Kunstler: Potemkin Party

James Howard Kunstler. July 27, 2015. Potemkin Party. www.kunstler.com

How many of you brooding on the dreadful prospect of Hillary have chanced to survey what remains of Democratic Party (cough cough) leadership in the background of Her Royal Inevitableness? Nothing is the answer. Zip. Nobody. A vacuum. There is no Democratic Party anymore. There are no figures of gravitas anywhere to be found, no ideas really suited to the American prospect, nothing with the will to oppose the lumbering parasitic corporatocracy that is doing little more than cluttering up this moment in history while it sucks the last dregs of value from our society.

I say this as a lifelong registered Democrat but a completely disaffected one — who regards the Republican opposition as the mere errand boy of the above-named lumbering parasitic corporatocracy. Readers are surely chafing to insert that the Democrats have been no less errand boys (and girls) for the same disgusting zeitgeist, and they are surely correct in the case of Hillary, and indeed of the current President.

Readers are surely also chafing to insert that there is Bernie Sanders, climbing in the opinion polls, disdaining Wall Street money, denouncing the current disposition of things with the old union hall surliness we’ve grown to know and love. I’m grateful that Bernie is in the race, that he’s framing an argument against Ms. It’s My Turn. I just don’t happen to think that Bernie gets what the country — indeed what all of techno-industrial society — is really up against, namely a long emergency of economic contraction and collapse.

These circumstances require a very different agenda than just an I Dreamed I Saw Joe Hill redistributionist scheme. Lively as Bernie is, I don’t think he offers much beyond that, as if cadging a little more tax money out of WalMart, General Mills, and Exxon-Mobil will fix what is ailing this sad-ass polity. The heart of the matter is that our way of life has shot its wad and now we have to live very differently. Almost nobody wants to even try to think about this.

I hugely resent the fact that the Democratic Party puts its time and energy into the stupid sexual politics of the day when it should be working on issues such as re-localizing commercial economies (rebuilding Main Streets), reforming agriculture to avoid the total collapse of corporate-industrial farming, and fixing the passenger rail system so people will have some way to get around the country when happy Motoring dies (along with commercial aviation).

The “to do” list for rearranging the basic systems of daily life in America is long and loaded with opportunity. Every system that is retooled contains jobs and social roles for people who have been shut out of the economy for two generations. If we do everything we can to promote smaller-scaled local farming, there will be plenty of work for lesser-skilled people to do and get paid for. Saying goodbye to the tyranny of Big Box commerce would open up vast vocational opportunities in reconstructed local and regional networks of commerce, especially for young people interested in running their own business.

We need to prepare for localized clinic-style medicine (in opposition to the continuing amalgamation and gigantization of hospitals, with its handmaidens of Big Pharma and the insurance rackets). The train system has got to be reborn as a true public utility. Just about every other civilized country is already demonstrating how that is done — it’s not that difficult and it would employ a lot of people at every level. That is what the agenda of a truly progressive political party should be at this moment in history.

That Democrats even tolerate the existence of evil entities like WalMart is an argument for ideological bankruptcy of the party. Democratic Presidents from Carter to Clinton to Obama could have used the Department of Justice and the existing anti-trust statutes to at least discourage the pernicious monopolization of commerce that Big Boxes represented. By the same token, President Obama could have used existing federal law to break up the banking oligarchy starting in 2009, not to mention backing legislation to more crisply define alleged corporate “personhood” in the wake of the ruinous “Citizens United” Supreme Court decision of 2010. They don’t even talk about it because Wall Street owns them.

So, you fellow disaffected Democrats — those of you who can’t go over to the other side, but feel you have no place in your country’s politics — look around and tell me who you see casting a shadow on the Democratic landscape. Nobody. Just tired, corrupt, devious old Hillary and her nemesis Bernie the Union Hall Champion out of a Pete Seeger marching song.

I’ve been saying for a while that this period of history resembles the 1850s in America in two big ways: 1) our society faces a crisis, and 2) the existing political parties are not up to the task of comprehending what society faces. In the 1850s it was the Whigs that dried up and blew away (virtually overnight), while the old Democratic party just entered a 75-year wilderness of irrelevancy. God help us if Trump-o-mania turns out to be the only alternative.

Oh, by the way, notice that the lead editorial in Monday’s New York Times is a plea for transgender bathrooms in schools. What could be more important?

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Material and other limits to scaling wind up to 24 GW by 2050

[Before you read this, check out the enormous amount of material and fossil energy required to build just one windmill.  ]

Davidsson, S., Grandell, L., Wachtmeister, H., Höök, M. October 2014. Growth curves and sustained commissioning modelling of renewable energy: Investigating resource constraints for wind energy. Energy Policy, Volume 73, Pages 767–776 http://dx.doi.org/10.1016/j.enpol.2014.05.003

Although the wind itself is a type of renewable energy, the wind turbines converting the kinetic energy in the wind into electrical energy are not renewable and are built using a wide range of non-renewable resources.

Several recent studies have proposed fast transitions to energy systems based on renewable energy technology. Many of them dismiss potential physical constraints and issues with natural resource supply, and do not consider the growth rates of the individual technologies needed or how the energy systems are to be sustained over longer time frames. A case study is presented modelling potential growth rates of the wind energy required to reach installed capacities proposed in other studies, taking into account the expected service life of wind turbines.

The annual installation and related resource requirements to reach proposed wind capacity are quantified and it is concluded that these factors should be considered when assessing the feasibility, and even the sustainability, of fast energy transitions. Even a sustained commissioning scenario would require significant resource flows, for the transition as well as for sustaining the system, indefinitely. Recent studies that claim there are no potential natural resource barriers or other physical constraints to fast transitions to renewable energy appear inadequate in ruling out these concerns.

A few recent peer reviewed studies stand out by proposing future energy systems almost completely based on energy from the wind and the sun, claimed to be achievable as soon as the year 2050, or even more rapidly by 2030 (García-Olivares et al., 2012; Jacobson and Delucchi, 2009; Kleijn and van der Voet, 2010).

Substituting the entire current energy system based on fossil fuels with renewable energy technologies involves up-scaling a disparate set of small scale industries, and the timeframe to do this within only a couple of decades, can appear optimistic. The implications of the fast growth of the renewable energy technologies needed to do this are often not adequately addressed in the studies proposing future energy systems based on renewable energy. The question of how these energy systems are then to be sustained over a longer time scale are usually not considered.

This study aims to add the perspectives of time and scale to evaluating the feasibility of fast energy transitions by taking account of annual growth rates needed to reach proposed future energy systems as well as investigating how an energy system based on renewable energy technologies could be sustained in the long run. This is mainly done by modelling growth patterns needed to reach the installed capacities of wind energy proposed in other studies, taking account of the life expectancies and need for replacement of technology, using wind energy as an example. The requirement of natural resources for the construction of wind energy is quantified on an annual basis to examine the impact on views of potential material constraints.

The growth of renewable energy technologies needed for an energy transition must inevitably come with the growth of an industry capable of manufacturing and installing that technology, capital to finance these investments, as well as an increased demand for certain natural resources.

Renewable energy technologies such as wind and solar energy are more metal intensive than current energy sources and a transition to renewable energy would increase demand for many different metals (Kleijn et al., 2011). Several different critical metals have been identified as potential bottlenecks in the deployment of “low-carbon energy technologies” (Moss et al., 2011). It has also been argued that a shift to an energy system based on renewable energy would inevitably be largely driven by fossil fuels, and a fast growth of renewables would actually add new fossil fuel demand to current demand during a transition period (Moriarty and Honnery, 2009).

The concept of “energy return on investment” (EROI) appears lower for renewable energy technologies than many conventional fossil fuels we currently rely on for our energy supply (Hall et al., 2013). Concerning solar photovoltaics (PV), it has been suggested that high energy input for the production of crystalline silicon solar cells could be a constraint for the growth of this technology, while current thin film technologies could never reach significant production levels due to the use of scarce materials (Tao et al., 2011). Dale and Benson (2013) even claim that the solar PV industry has not yet paid back any net energy to society, partly due to its high relative growth rates, and concludes that both the timing and magnitude of energy inputs and outputs are important factors in determining an energy balance for the solar industry.

Others raise issues with the variable production of electrical energy from wind and solar energy as well as the large amount of capital needed for investment in new energy production as potential constraints on this development (Trainer, 2013, 2012).

Installed wind capacity Jacobson and Delucchi (2009) describe an energy system consisting of 51% wind energy and 40% solar energy that is “technically possible” to achieve before 2030. This scenario is further elaborated on in Jacobson and Delucchi (2011) and Delucchi and Jacobson (2011), where the time frame is postponed due to difficulties in implementing the necessary policies by 2030, but it is still said to be technically feasible to achieve by 2030. Kleijn and Van der Voet (2010) present a similar scenario, with slightly more wind energy but many times more solar PV, since the total energy demand is assumed to be much larger. García-Olivares et al. (2012) propose an energy mix similar to the Jacobson and Delucchi (2009) scenario, but state that solar PV is unlikely to be able to reach these levels due to constraints induced by scarce materials used for solar PV technology and propose using concentrating solar power (CSP) instead. Table 1 summarizes the main features of these three studies as well as the current situation as of 2012.

The studies described in Table 1 all propose energy systems completely based on renewable energy technology, with wind and solar energy making up almost the entire global energy supply by 2030 or 2050. Although important differences occur between the different studies, some interesting similarities exist. While the solar energy contributions vary greatly both in size and technologies chosen, the assumed contribution from wind is very similar between the studies, with suggested installed capacities ranging from 18 to 24 TW. All three studies discuss potential constraints caused by natural resources and conclude that this factor will likely not constrain the development towards the proposed energy future. The growth patterns needed for the individual technologies is not given much attention, and when growth rates of technologies are mentioned it appears as if exponential growth rates are assumed, or at least deemed feasible.

This study investigates the implications of fulfilling these growth patterns by letting wind energy grow exponentially reaching 19 TW by 2030 and 24 TW by 2050. Although not specified in the studies, these capacities are then assumed to be sustained to the year 2100, to be able to investigate the implications of sustaining this capacity.

Laxson et al. (2006) describes a sustained manufacturing model, where installed capacity of wind energy grows to reach 1%, 20% and 30% of U.S. electricity demand by 2020 or 2030. After 25 years the capacity installed 25 years earlier are replaced (repowered). The need to replace the capacity after the end of the service life of the wind turbines affects the desired manufacturing capacity of the wind industry. If the installed capacity of wind is to be sustained over a longer time frame, an industry capable of replacing the capacity taken out of use must exist. If the growth trajectory is too slow to reach a manufacturing capacity large enough to replace the old turbines in the future, the actual wind capacity in use can in fact see a drop after the initial goal is reached. On the other hand, if the manufacturing capacity is expanded too fast, the demand for new turbines will drop and leave manufacturing capacity idle.

The sustained commissioning model in this study builds upon the ideas proposed by Laxson et al. (2006), with some modifications. The use of the word commissioning instead of manufacturing is proposed to highlight the fact that taking wind capacity into use is not only about physically producing wind turbines, but requires an entire industry of getting the right materials, manufacturing parts, permission to install wind farms, assembling and installing turbines, as well as getting the wind farms connected to an electrical grid capable of transporting the power to consumers.

Höök et al. (2012) reviewed historical growth rates of energy output from the six energy resources considered as global energy systems, defined as energy sources contributing over 100 Mtoe, or supplying about 1% of global annual primary energy. These include oil, gas, coal, biomass, hydropower and nuclear power. Generic growth behavior for these six energy systems was found, with growth rates decreasing as the energy output increased. It is stated that none of the fossil fuels have grown at more than 10% over longer time periods, and not even the “oil boom” showed sustained growth rates of more than around 7%. The growth rates for nuclear and hydropower show similar behavior as those seen for fossil fuels, despite fundamental differences in technology, suggesting that similar growth patterns could be expected for other energy technologies as well.

Technology can be taken out of use for several different reasons, making the assumption of expected service life somewhat difficult to estimate. However, it must be considered certain that they will not last forever. In the case of wind turbines, the end-of-life can be reached due to technical failure or fatigue, or when the turbine no longer satisfies the need or expectations of the user, when a wind farm is either decommissioned or repowered, where the individual turbines are replaced with new ones (Ortegon et al., 2013). The assumed service life will have a significant impact on annual installations needed in the models in this study.

The question then is what a reasonable estimate of service life for a wind turbine is. Ortegon et al. (2013) state that the designed life expectancy for a wind turbine is 20-30 years, but assumes a service life of 20 years. Laxson et al. (2006) state that the design service life of a wind farm is 20 to 30 years but use a 25 year service life in the models. Within the life cycle assessment (LCA) community it appears to be somewhat of a standard to assume a 20 year service life. Kubiszewski et al. (2010) presents a meta-analysis of 119 different turbines from 50 different analyses between 1977 and 2006, where a vast majority assumed a 20-year life span. Davidsson et al. (2012) looked at ten more recent LCAs of wind turbines and found similar tendencies. Dolan and Heath (2012) reviewed and harmonized 72 LCAs on wind turbines and concluded that 20 years was the most commonly cited lifetime estimate as well as a common design life for modern wind turbines. Basically, a 20 year service life appears to be the most reasonable assumption based on current literature.

One of the first countries to build large quantities of wind energy was Denmark, and data on both commissioned and decommissioned facilities exist all the way back to 1977 (Energistyrelsen, 2014). Using the assumption that the wind turbines will be in use for 20 years it is then possible to compare how much capacity that should be decommissioned 20 years after its construction with the actual numbers on decommissioning. Figure 1 shows these theoretical numbers on decommissioning as well as actual historical decommissioned capacity. Although they do not correlate exactly, especially since a large amount of turbines was taken out of use in the year 2002, they appear to follow a similar pattern, and the total cumulative decommissioned capacity of 431 MW comes remarkably close to the theoretical number of 468 MW.

Including an assumption on service life for a technology can have large impacts on the annual installation need for the growth period, but also for the energy system in a longer time frame. Looking at a scenario for 2050, assuming a 20 year service live of wind turbines, only turbines built after 2030 will even be in use at that time. Turbines built between now and 2030 will only be in service during the transition and for scaling up the industry. After 2050 the old turbines will need to be replaced, so an industry capable of sustaining this level of production needs to be in place.

Wind turbines can roughly be divided into two categories: geared turbines and gearless turbines. The turbines can operate with either a fixed speed or limited variable speed concept, both cases using a three-stage gearbox. Turbines operating with variable speed can use either a gearbox or a direct drive train concept. Some concepts use significant amounts of scarce materials in their design. For instance, permanent magnet synchronous generators (PMSG), which is a widely used generator concept with a direct drive train, uses significant amounts of rare earth elements (REEs). These generators often operate without gears, which can be beneficial since the gearbox often needs maintenance. There are other direct drive concepts that do not use these materials, such as induction generators and exited synchronous generators (EESG). The need for rare earth elements is estimated to be 160-200 kg/MW for generators used in direct drive concepts, while PMSG designs used in combination with a gearbox the need for REE is reduced to about 30 kg/MW (Buchert, 2011).

As a constraint for a total expansion of wind energy on a global scale the significance of these materials are often dismissed since designs not relying on them would likely arise if the supply of these materials becomes increasingly limited.

Wind turbines require large amounts of other materials, such as steel and copper as well, and these materials are quantified in the case study as an example of resource requirements. This study uses the assumption that 1 MW of wind capacity requires 140 tons of iron and steel and 2 tons of copper, as described by Kleijn and Van der Voet (2010).

Figure 2a presents the cumulative growth curves of wind capacity enabling 19 TW by 2030 and 24 TW by 2050 with exponential growth profiles. Figure 2b shows the resulting annual commissioning required to reach 19 TW wind capacity by 2030, as well as what is required to sustain this capacity in the future. It can be seen that not only the cumulative installations, but also the annual installations grow exponentially, leading to quite extreme annual installations at the end of the growth period. Reaching 19 TW by 2030 with exponential growth means that 21 % of all installed capacity would be installed in the final year, and 68 % would be installed in the last 5 years. Reaching 24 TW by 2050 with exponential growth means that 11% of all the capacity would be installed in the final year, and 45% would be installed in the last 5 years (Figure 2c). Sustaining these capacities will require an annual commissioning growing exponentially in a kind of cyclic behavior.

