pollutants. Any realistic and serious attempt to engineer a significant reduction in carbon emissions in the next 30 years will have to include carbon capture and storage (CCS).
Total installed coal capacity on the planet equals approximately 2,500 GW (gigawatts). According to the most recent calculations, retrofitting half of all coal plants on earth, approximately 1250 GW capacity, would cost us somewhere between $1 trillion to $1.5 trillion, plus an additional yearly expenditure of $100 billion to fit each new plant. Within 10 years the world could reduce carbon emissions by 20% for a total cost of about 3% of global GDP and in future build clean coal plants for an annual (additional) cost of no more than 0.2% of global GDP. Both CCS as well as coal-bed methane have reached technological maturity. Coal-bed methane has the added benefit of shifting our energy balance away from oil and away from our most unstable sources of supply. The U.S. holds an estimated 29% of global coal reserves; Russia, China, India, Australia, and South Africa together account for 50%.
For all our great achievements, we have yet to summon the political will to admit and react to the fact that we are abusing the resources of our planet because the market doesn’t force us to pay for some of them. We refuse to reverse a historic tax break for fear of slowing down our GDP growth. So far the scale of political commitment to reduce polluting emissions of energy production has been extremely small: CYKE, an independent research outfit, estimates alternative energy subsidies amount to between $50billion and $100billionn per annum globally (0.1% – 0.2% of global GDP); the market for carbon trading is worth about $120billionn per annum; and carbon taxes, with a few exceptions such as France, don’t really exist yet.
Is it not time to finally and in earnest start to internalize the external costs of our energy production? It will cost the GDP economy, but it will benefit the GQP (gross quality product) economy.
In all of it, it is crucial for the USA to understand that the world needs it to reclaim its leadership role in energy. Who else but the largest, richest, strongest, and most-polluting economy can stand up and change the game, and then elevate it to the next level? A committed participation is likely to bring in other important polluters such as China and India. Energy policy must finally receive the top priority it deserves.
Strategically, we must come together as a global community and step beyond the special interests that dominate local politics. We must better coordinate our investment in the future energy economy and agree on a system (cap and trade and/or taxes) that puts a price on the resources we are squandering today.
Tactically, to reduce carbon emissions in the short-run the only realistic choice we have is to clean coal.
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