Similar results were found by Honnery and Moriarty (2011) who used 3 different exponential growth rates reaching 2 different installed capacities of wind power and found that these growth rates leads to “boom and bust cycles” in equipment manufacture as well as net energy output from the system.

Assuming double digit exponential growth of energy technologies for decades after reaching significant contributions to the global energy system can simply not be considered realistic since the pure arithmetic of such growth patterns leads to unreasonable expectations on annual installation rates. Further discussions on the nature of exponential growth can be found in other studies (Bartlett, 1993; Meadows et al., 1972).

Figure 2. a) Cumulative installed capacity of wind power reaching 19 TW by 2030 and 24 TW by 2050 with exponential growth. b) Annual commissioning of wind capacity required for reaching 19 TW by 2030 and sustaining this capacity. c) Annual commissioning of wind capacity required for reaching 24 TW by 2050 and sustaining this capacity.

Reaching 24 TW by 2050 alone is modelled using a logistic function. Figure 3a describes a logistic growth curve fitted to the historic data and constrained at 24 TW wind capacity. This appears to be a more realistic growth pattern than exponential growth, but what is not always considered is that the annual additions needed will not only be installing new turbines, but also replacing old turbines at the end of their service life. Assuming a 20 year service life for a wind turbine, the annual requirements of replacing old turbines can be modelled with a second logistic curve with a 20 year time lag. Figure 3b shows the annual commissioned capacity needed both for the net growth as well as replacing old capacity taken out of use.

Figure 3. a) Cumulative installed capacity of wind energy described by a logistic curve fitted to historical data reaching 24TW by 2050. b) Annually commissioned wind capacity required to reach 24TW by 2050 taking account for replacing decommissioned turbines.

The maximum annual installations needed for logistic growth is much lower than the exponential case, but reaching 24 TW still requires significant numbers. Also, as can be seen in Figure 3b, assuming logistic growth of cumulative installed capacity in this case means that the total annual installations needed when taking account for replacing old turbines creates a dip in annual installation need before rising again. This type of pulsing behavior is commonly seen in nature (Odum, 2007), and might not be an unrealistic scenario. However, it might not be optimal, since this would create an industry capable of installing more wind capacity in a year than is needed to sustain this in the long run.

Less scarce materials are commonly ruled out as constraints based on quite simple arguments, but for a complete transition to a renewable energy system even common materials have been mentioned as potentially problematic. Kleijn and van der Voet (2010) suggest that the sheer size of the proposed transition would challenge production even for “bulk materials” such as steel and copper.

Constructing the wind capacity of 24 TW would only demand a few per cent of global iron ore and copper reserves. However, using the growth patterns from the case study, this total resource requirement can be spread out over the time period leading up to the proposed realization year and be translated into annual requirements for the different resources. These annual quantities can then be compared with projections for future production of these resources. It could also be useful to take account for competing demand from other uses for a more complete systems view.

The quantities presented in Table 2 could give an indication of the size of the annual resource requirements for building these quantities of wind capacity. Table 2 describes the resulting maximum annual installations

Even in the sustained commissioning model, the annual installation of 1.2 TW needed to sustain the 24 TW wind capacity leads to significant annual requirements for copper and steel.

Under these assumptions, only sustaining the 24 TW of wind energy, assumed to provide 15% of global energy demand by Kleijn and Van der Voet (2010), would need the equivalent of 11% of total global steel production and 14% of global copper production (based on 2012 rates of production).

This means that reaching and sustaining this installed wind capacity would require quantities of steel that is similar to the current automotive industry, that used 12% of the steel produced in 2011, while the entire sector of electrical equipment used only around 3% (World Steel Association, 2012). The amount of copper needed for the turbines is comparable to what is used for making electric motors, of around 12% of the global copper production, while the electric energy transmission sector use about 26% (Achzet et al., 2011).

This study makes no attempt to project what the future energy systems might look like, neither on the demand nor the supply side. Instead, the assumptions of future installed capacity of wind energy for the case study is taken directly from these other studies, and translated into possible growth patterns. It should be mentioned that the works used in this case study are quite extreme when it comes to proposed installed capacities of wind and solar energy compared to most other studies proposing similar energy transitions. However, they are still considered relevant since they are widely cited in peer reviewed scientific journal articles.

During the growth phase this demand would be additional to current demand and must be assumed to come from supplementary production, and even if the replacement of turbines in the future would be based on recycling old turbines, a similar sized commissioning industry would be needed, as well as an industry capable of recycling the materials and making them available for new turbines. The pure scale of creating and sustaining this type of energy system is simply massive.

In the case of wind energy, metals considered somewhat scarce, such as neodymium, are sometimes mentioned as a potential issue, but “bulk” materials such as steel and copper are usually dismissed as potential constraints. However, none of them pay much attention to assumed growth rates or what resource flows that would be needed to sustain the growth or to sustain the proposed energy system in the future.

Three common ways to evaluate natural resource constraints in other studies have been found. First, the “Reserve-to-production ratio” (R/P ratio), comparing the current annual production to reserve estimates is a very common method. Secondly, simply comparing the total demand incurred by the proposed energy system to reserve estimates is a frequently used method. Thirdly, simply stating that the materials used are theoretically recyclable is sometimes used as an argument that no natural resource constraints will occur. All three of these arguments have their merits and can be used to make fast and easy estimates of natural resource constraints, but using any of them to completely dismiss potential problems with natural resource supply appears questionable.

An example of R/P ratio being used to disregard natural resource constraints can be found in Jacobson and Delucchi (2011), where it is stated that the world have “somewhat limited reserves” of iron ore, which is claimed to last for 100-200 years at current production. However, this assumes that annual production remains constant and global steel production is currently increasing rapidly, and realizing the Jacobson and Delucchi (2009) scenario would mean a significant increase of an already expanding demand for steel. Comparing current production to reserve estimates could give a first indication of potential constraints, but it appears insufficient to motivate a total dismissal of problems that might occur. Bartlett (2006) describes several problems with using the R/P ratio for a resource under growing production, and states that it gives rise to unwarranted optimism.

The method of comparing the total requirements of a resource for reaching a future energy system to estimated reserves can be found in García-Olivares et al. (2012), where it is stated that the complete power system needed for the energy system described would need 40% of total estimated copper reserves. Adding assumptions of the copper needed from the demand side of the transport sector García-Olivares et al. (2012) reach a total of 60% of global copper reserves. This method has the potential of indicating if the quantities needed could be a problem. For instance, the claim that realizing the energy system proposed in García-Olivares et al. (2012) could demand 60% of the current copper reserves appear like extraordinary quantities, although reserve estimates can change with time.

This method does not say anything about what resource flows would be needed and how fast the materials could be brought to market.

The third common argument to dismiss potential resource constraints is using the simple fact that some materials are recyclable. Jacobson and Delucchi (2011) argue that some rare resources, such as neodymium for electric motors and generators, platinum for fuel cells and lithium will have to be recycled or replaced with less scarce materials to reach a 100% renewable energy system, unless additional resources are located. Jacobson and Delucchi (2009) claim that there are indications that there are not enough economically recoverable lithium to build “anyway near the number of batteries needed in a global electric- vehicle economy”, but at the same time state that recycling could change this equation. There is no doubt that recycling would be important for sustaining a “sustainable” energy system in the future, but this does not mean that recycling will change the total amount of materials needed in the system at a given moment in time. The same atoms simply cannot both be in use and recycled to build other technology at the same time. The minimum amount of a resource needed to sustain the system simply does not change because of recycling. A more comprehensive discussion on recycling using the case of lithium is available in Vikström et al. (2013).

The end of life recycling rate (EOL-RR) appears to be around 70-90% for iron and steel, but since the steel demand is growing and is commonly used for long lived uses, the recycled content (RC) in new material is lower at around 32-52%, while the same factors for copper has been estimated to be between 43-53% and 22-37% respectively (Graedel et al., 2011).

While some expect that the recycling rates for metals used in electricity generation technologies will be higher due to expected high collection rates (Elshkaki and Graedel, 2013), others mentions different situations that could lead to materials not being recycled (Davidsson et al., 2012).

For some materials, recycling can even be technically problematic. In the case of REEs, such as neodymium, recycling is commonly mentioned as being important for a sustainable energy system, but at the moment no infrastructure for recycling of REEs from the permanent magnets exists and the end-of-life recycling rate is estimated to be less than 1% (Buchert, 2011).

One important problem with recycling rare earth elements is the fact that the metals oxidize quickly and disappear in the slag (Buchert et al., 2009). However, it could be technically possible to reach recycling rates of more than 90% for both neodymium and dysprosium (Schüler et al., 2011). A sustainable energy system would have to recycle as much as possible of the materials after the end of the service life, but even if recycling rates would eventually come close to 100%, the industry for replacing old technologies would still demand large resource flows indefinitely. The case study culminating in 24 TW of installed wind capacity demands an equivalent of over 10% of current (2012) global annual demand of bulk materials such as copper and steel. Even if these turbines were to be recycled at the end of their life and built using only recycled materials, it would still mean large material flows.

Another important perspective is the fact that this study only includes the material demands for constructing wind energy,

An energy system completely based on renewable energy technology would likely need more of these technologies, but also energy storage and transmission capable of creating a functioning energy system. For instance, Barnhart and Benson (2013) investigates energy and material requirements for different energy storage technologies and concludes that building an energy storage capacity that could be required in the future require amounts of materials and energy that are comparable to current annual production values.

An industry growing too fast can mean that the industry consumes more energy than it produces on an annual basis (Honnery).

There are many other examples of potential constraints on the growth of renewable energy technology, many of which are discussed by others. IEA (2013b) mentions costs, grid integration issues and permit issues as obstacles to a goal of 18% of global electricity from wind energy by 2050.

For wind energy, constructing the wind turbine and the connected capital costs constitute the majority of the total cost, with 76 – 85% of the total cost being capital cost (Timilsina et al., 2013). Financing for this cost needs to be in place before the wind capacity can be commissioned. Jacobson and Delucchi (2009) state that the construction of the proposed energy system would cost around 100 trillion USD over 20 years (not including transmission), which will be paid back by the sale of electricity and energy. Trainer (2012) interprets this as an investment of 5 trillion USD annually would be needed, which is said to be around 11 times the early 2000s annual investments in energy of around 450 billion USD. However, as discussed in this paper, this type of growth pattern is not very realistic.

The variability of production and grid integration is commonly suggested as the main barriers for implementation of renewable energy and it has even been suggested that this factor limits penetration rates of wind energy to 2 % of electricity production (Lenzen, 2010). These factors are discussed in more detail in other studies (Trainer, 2013, 2012).

The fact that energy production from renewable energy technologies is intermittent and non-dispatchable can also be argued to add to the total costs due to the need for backup power (Larsson et al., 2014).

The grid improvements and backup power requirements have to be in place before the variable energy production is taken into use, so the estimated growth curves can prove important for these aspects as well.

Although these technologies are likely more sustainable than fossil fuels, they are not without environmental impacts and are built using non-renewable resources. They should therefore not automatically be considered sustainable. A rapid growth in these technologies will even increase demand for a variety of different resources. Suitable growth rates of energy technologies, as well as how an energy system can be sustained over a longer time frame, should be considered when discussing sustainable energy systems for the future.


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A review of life cycle assessments on wind energy systems by Simon Davidsson 2012

[below is a very short excerpt of this 22 page paper, I was interested in how much recycling can contribute to a high EROI but there are many other important points made in this paper]

Davidsson, S., Höök, M., Wall, G. 2012. A review of life cycle assessments on wind energy systems. The International Journal of Life Cycle Assessment.


Energy systems based on wind, as well as other renewable energy sources, are often automatically assumed to be sustainable and environmental-friendly sources of energy in much of the mainstream debate.

However, all systems for converting energy into usable forms have various environmental impacts, not to mention a requirement of natural resources. It is essential to have consistent evaluation methods for analyzing all aspects of a given energy source.

Without such methods, it is difficult to compare them and make the right decisions when planning and investing in energy systems for the future.

Future growth of any new energy systems, in this case wind power, will require energy, as well as other resources during the expansion phase, and these implications need to be considered when planning future developments. A need for meticulous environmental impact assessments and energy performance evaluations can be seen here.

It could be questioned how certain it is that the materials will in fact be recycled in 20 years, or more. For some materials making up large parts of a wind turbine, i.e. steel, copper, aluminum and other metals, it is highly likely that the materials will be recycled in the future, but it is not certain. The economics of recycling scrapped wind plants are also uncertain and it is entirely possible that the cost of dismantling and extracting the recyclable parts will be prohibitively high in the future, especially for wind farms located in remote or off-shore areas. For example, the Tehachapi Pass in California contains “bone yards” of abandoned wind turbine hardware that has been lying around without being recycled (Pasqualetti et al., 2002).

Even if decommission is usually mandatory in operating permits, the total costs of decommissioning may not be covered due to price inflation, low capacity, unexpected circumstances (e.g., hurricane destruction), or a combination of such events (Kaiser and Snyder, 2012). It is possible that recycling can become uneconomic compared to abandonment under certain conditions, which is important to remember as decommissioning is dependent on a number of highly uncertain parameters that can have significant direct or indirect impacts on cost.

Material recovery at the end of the life cycle cannot be guaranteed as expressed by Crawford (2009), who also stresses that the environmental credit should rather be given to products using the recycled material.

Jacobson and Delucci (2011) states that Earth has somewhat limited reserves of economically recoverable iron ore, over a 100–200 year perspective at current recovery rates, but also mention that most of the steel will be recycled. What is not mentioned is that the steel consumption is already rising fast. ESTP (2009) projects the global steel consumption to be over 2000 Mt by 2050, compared to just below 1400 Mt in 2010. This growth, coupled with the fact that recyclable steel has often been held up for many decades before finally being recycled, makes the total part of steel production coming from recycled steel is fairly low, only around 45% in Europe (ESTP, 2009).

Such real world recycling shares appears to be in significant disagreement with some of the very high recycling percentages used in the reviewed studies.

Kubiszewski et al. (2010) compiled 50 EROI studies and found values ranging from 1.0 to 125.8 with an average of approximately 18.

It is difficult to see how the higher figures could be using the same concepts and parameters as the lower ones. It should be added that many of the results in these studies are old, and that LCA methodology has evolved since they were done. However, a large spread in results is still seen in the fairly new studies reviewed in this paper (Table 3).

Improving the treatment of energy

There is significant problem that EROI or EPBT is sometimes presented as primary energy using thermal equivalents, and sometimes using direct equivalents, making comparisons very difficult, especially since is sometimes difficult to even interpret if the conversion were done. As an example, Lee et al. (2006) and Lee and Tzeng (2008) presents an EPBT of 1.3 months – equivalent an EROI of 185 – far superior to all other reviewed studies. It seems like they use direct energy payback time without any conversion to thermal equivalents, but still compare their result to Schleisner (2000), who converts produced electricity to primary energy. It is quite odd that an energy performance many times better than Schleisner (2000) – and literally all other previous LCAs on wind energy –is not reflected upon. Instead, it is claimed that performance of wind power systems implemented in Taiwan is among the best in the world (Lee et al. 2006). Drawing these conclusions without analyzing other reasons for the variations, such as methodological differences, should be considered highly questionable.

This is just one of example how a LCA study can make flawed and even misleading comparisons and conclusions.

Regarding energy use during the life cycle, we find no consensus on how different energy carriers should be treated. How this is done is generally not clearly described in published studies either. The total amount of primary energy used is often presented, and in some cases this is also divided into different energy carriers. However, energy carriers used varies between studies making comparisons difficult. For electricity, national generation mixes are typically used, if anything is mentioned at all. How much of the total energy used was originally electrical energy is not plainly presented in any of the reviewed studies, making it difficult to investigate the impact of using of different electricity mixes. Guezuraga et al. (2012) showed that switching generation mix could alter the results by around 50%, indicating the importance of this factor.

Improved handling of non-energy resources

The need for non-energy resources does not seem to be seen as an important factor in most studies, and is usually not considered or discussed in any detail. When they are, intricate impact methods expressing resource depletion in antimony equivalents per kg is sometimes used even though this likely will be challenging to grasp for laymen and planners. Material resource use is a trivial issue for LCA according to Weidema (2000). In contrast, Finnveden (2005) suggests that resource use, although it should not be included as an impact factor in the LCIA, could be included in the LCA and states that LCA potentially can be a useful tool for discussing both environmental and resource aspects of products. Another significant problem is the use of end-of-life recycling crediting. It can be argued, for many reasons, that environmental effects of recycling that may occur in 20 years should not be credited the environmental impacts apparent today. However, most of the reviewed studies credit future recycling in some way. The implications of the recycling crediting on the results are often difficult to interpret, but for some of the results, the effect appears to be significant. For instance, energy use in Guezuraga et al. (2012) is increased by 43.3% when no recycling of materials is considered.

Final recommendations

The most troublesome part we found is the lack of transparency regarding fundamental and underlying assumptions, calculations and conversions done in the reviewed LCAs. Mitigating this issue will not only improve clarity, but is also likely to strengthen the credibility of LCA methodology. The LCA society should clearly strive for better agreement on which methods are to be used for evaluating renewable energy resources. This is not just desirable, but crucial, to be able to accurately evaluate and present the environmental performance of wind energy. Also, the use of natural resources, like REEs, should be clearly mentioned in the assessments to enable evaluating of possible bottlenecks in future production.

Kubiszewski I, et al (2010) Meta-analysis of net energy return for wind power systems. Renewable Energy. 35(1): 218-225, DOI: http://dx.doi.org/10.1016/j.renene.2009.01.012



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Wood, the fuel of preindustrial societies, is half of EU renewable energy

There are 2 articles below:

  1. The Economist. April 6, 2013. Wood: the fuel of the future. Environmental lunacy in Europe.
  2. ZME Science. August 2015. The UK plans to build the world’s largest wood-burning power plant

Also, Vaclav Smil, in his 2013 book “Making the Modern World: Materials and Dematerialization” states: “Straw continues to be burned even in some affluent countries, most notably in Denmark where about 1.4 Mt of wheat straw (nearly a quarter of the total harvest) is used for house heating or even in centralized district heating and electricity generation.”

1. The Economist. April 6, 2013. Wood: The fuel of the future. Environmental lunacy in Europe.

Which source of renewable energy is most important to the European Union? Solar power, perhaps? (Europe has three-quarters of the world’s total installed capacity of solar photovoltaic energy.) Or wind? (Germany trebled its wind-power capacity in the past decade.) The answer is neither.

By far the largest so-called renewable fuel used in Europe is wood.

In its various forms, from sticks to pellets to sawdust, wood (or to use its fashionable name, biomass) accounts for about half of Europe’s renewable-energy consumption.

In some countries, such as Poland and Finland, wood meets more than 80% of renewable-energy demand. Even in Germany, home of the Energiewende (energy transformation) which has poured huge subsidies into wind and solar power, 38% of non-fossil fuel consumption comes from the stuff. After years in which European governments have boasted about their high-tech, low-carbon energy revolution, the main beneficiary seems to be the favored fuel of pre-industrial societies. In this section

The idea that wood is low in carbon sounds bizarre. But the original argument for including it in the EU’s list of renewable-energy supplies was respectable. If wood used in a power station comes from properly managed forests, then the carbon that billows out of the chimney can be offset by the carbon that is captured and stored in newly planted trees. Wood can be carbon-neutral. Whether it actually turns out to be is a different matter. But once the decision had been taken to call it a renewable, its usage soared.

In the electricity sector, wood has various advantages. Planting fields of windmills is expensive but power stations can be adapted to burn a mixture of 90% coal and 10% wood (called co-firing) with little new investment. Unlike new solar or wind farms, power stations are already linked to the grid. Moreover, wood energy is not intermittent as is that produced from the sun and the wind: it does not require backup power at night, or on calm days. And because wood can be used in coal-fired power stations that might otherwise have been shut down under new environmental standards, it is extremely popular with power companies.

Money grows on trees

The upshot was that an alliance quickly formed to back public subsidies for biomass. It yoked together greens, who thought wood was carbon-neutral; utilities, which saw co-firing as a cheap way of saving their coal plants; and governments, which saw wood as the only way to meet their renewable-energy targets. The EU wants to get 20% of its energy from renewable sources by 2020; it would miss this target by a country mile if it relied on solar and wind alone.

The scramble to meet that 2020 target is creating a new sort of energy business. In the past, electricity from wood was a small-scale waste-recycling operation: Scandinavian pulp and paper mills would have a power station nearby which burned branches and sawdust. Later came co-firing, a marginal change. But in 2011 RWE, a large German utility, converted its Tilbury B power station in eastern England to run entirely on wood pellets (a common form of wood for burning industrially). It promptly caught fire.

Undeterred, Drax, also in Britain and one of Europe’s largest coal-fired power stations, said it would convert three of its six boilers to burn wood. When up and running in 2016 they will generate 12.5 terawatt hours of electricity a year. This energy will get a subsidy, called a renewable obligation certificate, worth £45 ($68) a megawatt hour (MWh), paid on top of the market price for electricity. At current prices, calculates Roland Vetter, the chief analyst at CF Partners, Europe’s largest carbon-trading firm, Drax could be getting £550m a year in subsidies for biomass after 2016—more than its 2012 pretax profit of £190m.

With incentives like these, European firms are scouring the Earth for wood. Europe consumed 13m tonnes of wood pellets in 2012, according to International Wood Markets Group, a Canadian company. On current trends, European demand will rise to 25m-30m a year by 2020.

Europe does not produce enough timber to meet that extra demand. So a hefty chunk of it will come from imports. Imports of wood pellets into the EU rose by 50% in 2010 alone and global trade in them (influenced by Chinese as well as EU demand) could rise five- or sixfold from 10m-12m tonnes a year to 60m tonnes by 2020, reckons the European Pellet Council. Much of that will come from a new wood-exporting business that is booming in western Canada and the American south. Gordon Murray, executive director of the Wood Pellet Association of Canada, calls it “an industry invented from nothing”.

Prices are going through the roof. Wood is not a commodity and there is no single price. But an index of wood-pellet prices published by Argus Biomass Markets rose from €116 ($152) a tonne in August 2010 to €129 a tonne at the end of 2012. Prices for hardwood from western Canada have risen by about 60% since the end of 2011.

This is putting pressure on companies that use wood as an input. About 20 large saw mills making particle board for the construction industry have closed in Europe during the past five years, says Petteri Pihlajamaki of Poyry, a Finnish consultancy (though the EU’s building bust is also to blame). Higher wood prices are hurting pulp and paper companies, which are in bad shape anyway: the production of paper and board in Europe remains almost 10% below its 2007 peak. In Britain, furniture-makers complain that competition from energy producers “will lead to the collapse of the mainstream British furniture-manufacturing base, unless the subsidies are significantly reduced or removed”.

But if subsidising biomass energy were an efficient way to cut carbon emissions, perhaps this collateral damage might be written off as an unfortunate consequence of a policy that was beneficial overall. So is it efficient? No.

Wood produces carbon twice over: once in the power station, once in the supply chain. The process of making pellets out of wood involves grinding it up, turning it into a dough and putting it under pressure. That, plus the shipping, requires energy and produces carbon: 200kg of CO2 for the amount of wood needed to provide 1MWh of electricity.

This decreases the amount of carbon saved by switching to wood, thus increasing the price of the savings. Given the subsidy of £45 per MWh, says Mr Vetter, it costs £225 to save one tonne of CO2 by switching from gas to wood. And that assumes the rest of the process (in the power station) is carbon neutral. It probably isn’t.

A fuel and your money

Over the past few years, scientists have concluded that the original idea—carbon in managed forests offsets carbon in power stations—was an oversimplification. In reality, carbon neutrality depends on the type of forest used, how fast the trees grow, whether you use woodchips or whole trees and so on. As another bit of the EU, the European Environment Agency, said in 2011, the assumption “that biomass combustion would be inherently carbon neutral…is not correct…as it ignores the fact that using land to produce plants for energy typically means that this land is not producing plants for other purposes, including carbon otherwise sequestered.

Tim Searchinger of Princeton University calculates that if whole trees are used to produce energy, as they sometimes are, they increase carbon emissions compared with coal (the dirtiest fuel) by 79% over 20 years and 49% over 40 years; there is no carbon reduction until 100 years have passed, when the replacement trees have grown up. But as Tom Brookes of the European Climate Foundation points out, “we’re trying to cut carbon now; not in 100 years’ time.

In short, the EU has created a subsidy which costs a packet, probably does not reduce carbon emissions, does not encourage new energy technologies—and is set to grow like a leylandii hedge.

2. ZME Science. August 2015. The UK plans to build the world’s largest wood-burning power plant.

The United Kingdom has announced plans to build the world’s largest biomass power plant. The Tees Renewable Energy Plant (REP) will be located in the Port of Teesside, Middlesbrough and it will have a capacity of 299 MW. While the plant is designed to be able to function on a wide range of biofuels, its main intended power sources are wood pellets and chips, of which the plant is expected to use more than 2.4 million tons a year. The feedstock will be sourced from certified sustainable forestry projects developed by the MGT team and partners in North and South America, and the Baltic States, and supplied to the project site by means of ships.

Wood pellets, which are low in sulphur and chlorine, will be primarily used to fuel the plant.

A biomass power plant of this type is referred to as a combined heat and power (or CHP) plant. It will generate enough renewable energy to supply its own operations and commercial and residential utility customers in the area.

Investment in the renewable project is estimated to reach £650m ($1 billion), which will be partly funded through aids from the European Commission, and construction works would create around 1,100 jobs. Environmental technology firm Abengoa, based in Spain, along with Japanese industry giant Toshiba will be leading the project for their client, MGT Teesside, subsidiary to the British utility MGT Power.

The feedstock will be burned to generate steam at 565°C that will drive a steam turbine, which will rotate the generator to produce electricity. The generated power will be conveyed to the National Grid.The exhaust steam generated by the steam turbine plant will be condensed by the ACCs and re-used, whereas the flue gases from the CFB boiler will be discharged via the exhaust stack.

Nitrogen dioxide (NO2) emissions will be minimized by using capture technology, fabric filters will reduce emission of particulate matter or dust and check the sulphur content of the fuel feed, while sulphur dioxide (SO2) emissions will be reduced through limestone injection into the boiler.

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Ohio run-of-the-river hydroelectric power 4 projects totaling 300 MW for $1.7 billion

[There are limited places on rivers to put these so this a really tiny silver bullet, and there is often opposition from environmentalists, but if you’re lucky enough to have a river nearby that flows constantly it’s more reliable than wind or solar power. Alice Friedemann www.energyskeptic.com]

American Municipal Power plans to spend $1.7 billion dollars on 300 MW of power along the Ohio river.

A run-of-river project does not require a large reservoir and projects tend to be on a smaller scale. Run-of-river projects also need to be built on a river with a consistent and steady flow (mostly natural). By definition, a run-of-river plant can only have storage for no more than 48 hours of water supply. The main structure of a run-of-river plant is simply to redirect water flow from a weir (a small headpond) towards the penstock (delivery pipe), which feeds the water downhill to the power station. The natural force of gravity generates the energy used to spin the turbines located in the power station which converts the energy from the water to generate electricity. After this process, the water is redirected back to the natural flow of the river.

AMP is in the later stages of construction on four run-of- the-river hydro projects at existing U.S. Army Corps of Engineers locks and dams along the Ohio River. With run- of-the-river facilities, a portion of the water that normally would flow through the dam is diverted to the generation facility and river ecology remains un-impacted. This significantly minimizes any environmental impacts. The AMP projects are being built at existing locks and dams, which were constructed decades ago for navigation, to control river levels and to allow for hydro development. The four projects under various stages of construction and commissioning – Cannelton, Meldahl and Smithland in Kentucky and Willow Island in West Virginia – will add more than 300 megawatts (MW) of new hydropower. This represents the largest deployment of new run-of-the-river hydro in the nation.

Even with the practical limitations of run-of-the-river hydroelectric generation, the technology proves to be more reliable and efficient than both wind and solar, especially in the Midwest. Run-of-the-river hydroelectric projects — projects using the energy of water flowing over existing dams — achieve capacity factors of 55-60 percent. This means that of the 8,760 hours of the year, the facilities are able to capture 55-60 percent of that potential energy. Compare that to wind, which in the Midwest has a capacity factor in the 20-30 percent range, and solar in the 15-18 percent range. That’s a significant difference and one that impacts the overall efficiency of the projects.

Hydroelectric projects are less intrusive, have better base load capabilities, have lower operation and maintenance costs, no fuel risks, limited regulatory risk and a longer lifespan.

AMP signed a more than $423-million contract with York, Pennsylvania-based Voith Hydro for turbines and generators for the hydroelectric projects currently under construction.

The Cannelton Project will divert water from the existing Army Corps of Engineers Cannelton Dam through bulb turbines to generate an average gross annual output of about 458 million kilowatt-hours (kWh). The site will include an intake approach channel, a reinforced concrete powerhouse and a tailrace channel. The powerhouse will house three horizontal 28-MW bulb-type turbine and generating units with an estimated total rated capacity of 84 MW at a gross head of 25 feet.

The $500 million dollar Meldahl Hydroelectric facility, currently under construction, will become the largest hydroelectric power plant on the Ohio River with an estimated capacity of 105 MW. Meldahl is a run-of-the-river project on the Captain Anthony Meldahl Locks and Dam located near Maysville, Kentucky, approximately an hour southeast of Cincinnati. The project will divert water from the existing U.S. Army Corps of Engineers’ Dam through bulb turbines to generate an average gross annual output of approximately 558 million kilowatt-hours (kWh). The site will include an intake approach channel, a reinforced concrete powerhouse, and a tailrace channel. The powerhouse will house three horizontal 35-MW bulb-type turbine and generating units with a FERC licensed estimated total rated capacity of 105 MW.

The Smithland hydroelectric facility, currently under development, will add 72 MW of new, renewable generation to the region. The plant is located near Smithland, Kentucky. The Smithland project will divert water from the existing Corps Smithland Locks and Dam through bulb turbines to generate an average gross annual output of approximately 379 million kilowatt-hours (kWh). The site will include an intake approach channel, a reinforced concrete powerhouse and a tailrace channel. The powerhouse will house three horizontal FERC rated 24-MW bulb-type turbine and generating units with an estimated total rated capacity of 72 MW at a gross head of 22 feet. A 2.5-mile-long 161 kV transmission line interconnection is planned to connect to MISO. Smithland is located approximately 62 river miles upstream of the confluence of the Ohio and Mississippi rivers, in Livingston County, Ky.

The Willow Island hydroelectric facility, currently under development, will add 35 MW of new, renewable generation to the region. The plant is located near St. Marys, West Virginia. The Willow Island project will divert water from the existing Corps Willow Island Locks and Dam through bulb turbines to generate an average annual output of approximately 239 million kilowatt-hours (kWh). The site will include an intake approach channel, a reinforced concrete powerhouse and a tailrace channel. The powerhouse will house two horizontal FERC rated 17.5-MW bulb-type turbine and generating units with an estimated total FERC rated capacity of 35 MW at a gross head of 20 feet. A 1.6-mile-long 138 kV transmission line interconnection is planned to connect to PJM. The Willow Island Locks and Dam are located in Pleasant County, West Virginia, approximately 162 river miles downstream of Point Bridge, Pittsburgh. The Willow Island project is under construction on the West Virginia side of the Ohio River, on the opposite shore of the locks.

Also see:



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Rising oil prices and dependence on hostile regimes — the urgent case for Canadian oil

[Sullivan has an interesting overview of the instability in the Middle East, which could lead to an oil shock quickly along with the economic and sky-high prices that entails. He also mentions “peak oil” and its implications, a term rarely used in house and senate meetings, where the phrase “energy security” is preferred.

A key reason for the Keystone pipeline surfaces – the Midwest refineries can’t process any more tar sands than they are now. This makes expanding the tar sands production to 5 million barrels a day by 2035 goal difficult, especially since  a pipeline to the west coast is receiving even stronger opposition from Canadian citizens.  Many opponents to Keystone have no environmental beef –they don’t want Keystone because oil refined in the Gulf would be exported to China. Much of the testimony is a plea for Keystone and is left out of what follows.  Alice Friedemann  www.energyskeptic.com]

Notes from: HR Serial No. 112–24. March 31, 2011. Rising oil prices and dependence on hostile regimes: the urgent case for Canadian oil. U.S. House of Representatives. 102 pages

Hearing before the Subcommittee on the Western Hemisphere of the Committee on Foreign Affairs. 112th CONGRESS FIRST SESSION

Paul Sullivan, Ph.D., Professor of economics, National Defense University, adjunct professor of security studies and of science, technology, and international affairs, Georgetown University


Peak conventional oil and the promise of unconventional oil

Conventional oil already peaked worldwide according to the IEA. It peaked in the US in 1973. It has been peaking and will peak in many non-OPEC countries over the years. Clearly, the world will be pushed to rely more and more on unconventional oil as time progresses and the conventional oil gets harder and more expensive to find.

Oil represents 37% of all of our energy use. Two-thirds of the oil is used for transportation. Over 91 percent of our transport fuels are oil based. Some of the rest of the fuels used for transport, like biofuels and “other”, rely on oil for their production and other aspects of their logistical networks. Our sea, rail, and air transport systems are also very much dependent on oil. Our agricultural systems are based on oil. Some of our industries are oil-intensive. About 8% of our households still heat with oil.

Most importantly, when it comes to transportation our military is almost entirely vulnerable to oil markets. We are facing increasing instability in the Middle East and North Africa, an area where over 70% of proved reserves of conventional oil are known to be.

Well over one-fourth of all the oil exported in a single day comes out of the Middle East and North Africa and this is an area of increasing turmoil. Importantly, almost all of the excess capacity in the entire world is found in the Arabian Gulf region and 80 percent of that is in Saudi Arabia. Under certain scenarios, we could be looking at $200 to $300 a barrel of oil if all goes south.

The present and future instabilities in the Middle East and North Africa are not just a problem for oil production, but also of oil transport, such as around the Bab Al Mandab near Yemen, which carries about 3 million barrels of oil a day, the Suez Canal and Sumed pipeline, which carry 3-3.5 million barrels a day, The Straits of Hormuz, which carries between 12 and 15 million barrels a day, and more. There are various pipelines and oil ports and offloading zones, such as the Al Basra Oil Terminal (ABOT) and Khor Al-Amaya Oil Terminal (KABOT) in Iraq, which send out 1.5 million barrels a day.

Syria, Yemen, and Iraq all have SunniShia tensions.

Country Exports from http://www.eia.doe.gov/countries/

  • 1 Saudi Arabia 7,322
  • 2 Russia 7,194
  • 3 Iran 2,486
  • 4 United Arab Emirates 2, 303
  • 5 Norway 2,132
  • 6 Kuwait 2,124
  • 7 Nigeria 1,939
  • 8 Angola 1,878
  • 9 Algeria 1 807
  • 10 Iraq 1,764
  • 11 Venezuela 1,748
  • 12 Libya 1, 525
  • 13 Kazakhstan 1,299
  • 14 Canada 1,144
  • 15 Qatar 1,066

SAUDI ARABIA. Most of the populations above the major Saudi oil fields including the Ghawar field, which is the size of Pennsylvania, 300 meters deep, are Shia. Iran is likely stirring up trouble in that part of Saudi Arabia. Saudi Arabia is the world’s biggest exporter of oil and has the largest conventional reserves of oil accounting for 25 percent. Then we have the Ab Qaiq facility in Saudi Arabia where six to seven million barrels a day (out of the 82 million barrels a day used worldwide) goes through for sweetening and processing. Al-Qaeda got in the first fence in 2006. Chinese demands for Saudi oil have increased considerably over the last few years . The Chinese take more Saudi oil than we do.

IRAN could be facing increasing instability. It exports 2.5 million barrels a day. There are indications that Iran is trying to stir up trouble in the Shia communities in the region, including, possibly, the large Shia population the lives atop many of the major oil fields of Saudi Arabia. The problem is not just from Shia and Sunni political differences . The problem is also from Iran stirring up trouble and from political, economic and other tensions that have been translate d into confessional stresses and resentments. Iran is trying to use the grievances of some of the Shia in the region for its own benefit.

NIGERIA is having severe internal problems with the MEND The Movement to Emancipate the Niger Delta and other groups. It also has had a very difficult past with regard to interethnic strife and other issues that could become even bigger in the future. Internal strife has led to declines in the production of oil in the country on many occasions.

VENEZUELA may also prove to be unstable in the near future. There seems to be a building resentment given unemployment, underemployment, corruption, oppression and more of the same factors that have led to uprisings and revolutions in the Middle East. China is also planning to take more oil from Venezuela in the future. The widening and deepening of the Panama Canal could also have great effects on oil trade from Latin America to Asia.

SUDAN. We saw the splitting of Sudan into two countries. Sudan is an oil producer.

TUNISIA. We saw the revolution in Tunisia which rocked the region and spurred on other uprisings and revolutions. Tunisia is not a large energy producer but its revolution has made a huge difference to the stability in the region.

EGYPT. We have seen a revolution in Egypt where the important energy transport nodes of the Suez Canal and the Sumed pipeline are found. Again, Egypt is a net oil importer but it is the most important country in the region with regard to cultural change and political impetus.

LIBYA. We are now seeing a bloody revolution and civil war in Libya, a country that used to export 1.5 million barrels a day. Its exports have been cut drastically. The situation in Libya is just one indication of the possibly bigger threats that are looming as the contagion of rebellion possibly spreads in the region and maybe even beyond.

ALGERIA could be next in line. They export 1.8 million barrels a day.

BAHRAIN is not a large oil exporter or producer, but has become a focal point for rebellion via the Sunni-Shia split, the most important region for oil production and export in the world. The situation in Bahrain as its spread into Qatif, Saudi Arabia recently is also far from comforting. IRAN is clearly behind many of the troubles in Bahrain.

SYRIA is becoming more violent by the day and it is connected in with the issues in Lebanon, the peace process, and Iran. There have been increasing violent reactions to demonstrations, especially in Dara’a in the south. These demonstrations have recently spread to many areas in the country and have turned quite violent. Syria is not a major oil producer, but its importance in the peace process, its relations with Iran, Lebanon, and other states in the region could make instability and change in this country more important to the overall situation in the region well beyond things weighted by oil production and population.

YEMEN is heading toward a possible failed state status, or even broken into many failed states, and could be one of the most complicated places right across from Somalia. On the coast, to the southwest and the west of Yemen there is the Bab-Al Mandab where 4 million barrels a day goes through a day, and 10% of the world container traffic transits. Yemen could split into multiple failed states and this could happen sooner than we can think.

IRAQ exports about 1.7 million barrels a day but 95% of its exports go through 2 geographically tiny, but strategically gigantic, facilities, the Al Basra Oil Terminal, and the Khawr Al Amaya Oil Terminal right near it. We have considerable imports from Iraq, not the sort of country that gives one a sense of long term stability, especially given the recent demonstrations and other actions on the ground. Also, almost all of its oil goes through one fairly small geographic speck, the Al Basra Oil Terminal, or ABOT and its sister oil port facility, Khor Al–Amaya Oil Terminal, or KABOT. 95 percent of all Iraq’s export revenues is from the oil exporting out of ABOT and KABOT. The entire economy of Iraq relies on these set of wharves and pipelines at sea not far from Iran. We have our Operation Sea Dragon protecting these facilities, but it may be only a matter of time before something happens there.

JORDAN has had demonstrations, but I don’t see them heading south as some other places have.

We are facing down the peaking of conventional oil resources. We are also facing peak oil at the same time and need to go to unconventional oil. We are potentially facing increasing economic turmoil and energy market turmoil globally.

Tar sands oil is more expensive to make than conventional oil s and there are more steps to ma king it useable in refineries. However, as we explore in deeper water and in harsher climates an d more difficult places to find conventional oil then the costs for extracting the conventional oil will most likely continue to rise. They have been rising for many years. The era of cheap to find and produce conventional oil is over.

One thing to understand right off is that oil markets are global markets and events that occur in even what seem to be remote corners of the world can affect oil prices and even oil supply and transport. Also, non-oil energy, minerals and other markets outside of oil are intertwined with oil markets in many ways as both substitutes and complements to oil use. Furthermore, energy systems are really systems within systems, not just one energy source after another. Oil systems are connected with electricity systems that can be connected with gas, nuclear, renewable energy and other systems. And these energy systems are in turn connected with transportation, water, industrial, residential, commercial, and other systems. We really cannot look at one energy source independently of the others. We can not fully understand the effects of energy market and energy policy changes without looking at the totality of the systems within systems connected to energy systems.

It would be best to have a full, comprehensive energy security policy, but this is unlikely to happen any time soon , so it seems we will need to settle for ad hoc improvements in the diversification of supplies and other ad hoc policy measures until the real shocks hit us in waves upon waves upon waves of economic and energy security woe–and we finally wake up to the severity of the situations we might be facing. We need to be far more diversified in our energy sources and our means and ways of using those energy sources, but all of that will take considerable time to accomplish. Anyone who thinks that we can move away from oil any time soon does not understand the complexity of the intertwined nature of energy systems within systems, and also the energy compactness that will be needed to replace oil. We would also have to change our transportation and industrial systems simultaneously with the change in the energy systems.

It would be great if we could lightweight our cars, make them more efficient in their drive trains and more, and convert most if not all of our cars to electric plug-ins, hybrid plug ins, CNG, hydrogen, methanol, and the like but that could take many years, if not decades. Another good idea is to have more of our transportation vehicles, aircraft, ships, etc. converted to flexible fuel engines in order to allow transport, other companies , the government, military, and consumers, to adjust their costs as different energy resources become more or less expensive or reliable than others. The simple mathematics of automobile vint ages could indicate how long th ese changes could take. If we wanted to get around that then would also need to refit our transport vehicles as well as our transport infrastructure to these alternative fuels. Such things do not happen overnight and could take a very long time.

If these changes are pushed too fast and too hard then we could have significant econ omic and other disruptions in the US. There could also be vastly increased risk of severe instability in the oil producing nations that might dwarf even what is going on now. So we need to phase into the new energy futures over proper time period s and in proper, thoughtful and strategic manners. However, we also need answers to our present and near term oil security issues now. In the longer run we need to change the way we do things, but these changes need to be done in a reasonable and reasoned fashion.

We need energy security now and for the medium term to help us as a nation move beyond oil within the next 50 years or so and go toward these alternatives that we have all been discussing.

Our number one source of imported oil is quiet, stable, safe, and friendly Canada. It is our closest military cooperation. Our largest and closest trade relations are with the Canadians. Our most important energy trading relations are also with the Canadians.

David L. Goldwyn, president, Goldwyn Global Strategies, LLC (former U.S. Department of State coordinator and special envoy for International Energy Affairs)

Oil remains a strategic commodity for the United States and the rest of the world. This will be true for decades to come, even if optimistic scenarios for growth in electric vehicles and advanced biofuels come to pass. As we see today from political developments in the Middle East, a natural and nuclear disaster in Japan, and as we saw with Hurricanes Rita and Katrina not so long ago, disruptions of oil supply can negatively and sometimes severely, impact the U.S. and the global economy.

Our primary source of energy insecurity has been oil dependence. We have been vulnerable to the price impacts of oil suppy disruptions, and we have faced and continue to face foreign policy and security challenges from nations that suffer instability as a result of their misuse of their resource rents, or use oil as a weapon.

Transformation of the U.S. vehicle fleet, much less the world’s will take decades.

I heard the President say yesterday we live in tumultuous times and energy security is important. We heard from him and from each of you today that oil is and will remain a strategic commodity for our economy for decades to come. We have taken some visionary steps led by the President on the demand side on fuel efficiency, on advanced fuels, on critical research and development which in time will take us to a world where we are less dependent on oil. But we are not in that world today and we won’t be for the next couple of decades. Even with increased production from the Bakken and from other areas and revived production in the Gulf of Mexico, we will be importing 8 million barrels a day.

In terms of supply security, we have reason to be concerned. The world is going to consume a lot more energy. Mexican production has declined and while they are trying to revive it, it will be awhile. Venezuelan production has declined because of their own policies. There is uncertainty in the Middle East. Even optimistic projections for the call on OPEC in 2035 for 52% of our oil supply assume that there will be increased production in Venezuela, in Libya, in Iran. These are precarious assumptions at best. We do need to worry about whether there will be adequate investment in the world for oil supply.

Canada supplies the U.S. Midwest region with crude oil through the Enbridge, TCPL Keystone and Kinder Morgan Express/Platte pipelines. The U.S. Midwest refineries have access to more supply than they can economically refine. Gulf Coast refineries cannot access this oil and are operating well below capacity. We do not have the infrastructure to move oil from the Mid West to under-supplied Gulf Coast refineries.


Connie Mack (chairman of the subcommittee) from South Carolina. We need to immediately concentrate on replacing foreign oil from thugocrats like Hugo Chavez in Venezuela with reliable, stable allies like Canada. Doing so will ease U.S. energy concerns and provide economic stability while U.S. oil companies make greater use of their Federal leases both onshore and offshore to help increase domestic oil production. What President Obama and his administration have failed to do is increase American security. By approving the Presidential Permit for the Keystone XL pipeline this administration could create tens of thousands of jobs to help boost the ailing economy, and secure an additional 500,000 barrels of oil per day into U.S. refineries in Oklahoma and Texas.

Instead of shoring-up important national security and energy resources from a close ally, our nation continues to rely on the likes of Hugo Chavez for approximately 10 percent of our oil and the price we pay is reliant on the actions of unreliable and corrupt dictators such as Libya’s Qaddafi.

The result of the pipeline would increase productivity, but most importantly for me, it would force Hugo Chavez to realize that the United States is not beholden to fully funding his regime indefinitely. It must be made clear to leaders such as Hugo Chavez, who utilize state-owned oil companies to violate U.S. sanctions on Iran, that there are consequences for their actions.

Mr. Albio SIRES of South Carolina. We are in the midst of an energy crisis. We have a situation in the Middle East that really quite frightens me as we head into our venture in Libya. We have a situation where the price of oil, the price of gas is increasing in the United States. We have a situation where we can remedy some of this with this Keystone XL pipeline. I think that we can stop our dependency on foreign oil. Canada has been a friend. Canada will continue to be a friend and we will continue to work with Canada

Ms. Jean SCHMIDT of Florida. I could not agree more. As we look to the Middle East and the instability that continues to grow in the region and the fact that so much of our reliance on foreign oil comes from that part of the world, we really have to look to another part of the world for that oil.  Over 50% of what we use in this country today comes from a foreign source. Of that, when you look at the total pie of the foreign source, right now we are receiving about 23% from Canada. We need to grow that portion of the pie. It makes absolutely no sense to delay this Keystone pipeline, for a national security reason as well as an economic reason. From a national security reason, it is because our friends are Canadians. It is always good to do business with friends. The second is, as we see a spike in gasoline prices at the pump, my fear is with more consumption in the summer that is only going to continue to grow, it is only going to weaken our economy, so getting the opportunity out there for another good supply of oil for our citizens in the United States makes sense.

Mr. Eliot L. ENGEL of New York. We are speaking here about energy dependence, international commerce, jobs, and more. We are talking about oil, hostile regimes, foreign relations, and geopolitics. We are discussing greenhouse gases, groundwater pollution, and pipeline safety. We must consider all of these factors, not just some.



Events in North America and the Middle East, as you have already heard, and rising gas prices once again underscore our dangerous addiction to oil and the high price we pay due to the instability of global oil markets. America needs energy security, so the question is what is the best way of getting there. As much as we may wish otherwise, there are no quick fixes by switching suppliers of our oil imports from one country to another and turning to extreme oil such as Canadian tar sands. There is only one way out. We need to get serious about the innovation and our transportation and fuel sectors that will create jobs here at home and provide Americans a healthier, cleaner, and more secure energy future.

One myth that I often hear is that Canada will find a responsible way to mind tar sands. Years of experience have proven otherwise. I have been there. I have seen the damage. I have listened to courageous people who have suffered as they have stood up to big oil and the oil companies up in Alberta. Alberta tar sands operations are the most destructive source of oil on the planet. It can take five barrels of clean water and four tons of sand to squeeze out just one barrel of tar sludge. This tar sludge is so thick and heavy it must be diluted and pressurized to transport it through pipelines to refineries.

Last year I flew over the tar sands — what was what forest wilderness has been turned into barren strip mine waste land and lakes full of toxic waste that stretch as far as the eye can see, mine after mine after mine. The scale was shocking and difficult to imagine.

Air pollution from tar sands production also causes 3 times more carbon emissions than conventional oil, escalating greenhouse gas emissions when we should be moving in the other direction. In Alberta I met with First Nation communities and listened as they told the heartbreaking story of how cancer rates have increased as the tar sands operations have expanded. One elder told me that they pull their kids indoors whenever the air gets too noxious. Large volumes of toxic waste leaks into the Athabasca River every year contaminating the water supply and fish. So this is what you expected me to say. You might not have known the extent of the damage but you knew there was an environmental price. The question really comes down to is it worth it. Is it a price that we have to pay?

I have to say, though, we are really seeing Canadian oil as some sort of mirage for our energy security. The idea that expanding Canadian tar sands production provides energy security is really just an illusion. Let us look at what has happened in the past month since outbreak of violence in Libya. The price of Canadian oil has increased by $20 a barrel. That is actually twice as much as the jump in the increase in global oil prices. Twice as much as what we have seen in Saudi Arabia. Nobody likes getting oil from the Middle East, but why is getting oil from Canada better when the oil companies who control it will take advantage of a crisis anytime there is one anywhere in the world to increase oil prices, and speculators will make us pay at the pump. This isn’t about Canada. This is about being loyal. Every hour Americans are now spending $2 million more for Canadian oil than we did 1 month ago. Where is the economic security in that? Oil produced from Canadian tar sands is some of the most expensive oil to produce in the world. As we drive up global oil prices, countries that don’t like us will profit whether we buy their oil directly or not. Where is the energy security in that?

We currently have surplus pipeline capacity to carry all the oil Canada can provide to America’s Midwest. So why do oil companies want to rush to build the Keystone pipeline? Because they want to access the deep water ports down in Texas so they can export the oil that we are bringing in.

We are actually exporting twice as much for fine oil products than we were just 5 years ago. Chairman Valero just said that the future of Iraq refining in the U.S. is in exports. Why do we want to move oil that is coming in from the Midwest down to Texas so it can be exported to China or other places and want to call that energy security? Those refineries in Texas, by the way, are owned by Venezuela and by Saudi Arabia.

The only certain impacts to the Keystone XL pipeline are that it will help oil companies manipulate gas prices in the Midwest and that it puts to risk the Ogallala Aquifer in Nebraska which provides irrigation for much of America’s bread basket and drinking water for over 2 million people. In seeking the Canadian permit, TransCanada actually said to the Canadians, they said that they will increase gas prices by $4 billion a year on the U.S. That was the purpose, $4 billion for oil we are already getting and not another drop. I know that I am running out of time, Mr. Chairman, so let me just say that there has also been a huge spill last year in the Kalazmazoo River in Michigan where we saw 800,000 gallons from a tar sands pipeline because tar sands are corrosive and we have not updated our pipeline regulations for tar sands as need to be before we build a new pipeline so we really appreciate that the State Department is taking a proper look at the safety of these pipelines and the environmental impacts before they rush forward. Thank you very much.

Mr. ENGEL. I often hear calls for energy independence to reduce our reliance on our adversaries in the Middle East and elsewhere. I hear pronouncements about the need for more solar, wind, clean coal, and nuclear power. It seems to me that no amount of new electrical power will make us anymore independent. The U.S. already gets nearly 100% of our electricity from our domestically produced coal, natural gas, nuclear, hydroelectric, wind, and solar. Do you agree that the problem is not energy independence, it is oil dependence? Before you answer that, I want to tell you why. It seems to me that the reason we are not all independent is because of our transportation sector. Virtually every car, truck, bus, train, ship, and plane manufactured and sold in the U.S. runs on oil. The transportation sector is by far the biggest reason why we send $600 billion per year to hostile nations in the Middle East and to Venezuela.

Mr. SULLIVAN. We can’t change it that quickly without serious disruptions in the economy and the overall energy situation. Yes, it is oil security. That is the key here. We have enough coal. We certainly have enough natural gas considering the unconventional gas that is now being discovered day by day. Uranium is another issue. Actually about 10 percent of the lights coming into this room right now probably come from ex-Soviet missiles. We import a lot of uranium so maybe there is an issue there but we certainly have the capacity here to produce that. Also, rare earths, an issue I am sure you are all interested in, is also a major part of our energy security situation. We need rare earths for refining oil but also for the new technologies that you are talking about. Clearly these things can be part of our energy future and our energy security future but they are going to take time. They are going to take a lot of time.

Mr. SIRES. My concern is that if we don’t move in, China is going to move into the Western Hemisphere, China moves in. I keep saying to people when I was in Columbia and the president of one of the most prestigious universities said to me that the second most studied language in Columbia today is Mandarin. So, you know, sometimes we have to make a difficult decision.

Mr. SYMONS. Sure. I understand that. This idea that Canada is sort of holding a gun to our head and saying, ‘‘If you don’t take our pipeline, we’ll take it somewhere else’’ is another one of the myths that the oil industry is perpetuating here. We already have more than enough pipeline to take all the oil Canada can produce into the U.S., according to Canadian petroleum industry, and according to the Department of Energy all the way through 2025. We have the pipeline to bring it here. It’s coming to the Midwest and keeping gas prices down in the Midwest. They want to get it to a port where they can export it.

Mr. SYMONS. The purpose of Canadian oil is to fill the capacity that has already been vacated by Venezuela and other producers and to fill new capacity that is being built by Saudi Arabia and others. Valero is the company that has bought into this pipeline. It was their CEO that said that week that they are moving to exports from those Texas refineries. That is the future. It is a massive growth that is happening there. It is hard to believe because we import so much crude but oil companies are global companies and they are just focused on profits. It doesn’t matter where the oil is. It is their oil, not our oil.

Mr. PAYNE. The whole question of consumption of fuel is something that has been on the table for a long time. Let me just ask, Mr. Symons, 25 mayors addressed a letter to Secretary Clinton last week expressing their grave concern about the prospects of expanded imports of tar sand oil from Canada. The mayors indicate fears over increasing dependence on high carbon fuel for decades to come at a time when local governments are working hard to decrease dependence on oil. The mayors believe that expansion of high-carbon projects such as the proposed Keystone tar sands pipeline will undermine the work being done in the local communities across the country to fight climate change and reduce our dependence on oil. Would you comment on how this pipeline would affect such efforts in your opinion and will the small communities be hampered in their efforts to build clean energy economies?

Mr. SYMONS. First of all, everybody has to do everything they can to reduce emissions and deal with the important threat of climate change. Mayors have been leading the way and should, regardless of what happens, continue to lead the way. But buying into a 50-year pipeline for oil that is 3 times the greenhouse gas emissions of conventional oil makes a mockery of the efforts that we all are pursuing to reduce our own emissions, pursue clean energy here at home. Canada agreed internationally and signed an agreement to reduce their greenhouse gas emissions and they have completely ignored. Not only will their emissions go up but Canada is undermining the value of global cooperation through technology and other pieces on addressing the important threat of climate threat, protecting our environment for our kids’ future.

Mr. PAYNE. We do hear this question of energy. We use nuclear and we say that it is safe today and, of course, Japan goes up. I asked the question a couple of weeks ago at a conference out of the country, ‘‘What are you going to do about spent fuel?’’ ‘‘Don’t worry about it. Not a problem. Got it contained.’’ Look at Japan. We look at our good friends in Canada, and they are our greatest allies. However, I guess making a buck is making a buck. If the price of oil goes up coming from Saudi Arabia and Bahrain is up in flames and Libya, they say, ‘‘Hey, might as well jack up the price and stick it to our American friends because, hey, that’s business.’’ You know, you have a fiduciary responsibility to your stockholders. You know, with friends like that, who needs enemies? I just think that this whole picture has to be looked at a little bit more carefully. Water is being destroyed. I don’t have the answer. That is for sure. One thing we have to talk about is conservation. We don’t talk about the sacrifice. Everybody has—my time has expired, but especially down in Florida, the air conditioners are up very high in the summer. I mean,

Mr. SYMONS. The real question there is where is the oil coming from. You are actually hearing, if you listen closely, people are kind of having it both ways, ‘‘Oh, we are going to get more oil from Canada,’’ as in Canada is going to produce more oil. The fact is they are not. This oil is going to come from the pipelines where it is already going into the Midwest, much closer, of course, to the northeast. It is going to go all the way down to Texas. Then it has to work its way back up. Why would oil companies spend $12 billion to build a pipeline to take it further away to take it back up? Well, they are going to be able to charge more because once they get it out of the Midwest to a deep water port, they can send it anywhere and charge higher prices. Those higher prices are what are going to fill the coffers of Chavez at the end of the day because Canadian oil is one of the most expensive oils in the world to produce. If we bet on it for 50 years, we are betting on high oil prices and that is going to make Chavez rich.

Mr. SULLIVAN. Yes. That would go back to Mr. Sires’ question about China. China is actually building refineries to use Venezuelan oil and China is building 17 large super tankers to bring that oil through the Panama Canal which China is, part of, widening and deepening. So things are changing in the east as we are talking about the west. China is also looking at a pipeline going from Alberta tar sands to the west coast of Canada to export the tar sands oil to China. There is a direct competition going on here.

If we could take a look at the transport charges, which brings the Chinese are building capacity to use this sort of oil. They need this kind of oil. They need oil from all over the world. They are growing at 7 to 9 percent. Hu Jintao, when asked by our previous President George Bush what kept him up at night, his answer was 25 million jobs. They have to create 25 million jobs every single year. Now the question goes to, and this is rather complicated, do we want them to have the 25 million jobs? I think the answer is probably in the main part yes because we don’t want instability in China and what that could bring to us.

Mr. SYMONS. Let me just say the idea of the Canadian western route to get to China, the Canadian people are rejecting it because of the results. They know what is in the results of this report by Pipeline Safety Trust and others that Alberta pipeline spills are 16 times as common as spills down here because harsh sands oil is not like conventional crude and it is much more dangerous to transport by pipeline. Think about the question you are asking before we all stand up and sing the Canadian national anthem. Canada is threatening and blackmailing us with that. Canadian oil companies are holding a gun to our head. Think about that before we make a 50-year bet that Canada is going to be our friend with oil.

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Oil Choke Points vulnerable to war, chaos, terrorism, piracy

chokepoints oil global map

Source: Ballout, D. 2013. Choke Points: Our energy access points. Oil Change.

Million Barrels per day / 2009 world Oil Transit Chokepoints

  • 15.5 / Strait of Hormuz, 20 to 25% of the world’s daily crude oil production
  • 13.6 / Strait of Malacca
  • 3.2 / Bab al-Mandab
  • 2.9 / Bosporus Straits
  • 1.8 / Suez Canal
  • 1.1 / Sumed Pipeline
  • .8 / Panama Canal
Source: EIA (data estimates based on APEX tanker data) from (Serial No. 112-4).

Sixty percent of America’s oil arrives on vessels.

Due to the narrowness of the straits all of them can be disrupted with relative ease by piracy, terrorism, wars, or shipping accidents, affecting the supply of oil and world prices.

The strong dependence of the U.S. economy on oil has made it of the utmost importance to guarantee the free flow of shipments through these straits. For this reason policing has fallen mainly on the U.S. Navy with the help of some allies.  Cost estimates of maritime patrolling for the U.S. have been calculated to range between $68 and $83 billion per year, or 12 to 15 percent of conventional military spending. The rest of the world has benefited freely from this security provided by the U.S.

As long as the U.S. economy continues to depend heavily on oil it will have to incur in the high maritime patrolling costs to guarantee the free flow of oil through these critical straits.

According to John Hofmeister, former president of Shell Oil, “With respect to the choke points, the 3 most serious are the Suez Canal, the Hormuz Straits, which is separating Iran from Yemen— I am sorry—Oman and Iran, and the Straits of Malacca, which is between Malaysia and Indonesia. These choke points carry enormous amounts of crude oil. Matt Simmons, who passed away this past summer, used to speak of the Straits of Hormuz as, we live one day away from an oil Pearl Harbor. In other words, those Straits of Hormuz transport between 20 and 25% of daily consumption of global oil, and were they to be shut in, the world would be in a panic overnight if it were not possible to pass oil.

The Straits of Hormuz watch about 20 to 25% of the world’s daily crude oil production move through it, and if the world were to lose that amount of oil because of a shutdown in the Straits, I think that the immediate impact on crude oil prices would be to not just double but even triple the current crude oil price of the panic that would set in in terms of future contracting. There might be a slight delay to see how long it make take to clean up the mess that might be created there but it is such a critical pinch point and there is so much of that oil that goes both east and west that it is not only energy security for the United States, it is energy security for the world’s second largest economy, China. And so the consequence would be dramatic. Five dollars would look cheap in terms of a gasoline price in the event of the Straits of Hormuz being shut in.” (Serial No. 112-4).

Attack on Abqaiq

The National Commission on Energy Policy and Securing America’s Energy Future conducted a simulation called Oil Shock Wave to explore the potential security and economic consequences of an oil supply crisis. The event started by assuming that political unrest in Nigeria combined with unseasonably cold weather in North America contributed to an immediate global oil supply shortfall. The simulation then assumed that 3 terrorist attacks occur in important ports and processing plants in Saudi Arabia and Alaska which sent oil prices immediately soaring to $123 a barrel and $161 barrel 6 months later. At these prices, the country goes into a recession and millions of jobs are lost as a result of sustained oil prices.  This simulation almost became reality with the failed attack on Abqaiq in Saudi Arabia in February 2006. Had the attack been successful, it would have removed 4to 6 million barrels per day from the global market sending prices soaring around the world and would likely have had a devastating impact on our economy. (Indiana Senator Evan Bayh, U.S. SENATE March 7, 2006. Energy independence S. HRG. 109-412)

oil middle east countries chaos and regional wars



Ras Tanura port in Saudi Arabia: 10% of the world’s oil

Peter Maass.  The Breaking Point. August 21, 2005 The New York Times

Saudi Arabia had 22% of the world’s oil reserves (in 2005) The largest oil terminal in the world is Ras Tanura, on the east coast of Saudi Arabia, along the Persian Gulf.  Ras Tanura is the funnel through which nearly 10 percent of the world’s daily supply of petroleum flows. In the control tower, you are surrounded by more than 50 million barrels of oil, yet not a drop can be seen.

As Aref al-Ali, my escort from Saudi Aramco, the giant state-owned oil company, pointed out, ”One mistake at Ras Tanura today, and the price of oil will go up.” This has turned the port into a fortress; its entrances have an array of gates and bomb barriers to prevent terrorists from cutting off the black oxygen that the modern world depends on. Yet the problem is far greater than the brief havoc that could be wrought by a speeding zealot with 50 pounds of TNT in the trunk of his car. Concerns are being voiced by some oil experts that Saudi Arabia and other producers may, in the near future, be unable to meet rising world demand. The producers are not running out of oil, not yet, but their decades-old reservoirs are not as full and geologically spry as they used to be, and they may be incapable of producing, on a daily basis, the increasing volumes of oil that the world requires. ”One thing is clear,” warns Chevron, the second-largest American oil company, in a series of new advertisements, ”the era of easy oil is over.”

If consumption begins to exceed production by even a small amount, the price of a barrel of oil could soar to triple-digit levels. This, in turn, could bring on a global recession, a result of exorbitant prices for transport fuels and for products that rely on petrochemicals — which is to say, almost every product on the market. The impact on the American way of life would be profound: cars cannot be propelled by roof-borne windmills. The suburban and exurban lifestyles, hinged to two-car families and constant trips to work, school and Wal-Mart, might become unaffordable or, if gas rationing is imposed, impossible.

Ghawar is the treasure of the Saudi treasure chest. It is the largest oil field in the world and has produced 55 billion barrels of oil the past 50 years, more than half of Saudi production in that period. The field currently produces more than five million barrels a day, about half of the kingdom’s output. If Ghawar is facing problems, then so is Saudi Arabia and, indeed, the entire world.

Simmons found that the Saudis are using increasingly large amounts of water to force oil out of Ghawar. “Someday the remarkably high well flow rates at Ghawar’s northern end will fade, as reservoir pressures finally plummet. Then, Saudi Arabian oil output will clearly have peaked Simmons says that there are only so many rabbits technology can pull out of its petro-hat.

Strait of Hormuz

Any military action in the Strait of Hormuz in the Gulf would knock out oil exports from OPEC’s biggest producers, cut off the oil supply to Japan and South Korea and knock the booming economies of Gulf states.

Roger Stern, a professor at the University of Tulsa National Energy Policy Institute, estimates we’ve spent $8 trillion protecting oil resources in Persian Gulf since 1976, when the Navy first began increasing its military presence in the region following the first Arab oil embargo. We did this because we feared oil supplies would run out, and that the Soviets would march to the Persian gulf to get oil when they ran low themselves  (Stern).  We import very little of this oil, yet Japan, Europe, India, and the nations that do don’t pay us to do this.  Admiral Greenert plans to shift 10% of our navy from the East Coast to the Pacific Coast to protect the South china seas (from China).

Here are some key facts on what passes through the international waterway and some of the direct economic consequences of any attack on merchant shipping.

  • 20 percent of the world’s oil traded worldwide (35% of all seaborne oil), and 20% of the global liquefied natural gas (EIA).
  • 2.9 billion deadweight tons passes through the strait every year.
  • Crude oil exported through the Strait rose to 750 million tons in 2006.
  • 27 percent of transits carry crude on oil tankers, rising to 50 percent if petroleum products, natural gas and Liquefied Petroleum Gas transits are included.
  • Transits for dry commodities like grains, iron ore and cement account for 22 percent of transits.
  • Container trade accounts for 20% of transits, carrying finished goods to Gulf countries.

Oil exports passing through Hormuz:  (2006 figures)

  • Saudi Arabia — 88 percent
  • Iran — 90 percent
  • Iraq — 98 percent
  • UAE — 99 percent
  • Kuwait — 100 percent
  • Qatar — 100 percent

Top 10 importers of crude oil through Hormuz (2006 figures)

  • Japan — Takes 26% of crude oil moving through the strait (shipments meet 85% of country’s oil needs)
  • Republic of Korea — 14 percent (meets 72 percent of oil needs)
  • United States — 14 percent (meets 18 percent of oil needs)
  • India — 12 percent (meets 65 percent of oil needs)
  • Egypt — 8 percent (N.B. most transhipped to other countries)
  • China — 8 percent (meets 34 percent of oil needs)
  • Singapore — 7 percent
  • Taiwan — 5 percent Thailand — 3 percent
  • Netherlands — 3 percent (Source: Lloyd’s Marine Intelligence Unit)

U.S. Energy Security Strait of Hormuz Threat – All OPEC imports from the Persian Gulf region are shipped via marine tankers through the Strait of Hormuz.  Due to Iran’s developing nuclear arms program and Israel’s perception of this being a threat, which could lead to conflict if Israel makes a first strike against Iran (regardless of whether the threat is verified or not), and U.S. sanctions to possibly curtail Iran’s nuclear arms development, Iran has threatened to the shutdown of the Strait of Hormuz in retaliation.  If and when Iran carries out their threat to shutdown the Strait of Hormuz the U.S. would immediately lose about 2.2 MBD of crude oil imports or almost 12% of current total petroleum oil supplied (consumed); far greater than the 4% lost during the 1973 Arab OPEC oil embargo.

Strait of Hormuz Shutdown Impacts – The impact of losing all Persian Gulf imports could be substantial.  Not only would the U.S. be subjected to a very quick loss of 2.2 MBD of imports, but the impact on world markets could also be devastating (up to 20% of all world market crude oil supplies currently flow through the Strait).  World oil prices could directionally double almost overnight, sending world energy markets and economies into chaos.  While the U.S. and UN conventional military forces should be able to readily take-on and neutralize Iran’s conventional forces, it’s Iran’s small-independent, unconventional forces that likely pose the greatest and longer term threat to Persian Gulf shipping and regional OPEC oil infrastructures.

Other Chokepoints (EIA)

  1. Strait of Malacca with 17% of the world’s oil, most of it headed to China, Japan and South Korea.
  2. Suez Canal / SUMED pipeline with 5% of world oil, key routes for oil destined for Europe and North America. A potential threat is the growing unrest in Egypt since their revolution in 2011.
  3. Bab el-Mandab could keep tankers from the Persian gulf from reching the Suez canal and sumed pipeline
  4. Turkish Straits. Increased oil exports from the Caspian Sea region make the Turkish Straits one of the most dangerous choke points in the world supplying Western and Southern Europe.
  5. Danish Straits, an increasingly important route for Russian oil to Europe.

Also read:

Sullivan’s testimony in: HR 112–24. March 31, 2011. Rising oil prices and dependence on hostile regimes: the urgent case for Canadian oil. U.S. House of Representatives. 102 pages

Brooks, G. Allen. March 21, 2014.Musings: The Challenges Facing Saudi Arabia Include More Than Oil.   rigzone.com


EIA. 2012 U.S. Energy Information Administration “World Oil Transit Chokepoints

FACTBOX: Strait of Hormuz: economic effects of disruption. Jan 7, 2008. Stefano Ambrogi. Reuters

Miller, J. August 20, 2013. What are the Largest Risks to U.S. Energy Security?  TheEnergyCollective.com

Serial No. 112-4. February 10, 2011. The effects of middle east events on U.S. Energy markets. House of Representatives, subcommittee on energy and power 112th congress. 231 pages

Stern, R. 2010. United States cost of military force projection in the Persian Gulf, 1976–2007. EnergyPolicy.


Posted in Chokepoints, Infrastructure Attacks, Oil & Gas, Oil Shocks, Threats to oil supply | Tagged , , , | 3 Comments

Nuclear power. Never has been viable, never will be economically. 37 plants at risk of closure

[Cooper leaves out the cost of nuclear waste storage, which makes the economics of nuclear plants even worse than in the article below (see his testimony before the Nuclear Regulatory Commission). Since this paper was written, the Vermont Yankee plant was shut down, one of the 37 plants Cooper predicted were at risk below. I think that as these plants age another Fukushima will happen in America, and that will be the end of new nuclear power plants here.  Alice Friedemann. www.energyskeptic.com]

Cooper , Mark. July 18, 2013. Renaissance in reverse: competition pushes aging U.S. nuclear reactors to the brink of economic abandonment. Institute for Energy and the environment, Vermont Law School. 47 pages.

Although Wall Street analysts expressed concerns about the economic viability of the aging nuclear fleet in the U.S., the recent early retirements of 4 nuclear reactors has sent a shock wave through the industry. One purely economic retirement (Kewaunee, 1 reactor) and three based on the excessive cost of repairs (Crystal River, 1 reactor, and San Onofre, 2 reactors).

In addition to the cancellation of 5 large uprates (Prairie Island, 1 reactor, LaSalle, 2 reactors, and Limerick, 2 rectors), four by the nation’s large nuclear utility, suggest a broad range of operational and economic problems.

These early retirements and decisions to forego uprates magnify the importance of the fact that the “nuclear renaissance” has failed to produce a new fleet of reactors in the U.S.

With little chance that the cost of new reactors will become competitive with low carbon alternatives in the time frame relevant for old reactor retirement decisions, a great deal of attention will shift to the economics of keeping old reactors online, increasing their capacity and/or extending their lives.

The purpose of the paper is not to predict which reactors will be the next to retire, but explain why we should expect more early retirements. It does so by offering a systematic framework for evaluating the factors that place reactors at risk of early retirement.

  • It extracts 11 risk factors from the Wall Street analysis and identifies three dozen reactors that exhibit four or more of the risk factors (see Exhibit ES-1).
  • It shows that the poor performance of nuclear reactors that is resulting in early retirements today has existed throughout the history of the commercial nuclear sector in the U.S. The problems are endemic to the technology and the sector.
  • It demonstrates that the key underlying economic factors — rising costs of an aging fleet and the availability of lower cost alternatives – are likely to persist over the next couple of decades, the relevant time frame for making decisions about the fate of aging reactors.

While the purpose of the Wall Street analyses is to advise and caution investors about utilities that own the aging fleet of at-risk reactors, my purpose is to inform policymakers about and prepare them for the likelihood of early retirements.           

There are 37 nuclear power plants at risk of being closed:

Ft. Calhoun, Oyster Creek, Ginna, Point Beach, Perry, Susquehanna, Davis-Besse, Nine Mile Point, Quad Cities, Dresden, Millstone, Pilgrim, Clinton, South Texas, Commanche Peak, Three Mile Island, Palisades, Fitzpatrick, Sequoyah, Hope Creek, Seabrook, Indian Point, Duane Arnold, Calvert Cliff, Browns Ferry, Monticello, Prairie Island, Turkey Point , Robinson, Wolf Creek, Fermi, Diablo Canyon, Cooper, Callaway, Cook, LaSalle, Limerick

RISK FACTORS (all of the above have at least 4 to 9 of these):

  1. ECONOMIC: Cost , Small, Old, Standalone, Merchant, 20 yr<w/out extension , 25yr< w/ext.
  2. OPERATIONAL: Broken, Reliability, Long-term-outage
  3. SAFETY: Many issues, Fukushima Retrofit

cooper 2013 reactors at risk of retiring

cooper 2013 reactors at risk of retiring 2


Sources and Notes: Credit Suisse, Nuclear… The Middle Age Dilemma?, Facing Declining Performance, Higher Costs, Inevitable Mortality, February 19, 2013; UBS Investment Research, In Search of Washington’s Latest Realities (DC Field Trip Takeaways), February 20, 2013; Platts, January 9, 2013, “Some Merchant Nuclear Reactors Could Face Early Retirement: UBS,” reporting on a UBS report for shareholders; Moody’s, Low Gas Prices and Weak Demand are Masking US Nuclear Plant Reliability Issues, Special Comment, November 8, 2012.; David Lochbaum, Walking a Nuclear Tightrope: Unlearned Lessons of Year-Plus Reactor Outages, September 2006, “The NRC and Nuclear Power Plant Safety in 2011, 2012, and UCS Tracker); NRC Reactor pages.

Operational Factors: Broken/reliability (Moody’s for broken and reliability); Long Term Outages (Lochbaum, supplemented by Moody’s, o-current, x=past); Near Miss (Lochbaum 2012); Fukushima Retrofit (UBS, Field Trip, 2013) .

Economic Factors: Cost, Wholesale markets (Credit Suisse) Age (Moody’s and NRC reactor pages with oldest unit X=as old or older than Kewaunee, i.e. 1974 or earlier commissioning, O= Commissioned 1975-1979, i.e. other pre-TMI); Small (Moody’s and NRC Reactor pages, less than 700 MW at commissioning); Stand Alone (Moody’s and NRC Reactor pages); Short License (Credit Suisse and NRC Reactor pages). Some of the characteristics are site specific, some are reactor specific.

The reactors at a specific plant can differ by age, size, technology and the current safety issues they face. Historically, in some cases there were long outages at one, but not all of the reactors at a plant. Similarly, there are numerous examples of a single reactor being retired early at a multi-reactor site. Given the complexity of an analysis of individual reactors across the eleven risk factors and the fact that unique precipitating events are the primary cause of early retirements, I count only one potential reactor retirement per plant.

If anything goes wrong, any of these reactors could be retired early. The precipitating event could be a further deterioration of the economics, or it could be mechanical or safety related problems, as indicated on the right side of the table. The market will operate faster in the case of merchant reactors, but economic pressures have become so severe that regulators have been forced to take action as well. The same factors call into question the economic value of license extensions and reactor uprates where they require significant capital outlays.

Reviewing the Wall Street analyses, it is possible to parse through the long list of reactors at risk and single out some that face particularly intense challenges:

Palisades (Repair impending, local opposition), Ft. Calhoun (Outage, poor performance), Nine Mile Point (Site size saves it, existing contract), Fitzpatrick (High cost), Ginna (Single unit with negative margin, existing contract), Oyster Creek (Already set to retire early), Vt. Yankee (Tax and local opposition), Millstone (Tax reasons), Clinton (Selling into tough market), Indian Point (License extension, local opposition), A couple of other reactors that are afflicted by a large number of these (Davis-Besse, Pilgrim) could also be particularly vulnerable.

The lesson for policy makers in the economics of old reactors is clear and it reinforces the lesson of the past decade in the economics of building new reactors. Nuclear reactors are simply not competitive. They are not competitive at the beginning of their life cycle, when the build/cancel decision is made, and they are not competitive at the end of their life cycles, when the repair/retire decision is made. They are not competitive because the U.S. has the technical ability and a rich, diverse resource base to meet the need for electricity with lower cost, less risky alternatives. Policy efforts to resist fundamental economics of nuclear reactors will be costly, ineffective and counterproductive.


Over the last decade, as nuclear advocates touted a “nuclear renaissance” they made extremely optimistic claims about nuclear reactor costs to convince policymakers and regulators that new nuclear reactors would be cost competitive with other options for meeting the need for electricity. These economic analyses rested on two broad categories of claims about nuclear reactors.

(1) New nuclear reactors could be built quickly and at relatively low cost.

(2) New Nuclear reactors would run at very high levels of capacity for long periods of time with very low operating costs.

Dramatically escalating construction cost estimates and severe construction difficulties and delays in virtually all market economies where construction of a handful of new nuclear reactors was undertaken have proven the first set of assumptions wrong. Recent decisions to retire aging reactors early remind us that the second set of assumptions was never true of the first cohort of commercial nuclear reactors and call into question the extremely optimistic assumptions about the operation of future nuclear reactors.

The Energy Information Administration (EIA) recently noted that in the current market, if aging reactors are in need of significant repair, it may not be worthwhile to do so. As the EIA put it, “Lower Power Prices and Higher Repair Costs Drive Nuclear Retirements.”

However, the problem is more profound than that. It is not only old, broken reactors that are at risk of retirement. As old reactors become more expensive to operate, they may become uneconomic to keep online in the current market conditions. Indeed, the first reactor retired in 2013 (Kewaunee) was online and had just had it licenses extended for 20 years, but its owners concluded it could not compete and would yield losses in the electricity market of the next two decades so they chose to decommission it. Things have gotten so bad in the aging nuclear fleet in the U.S. that Wall Street analyst have begun to issue reports with titles like “Nuclear… the Middle Age Dilemma? Facing Declining Performance, Higher Costs and Inevitable Mortality,” “Some Merchant Nuclear Reactors Could Face Early Retirement: UBS” and “Low Gas Prices and Weak Demand are Masking US Nuclear Plant Reliability Issues.

These early retirements magnify the importance of the fact that the “nuclear renaissance” has failed to produce a new fleet of reactors in the U.S. With little chance that the cost of new reactors will become competitive with low carbon alternatives in the time frame relevant for old reactor retirement decisions, a great deal of attention will shift to the economics of keeping old reactors online, increasing their capacity and /or extending their lives.

As has been the case throughout the history of the commercial nuclear sector in the U.S., the primary obstacle to nuclear power is economic and it is critically important to cut through the hype and hyperbole on both sides of the nuclear debate to reach sound economic conclusions.

In half of the U.S. the price of electricity is set in a wholesale market. In these areas, the wholesale prices, which is what all generators earn, are driven primarily by the fuel cost of running the last plant that needs to be operated to make sure supply is adequate to meet demand. This is the price that “clears” the market. In most regions of the nation, the price is set by natural gas, with coal playing that role in some places. In those areas of the U.S. were the wholesale price of electricity is set by the market, prices have been declining dramatically.

Over the past half-decade, the market clearing price has been declining. Fuel costs have been declining, driven by a dramatic decline in natural gas prices. At the same time, demand for electricity has been declining due to increasing efficiency of electricity consuming equipment and consumer durables. Moreover, the increase in renewable generation, which has the lowest (zero) cost of fuel and therefore always runs when it is available, has lowered the demand for fossil fired generation. This means that the market clears with more efficient (lower cost) plants, which lowers the market clearing price even farther.

For consumers this is a very beneficial process; for producers not so much, since the prices they receive are declining.

Old nuclear reactors are particularly hard hit by this market development. With prices set by fuel costs, all of the other costs of nuclear generation must be paid for out of the difference between the fuel costs of the reactor and the market clearing price. This is called the “quark” spread. A nuclear reactor is paid the market clearing price, which it must use to pay its own fuel costs, while the remainder must cover its other costs.

While nuclear fuel costs are low (although they have been rising), their non-fuel operation and maintenance costs and their ongoing capital costs are high. The high nonfuel operation and maintenance costs (including capital additions) are high because of the complex technology needed to control a very volatile fuel. As reactors age, these non -fuel operating and ongoing capital additions rise.

With “quark” spreads falling, and operating costs rising, the funds available may no longer cover the other costs, or yield a rate of profit that satisfies the reactor owner.

Old reactors are pushed to the edge. If a reactor is particularly inefficient (has high operating costs), needs major repairs, or a safety retrofit is required, the old reactors can be easily pushed over the edge. The problem for old nuclear reactors has become acute. At precisely the moment that quark spreads are declining, the non-fuel operating costs of old reactors are rising.

In the analysis that first sounded the alarm about early retirements of specific reactors, UBS explained the situation as follows

Following Dominion’s recent announcement to retire its Kewaunee nuclear plant in Wisconsin in October, we believe the plant may be the figurative canary in the coal mine. Despite substantially lower fuel costs than coal plants, fixed costs are approximately 4-5x times higher than coal plants of comparable size and may be higher for single-unit plants. Additionally, maintenance capex of ~$50/kW-yr, coupled with rising nuclear fuel capex, further impede their economic viability … We believe 2013 will be another challenging year for merchant nuclear operators, as NRC requirements for Fukushima-related investments become clearer in the face of substantially reduced gas prices. While the true variable cost of dispatching a nuclear plant remains exceptionally low (and as such will continue to dispatch at most hours of the day no matter what the gas price), the underlying issue is that margins garnered during dispatch are no longer able to sustain the exceptionally high fixed cost structures of operating these units. Nuclear units… have continued to see rising fuel and cost structures of late, with no anticipation for this to abate. Moreover, public policy initiatives, such as Fukushima-related retrofits and mandates to reduce once- through cooling (potentially requiring cooling towers/screens for some units) and new taxes on others (Vermont Yankee, Dominion’s Millstone) have further impeded the economics of nuclear.

The problem is not a figment of the imagination of Wall Street analysts or confined to a small number of individual reactors. It is widespread, as demonstrated by the behavior of Exelon, the largest nuclear utility in the U.S. with ownership of one-quarter of all U.S. reactors. Exelon was also a big supporter of wind power, until the economics of old nuclear reactors began to deteriorate. Exelon then launched a campaign against subsidies for wind power, because the rich wind resource in the Midwest had begun to back out expensive gas. Market clearing prices declined reducing the margins that its nuclear fleet enjoyed. Exelon’s campaign against wind was sufficiently vigorous to get it kicked off the board of the American Wind Energy Association.

After decades of arguing that nuclear is the ideal low (fuel) cost, always-on source of power and touting the benefits of free markets in electricity, Exelon is proposing to reduce its output of nuclear power to drive up the market clearing price. Since withholding supply for the purpose of increasing prices is frowned upon (indeed would be a violation of the antitrust laws if they applied), it has to negotiate with the Independent System Operator to reduce output. These acts of desperation clearly suggest that the economics of old reactors are very dicey.

The pressure is magnified because the cost of operating old reactors is rising. Credit Suisse estimates that in the period when “quark” spreads were falling from $40/MWH to $20-$30/MWH, the operating costs of nuclear reactors were rising to the range of $25-$30/MWH. The resulting margins are razor thin, if not negative. The primary drivers of cost increases are non-fuel O&M and fuel costs, which have increased about $10/MWH. Thus declining wholesale prices account for about two-thirds of the shrinking margin and rising costs account for one-third.

Risk Factors

The economics of individual reactors will be affected by the size and condition of the reactor and the market into which it sells power. Credit Suisse points out that the merchant generators face the greatest challenges and concludes that “the challenge of upward cost inflation/weak plant profitability will likely put pressure on smaller, more marginal plants that could weigh on nuclear’s market share.”


The Credit Suisse analysis did not stop with operating costs, but went on to identify another important characteristic that affects aging nuclear reactors, outages. A nuclear reactor only receives the wholesale prices and earns the “quark” spread if it is operating. Credit Suisse noted that 2011 and 2012 were years of heavy outage.

The largest part of the increase in outages was driven by large reactors down with operational problems (Crystal River, San Onofre, and Fort Calhoun), although extended outages for uprates also played a part (Turkey Point, St. Lucie). The reactors with the longest outages, facing substantial repair costs, Crystal River and San Onofre, have since been retired.

Moody’s has also expressed concern about reliability from a different point of view. When reactors are offline, the owners not only lose whatever margin they could have earned, they must replace the power. In addition to costing the utility cash income, this will increase the demand for power in the market and push up the market clearing price. However, in the opinion of Moody’s, in the current supply and demand context, the availability of low cost natural gas is “masking” the seriousness of that problem. Moody’s worries that if the outages continue, the cost of replacement power will rise substantially. Moody’s highlights the fact that after Crystal River and San Onofre, whose outages led to early retirements, the longest ongoing outage is Fort Calhoun, now in unplanned outage for over two years. It has been beset with multiple issues and is under close scrutiny by the NRC

The load factor – the percentage of the year a reactor is online producing power – is an important determinant of its economic performance. The average load factor is not only 4% lower for the oldest reactors, but the standard deviation is almost twice as high. In a market where margins are so thin, a 4 percentage point difference in load factor is an important loss of revenue, and the much higher standard deviation represents significant uncertainty. Age and reliability matter and they go hand in hand.


Asset Life


Age affects more than the level and uncertainty of the load factor. It is a primary determinant of remaining life. While many reactors have sought and received license extensions, a number of the older reactors have not. This means that capital expenditures may have to be recovered over a shorter period of time. To the extent that there are capital costs associated with keeping these reactors online, the short life may make it difficult to recover those costs where margins are thin. “Even assuming licenses are extended, 11 merchant nuclear units have a maximum useful life of less than 20 years… We worry whether plants will see the full 60 years as thin margins and big capex are too hard to cover.”

The analysis of the economics of aging reactors identifies a number of other characteristics that appear to reduce the economic viability of aging reactors. Small units that stand alone – geographically or organizationally – are believed to have higher costs and therefore are more vulnerable in the current market environment. Both of these factors generally reflect economies of scale since operating costs are spread across a smaller amount of capacity and output. Large, multi-unit sites integrated into corporate fleets of reactors can share indivisible costs. The retirement of Kewaunee underscores the fact that the economic benefits of being part of a fleet of reactors are dependent on the geographic location of the reactors as well.

Companies that operate multiple units are often better able to generate economies of scale and benefit from the breadth of experience housed in their nuclear operations. They are in a better position to share the best practices among their own fleets and to compete for talent in this highly specialized field. Because of these advantages, a number of single unit nuclear plant operator have decided to contract out all or part of the management of their nuclear operations to one of the more experienced companies in the field.34

Regulated Reactors

Credit Suisse presents a similar analysis for regulated reactors, noting that “deregulated market prices are somewhat less relevant but we think… illustrate the challenges to economics of regulated nuclear as well.” Market economics may not rule in these cases, but these reactors exhibit similar difficulties. Using Kewaunee economics as the dividing line (cash flow of about $9/MWH); there are almost two dozen regulated reactors with challenging economics. In this groups are retirements (San Onofre), canceled uprates (Prairie Island), and a long term outage (Fort Calhoun). We find seven standalone assets, eight reactors with less than 20 years remaining on their licenses, and half a dozen small reactors (700 MW or less). There are 14 reactors that have two or more of these characteristics. Thus, in terms of basic economics, there are three dozen reactors that are on the razor’s edge.


The above analysis describes the “normal” process of operating an aging fleet in the context of an energy economy in which low cost resources are available to meet needs. With the economic viability of an increasing number of reactors coming into question, the possibility of the need for significant capital expenditures becomes quite ominous. The prudence of making major expenditures to meet safety concerns, repair breakage and install technologies to increase output (uprates) is called into question. While there is a tendency to treat these as extraordinary events, they are frequent enough to merit consideration as part and parcel of the nuclear economic equation.

The commercial nuclear industry has historically had difficulty executing major construction projects and that problem afflicts aging reactors. The retirement of Crystal River and San Onofre was precipitated by repairs/upgrades that failed badly, resulting in the need for major repairs. The Florida uprates had substantial cost overruns. The Monticello life extension and uprate activity have experienced cost overruns of over 80 percent.

The response of Executives responsible for the Monticello uprate is revealing.

“It is a large complex project with many intricate components that required changes from the original plans,” Xcel’s chief nuclear officer, Timothy O’Connor, said in recent written testimony submitted to state regulators…O’Connor… testifies that other reactor projects – Grand Gulf in Mississippi, Turkey Point and St. Lucie in Florida and Watts Barr in Tennessee – also experienced cost overruns, in one case double the original estimate.

Defending uprate cost overruns by pointing out that everyone else is suffering the same problem is more an indictment of the industry than a defense of the utility. In fact, the severe contemporary execution risk of keeping old reactors online or increasing the output has started to look a lot like the contemporary (and historical) execution risk of building new reactors. With almost three dozen uprates approved since 2009, over half have been abandoned cancelled or put on hold. Half of those that have moved forward have suffered major cost overruns.


The major uprates that have been proposed, and in a number of cases cancelled or abandoned, generally have cost estimates in the range of $1800 to $3500 per kW. Actual costs have been much higher, in the range of $3400 to $5800/kW. These high actual costs of the uprates are three to four times as much as new advanced combined cycle gas plant costs. Even the initial cost estimates were almost twice as high. Since the reactors being proposed for uprates are still old reactors, they are likely to have significant operating costs, although the uprates may improve their performance. With new gas plants being more efficient, as well, and having much lower capital costs and short lead times, it may well be that choosing between an uprate and a new gas plant has become a very close call. This explains the mixed record of major uprates in the past half-decade.

Since uprates represent the largest capital projects most reactors will witness and most nuclear utilities will undertake in the mid-term, the poor performance is telling. These uprates are afflicted by the same flaws as new builds, past and present, cost overruns, delays, declining demand and low cost alternatives.

Safety, Spent Fuel and the Fukushima Effect

One factor to which UBS devotes a great deal of attention, but Credit Suisse does not mention, is safety related costs.

Among our greatest concerns for the US nuclear portfolio into 2013 is the risk of greater Fukushima-related costs. While expectations around the need of hardened vents differ, we see cost risks of up to $30-40 Mn/per unit under a worst case scenario; while other estimates suggest costs range in the $15 Mn ballpark. Notably, PPL estimates Fukushima-related costs of $50-60 Mn, excluding vents for its 1.6 GW Susquehanna unit.”

Safety concerns surrounding spent fuel are presently holding up the license extension for a dozen reactors as the NRC deals with a court challenge to its “waste confidence” finding. Fukushima and the “waste confidence” ruling remind investors that nuclear power has a unique set of risks that may weigh on economic decisions.

In a major post-Fukushima analysis of the nuclear sector UBS called it a “tail risk.” This is an event that may have a very low probability, but which can have a huge impact on the value of an investment. It has come to be identified more popularly as a “black swan.

In my earlier analysis of the impact of Fukushima, I cited an estimate of the potential costs that ran to a quarter of a trillion dollars. Tokyo Electric Power Company is seeking public funds to help it pay for its current estimate of costs, which is $137 billion. The number has been rising steadily and there is some question about whether the victims are being fully compensated.

The estimate of $137 billion, if that is the final cost, underscores several important points about nuclear safety and nuclear costs. First, the disaster bankrupted the company. Its stock collapsed and it has been taken over by the government. If only $137 billion can bankrupt the 4th largest utility in the world, the “tail risk” associated with nuclear reactor ownership should get the attention of investors. Second, the economic impact of nuclear accidents does not flow from the public health effects, but from the disruption of the affected community. The most immediate impact of nuclear accidents may not be the deaths that they cause, but the disruption of the economy and social life of a large surrounding area and psychological despair that they cause. I have shown that Fukushima deserves the attention it gets in both the historical and contemporary contexts, but there is a larger lesson here. Safety is an evolving concept in nuclear power because the power source is so volatile and dangerous and the technology to control it becomes extremely complex. Over time, external challenges and internal weakness are revealed. The threats to public health and safety cannot be ignored. Responding to them becomes particularly costly for existing reactors, since retrofits are difficult. As older reactors become farther and farther out of sync with the evolving understanding of safety, the challenge grows.


Turning to the future, there are a significant number of reactors, a third of the fleet that exhibits the characteristics that put reactors at risk for negative developments. Exhibit III-6 summarizes the risk factors faced by over three dozen aging reactors. The first six factors – cost, small size, old, standalone, selling into a wholesale market and short cost recovery periods – reflect the economic dimension. The next 5 risk actors involve Operational factors (broken, reliability and long term outage) and safety factors (Multiple safety issues and Fukushima retrofits). These reflect the operational/repair dimension of the analysis. The first 3 reactors evaluated have been retired early and they highlight the two different types of factors that create risk. Kewaunee epitomizes the purely economic factors. Crystal River and San Onofre epitomize the repair/outage factors. I have only included reactors that exhibit at least three of the risk factors as identified in the sources cited.

The list is long and not intended as a prediction of which reactors are “the next to go.” The historical analysis shows that it is generally a combination of factors that leads to the retirement decision. However, the vulnerability of large numbers of reactors suggests that there will be future early retirements and uprates will be slow to come.

The analysis is primarily economic, as indicated on the left side of the table. All of the reactors have significant economic issues. If anything goes wrong, any of these could be retired early. The precipitating event could be a further deterioration of the economics, or it could be mechanical or safety related problems, as indicated on the right side of the table. The market will operate faster in the case of merchant reactors, but economic pressures have become so severe that regulators have been forced to take action as well. The same factors call into question the economic value of license extensions and reactor uprates where they require significant capital outlays.


The dire straits in which a significant part of the U.S. commercial nuclear fleet finds itself are not an aberration or a sudden shift in prospects. It is part and parcel of the history of the industry in the U.S. In fact, the quiet period of high performance in the late 1990s and early 2000s is the exception rather than the rule. With the memory of the huge cost overruns in the 1970s and 1980s fading, the quiet period of the 1990s played an important part in creating the misimpression that new reactors would just hum along. This contributed to the misleading economic analysis on which the “nuclear renaissance” relied during its early hype cycle.


The assumption that nuclear reactors hum along, once they are proposed or even online, is not consistent with the U.S. experience. About half of all reactors ordered or docketed at the Nuclear Regulatory Commission were cancelled or abandoned. Of those that were completed and brought online, 15% were retired early, 23% had extended outages of 1 to 3 years, and 6% had outages of more than 3 years. In other words, more than one-third of the reactors that were brought online did not just hum along. Another 11% were turnkey projects, which had large cost overruns and whose economics were unknown.

Outages and Early Retirements

The magnitude of long outages and early retirements is sufficient to require that they be incorporated into the economic analysis of nuclear power. The pattern across time reinforces the observation that the high level of performance in the late 1990s/early 2000s were an exception rather than the rule. After a large number of reactors came on line there were a significant number of outages in the early 1980s. Again in the 1990s there were a significant number of outages and retirements. The lull of problems in the late 1990s and early 2000s has been followed by a sharp increase in problems.

Ultimately, since the start of the commercial industry, over one-quarter of all U.S. reactors have had outages of more than one year. There are three causes of these outages:

  1. Replacement—to refresh parts that have worn out
  2. Retrofit—to meet new standards that are developed as the result of new knowledge and operating experience (e.g. beyond-design events)
  3. Recovery—necessitated by breakage of major components

The average cost of an outage (in 2005 dollars), even before the most recent outages, was more than $1.5 billion, with the highest cost topping $11 billion. The costs of the recent outages that led to early retirement in Crystal River and San Onofre run into the billions.

The occurrence of outages has a strong correlation with retirement, as does the occurrence of a second outage. Early retirement reactors are typically older and smaller. The early retired reactors were brought online before the agency (originally the Atomic Energy Commission) began to adopt and enforce vigorous safety regulation. They are not worth repairing or keeping online when new safety requirements are imposed, or when the reactors are in need of significant repair. Outages exhibit similar relationships.


The larger the number of rules in place when construction was initiated, the less likely there was to be an outage or an early retirements. The larger the increase in rules during construction, the greater the likelihood of an outage. While the industry interprets the existence and change of rules as an expensive nuisance, I have shown that they reflect strong concerns about safety that were triggered by the extremely poor safety record of the industry in its early years. The older reactors experienced more outages and needed more retrofits to get back or stay online. They were built before performance was regulated, generally performed poorly and suffered the outage and retirement consequences.

Qualitatively, the decision to retire a reactor early usually involves a combination of factors such as major equipment failure, system deterioration, repeated accidents, and increased safety requirements. Economics is the most frequent proximate cause, and safety is the most frequent factor that triggers the economic reevaluation. Although popular opposition “caused” a couple of early retirements (a referendum in the case of Rancho Seco; state and local government in the case of Shoreham), this was far from the primary factor, and in some cases local opposition clearly failed (referenda failed to close Trojan or Maine Yankee). External economic factors, such as declining demand or more-cost-competitive resources, can render existing reactors uneconomic on a “stand-alone basis or (more often) in conjunction with one of the other factors.

Performance: Load Factors and Operating Costs

The increasing problems faced by aging nuclear reactors are reflected in the load factor. The average load factor for the nuclear industry throughout its history of commercial operation in the United States has been less than 75%. While it is true that over the decade from the late 1990s through the end of the 2000s the load factor was 90%, it is also true that it took 20 years to get to that level and the industry has recently fallen below it.

This is the source of concern expressed by the Wall Street analysts about the aging fleet, but it also raises an important point about new reactors. New technologies require shake out periods and the more complex they are, the longer the period. The assumption of a 90% load factor for new builds is highly suspect.

Moreover, the calculation of load factors overestimates the actual load factor because the denominator includes only reactors that are operable. Reactors that have been retired early or are on long term outage (not in service for the entire year) are not included in the analysis. I show an adjusted load factor that includes in the denominator the long term outages and early retirements. I assume that all the early retirements were reactors that were expected to still be on line, but for the difficulties that shut them down.This number is substantial. When early retirements and long term outages of more than a year are taken into account, the load factor has been about 70%.

Operating costs appear to exhibit a similar long term pattern as load factors. There was a long period of rising operating costs, then a period of modest decline and relative stability. However, in the past decade costs have begun to rise again.

What we can say about the recent past is that in a short period of time the industry has experienced a full complement of the bad things that can happen to old reactors – purely economic retirement, broken reactors, an uprate that developed into a broken plant and an early retirement, large cost overruns for new builds and uprates and abandonment of uprates. We can also identify the circumstances that brought these negative events about and show that they are not only short term aberrations, but are consistent with the long-term history of the industry.

The key question is: will the price of alternatives keep the economic pressure on the margins of aging reactors with rising costs?

Natural Gas Cost History and Trends

Predicting long-term natural gas prices has been described as a perilous undertaking, but a consensus has emerged among most reasonable analysts that a significant period of low gas prices is upon us. Projecting price out 50 years may be very risky, but 20 years is less so and that is the relevant time frame for aging reactors. Exelon’s battle with wind, its efforts to move the market clearing prices and its decision to cancel the uprates at Limerick and LaSalle and its earlier decision to abandon its plans to build a new reactor, reflect the very challenging economics that nuclear faces in today’s market. Those economics are driven by a belief that gas prices are likely to remain low for the relevant economic time frame. John Rowe, CEO of Exelon has been adamant in this regard.

Traders on the NYMEX agree with Rowe, who notes that analysts do not see a high gas price over the several decades.

As we have seen, wind power plays a role by shifting the supply-curve in such a way that it lowers the market clearing price. As wind is added to meet long-term needs, it has this short-term effect.

Rowe also notes that there are renewables that will compete with nuclear in the next decade – “But, as I look, I think wind and solar do become more economic, wind much the first. Nuclear plants may become economic again but not in the next decade.” Longer-term cost trends support Rowe’s observation that alternatives to nuclear power beyond gas are becoming more attractive options. In contrast to nuclear reactor construction costs and cost estimates that have been rising dramatically, several of the alternatives are exhibiting reductions in cost, driven by technological innovation, learning by doing, and economies of scale.

There is certain to be a great debate about how much the reduction in electricity consumption reflects the recession, there is no doubt that increasing efficiency will change the trajectory of demand. With new building codes and appliance efficiency standards, per capita energy consumption will decline significantly over the next two decades. New building codes call for a 30% reduction in energy consumption in new building designs. Since the oldest, least efficient buildings are likely to be replaced, the effect will be larger than that. The stock changes slowly however. Appliance efficiency standards have been raised in recent years and the Obama administration has announced a program to raise standards on many appliances in the range of 20 to 30%. Since the life cycle of appliances is much shorter than buildings, over the course of two decade most appliances will be replaced by more efficient models. The decline will offset increases in population and GDP, resulting in, at best, flat aggregate demand. The debate over climate change has also placed great emphasis on improving efficiency and using renewables.

With aggregate demand likely to be flat, at best, and renewable costs falling and output rising, the downward pressure on market clearing prices is likely to continue. It appears likely that the pressures on the market clearing price will continue for the period in which decisions about retiring aging nuclear reactors will be made.


Nuclear economics have always been marginal at best. The first cohort of commercial reactors was much more costly than the available alternatives, but those reactors were forced online by a regulatory system that did not have a market to look to, or care to do so even if one existed. It can be argued that the locomotive that pulled half the nation toward restructuring and much greater reliance on market signals was the reaction against the excessive costs of nuclear power. Some advocates of restructuring loudly declared restructuring would prevent another nuclear fiasco.

Ironically, it appears that an unintended consequence of the shift toward markets will be to force the early retirement of the very reactors that a market never would have allowed to be built in the first place. While half the country does not rely on markets to set the price of electricity, the presence of markets across the country sends strong signals to regulators that keeping aging reactors online, especially if they need repairs or retrofits, does not make economic sense. Thus, although the outcome is ironic in the long sweep of nuclear history in the U.S. it is perfectly consistent with the fundamental economics of nuclear power throughout that history. While the purpose of the Wall Street analysis is to advise and caution investors about utilities that own the aging fleet of at-risk reactors, my purpose is to inform policymakers about and prepare them for the likelihood of early retirements. By explaining the economic causes of early retirements, the policymakers will be better equipped to make economically rational responses to those retirements (or the threat of retirement).

Economic reality has slammed the door on nuclear power.

  • In the near-term old reactors are uneconomic because lower cost alternatives have squeezed their cash margins to the point where they no longer cover the cost of nuclear operation.
  • In the mid-term, things get worse because the older reactors get, the less viable they become.
  • In the long term new reactors are uneconomic because there are numerous low-carbon alternatives that are less costly and less risk.

The lesson for policy makers in the economics of old reactors is clear and it reinforces the lesson of the past decade in the economics of building new reactors. Nuclear reactors are simply not competitive. They have never been competitive at the beginning of their life cycle, when the build/cancel decision is made, and they are not competitive at the end of their life cycles, when the repair/retire decision is made. They are not competitive because the U.S. has the technical ability and a rich, diverse resource base to meet the need for electricity with lower cost, less risky alternatives. Policy efforts to resist fundamental economic reality of nuclear power will be costly, ineffective and counterproductive.


About Mark Cooper: I am a Senior Fellow for Economic Analysis at the Institute for Energy and the Environment at Vermont Law School. A copy of my curriculum vitae is attached. I am an expert in the field of economic and policy analysis with a focus on energy, technology, and communications issues. For over thirty years I have analyzed the economics of energy production and consumption on behalf of consumer organizations and public interests groups, focusing in the past four years on cost of the alternative resources available to meet electricity needs for the next several decades. My analyses are presented in a series of articles (1), reports (2), and testimonies before state regulatory agencies and state and federal legislatures. I have served as an expert witness in several regulatory proceedings involving electricity and nuclear reactors, starting with proceedings before the Mississippi Public Service Commission almost 30 years ago regarding the proposed Grand Gulf II nuclear reactor and including proceedings before the Florida and South Carolina Commissions regarding the proposed reactors in those states.

(1) Cooper, Mark. “The Only Thing that is Unavoidable About Nuclear Power is its High Cost,” Corporate Knights, forthcoming; “Nuclear Safety and Afford able Reactors: Can We Have Both?,” Bulletin of the Atomic Scientists, 2012; “Nuclear Safety and Nuclear Economics, Fukushima Reignites the Never-Ending Debate: Is Nuclear Power Not Worth the Risk at Any Price?,” Symposium on the Future of Nuclear Power, University of Pittsburgh, March 27-2 8, 2012; “Post-Fukushima Case for Ending Price Anderson,” Bulletin of the Atomic Scientists, October 2011; “The Implications of Fukushima: The US Perspective, Bulletin of the Atomic Scientists, July/August 2011 67: 8-13.

(2) Public Risk, Private Profit, Rate payer Cost, Utility Imprudence: Advanced Cost Recovery for Reactor Construction Creates Another Nuclear Fiasco, Not a Renaissance, March 2013; Fundamental Flaws In SCE&G’s Comparative Economic Analysis, October 1, 2012; Policy Challenges of Nuclear Reactor Construction: Cost Escalation and Crowding Out Alternatives, September, 2010; All Risk, No Reward, December 2009; The Economics of Nuclear Reactors: Renaissance of Relapse, June 2009; Climate Change and the Electricity Consumer: Background Analysis to Support a Policy Dialogue, June 2008.

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Former President Carter on U.S. energy security & policy now and in the past

[Former President Carter and General Wald both mention the American public needs to be better informed about the energy crisis to motivate them to stop buying gas-guzzling vehicles, since that’s why we go to war in the Middle East at the cost of thousands of soldiers lives.   Very interesting to hear Carter’s perspective on the past, how hard it is to get bills past special interests, and our lack of an energy policy, except for the Carter doctrine, which Senator Lugar describes as the “United States will use its military to protect our access to Middle Eastern oil”. General Wald concludes “I don’t think we should overly frighten people, but they need to be aware of the fact that we are severely threatened today and vulnerable.”

Carter also explains how it was in the interest of both oil and car companies to keep vehicles inefficient:

We have gone back to the gas guzzlers which I think has been one of the main reasons that Ford and Chrysler and General Motors are in so much trouble now. Instead of being constrained to make efficient automobiles, they made the ones upon which they made more profit. Of course, you have to remember, too, that the oil companies and the automobile companies have always been in partnership, because the oil companies want to sell as much oil as possible, even the imported oil-the profit goes to Chevron and others. I’m not knocking profit, but that’s a fact. And the automobile companies knew they made more profit on gas guzzlers. So, there was kind of a subterranean agreement there”.

Alice Friedemann, www.energyskeptic.com]


Excerpts from: S. HRG. 111–78. May 12, 2009. Energy Security: Historical perspectives and Modern challenges. U.S. Senate committee on foreign relations. 45 pages.


John Kerry, Senator from Massachusetts

“Why have we not been able to get together as a nation and resolve our serious energy problem?’’ These were the words of President Jimmy Carter in 1979. And regrettably, despite the strong efforts of President Carter and others, here we are, in 2009, still struggling to meet the same challenge today.

The downside of our continued dependence on oil is compelling, it is well known; and the downside is only growing.

Economically, it results in a massive continuous transfer of American wealth to oil-exporting nations, and it leaves us vulnerable to price and supply shocks.

But, the true cost of our addiction extends far beyond what we pay at the pump; its revenues and power sustain despots and dictators, and it obliges our military to defend our energy supply in volatile regions of the world at very great expense.

These were some of the problems that then-President Carter saw, understood, and defined, back in the latter part of the 1970s. They remain problems today. And to this long list of problems, we now add two very urgent, and relatively new, threats: Global terror, funded indirectly by our expenditures on oil, and global climate change driven by the burning of fossil fuels.

To make matters worse, we are adding billions of new drivers on the roads and consumers across the developing world, as India and China’s population and other populations move to automobiles, as lots of other folks did, all of that will ensure that the supplies of existing energy sources will grow even tighter.

All the trends are pointing in that wrong direction. According to the International Energy Agency, global energy demand is expected to increase approximately 45% between 2006 and 2030, fueled largely by growth in the developing world. So, we’re here today to discuss both the geostrategic challenges posed by our current energy supply and the need to find new and more secure sources of energy in the future.

From development to diplomacy to security, no part of our foreign policy is untouched by this issue. Region by region, our energy security challenge is varied and enormous.

Too often, the presence of oil multiples threats, exacerbates conflicts, stifles democracy and development, and blocks accountability.

  • In Europe the potential for monopolistic Russian control over energy supplies is a source of profound concern for our allies, with serious implications for the daily lives of their citizens.
  • In Nigeria, massive oil revenues have fueled corruption and conflict.
  • In Venezuela, President Chavez has used oil subsidies to great effect to buy influence with neighbors.
  • Sudan uses its energy supply to buy impunity from the global community for abuses.
  • Iran uses petro dollars to fund Hamas and Hezbollah, and to insulate its nuclear activities from international pressure
  • We know that, at least in the past, oil money sent to Saudi Arabia has eventually found its way into the hands of jihadists.
  • And oil remains a major bone of contention and a driver of violence in Kirkuk and elsewhere among Iraq’s religious and ethnic groups.

And alongside these security concerns, we must also recognize that access to energy is fundamental to economic development. Billions of people who lack access to fuel and electricity will not only be denied the benefits of economic development, their energy poverty leaves them vulnerable to greater political instability and more likely to take advantage of dirty or local fuel sources that then damage the local environment and threaten the global climate.

Taken together, these challenges dramatically underscore a simple truth: Scarce energy supplies represent a major force for instability in the 21st century. That is why, even though the price of a barrel of oil is, today, $90 below its record high from last summer, we cannot afford to repeat the failures of the past.

Ever since President Nixon set a goal of energy independence by 1980, price spikes and moments of crisis have inspired grand plans and Manhattan projects for energy independence, but the political will to take decisive action has dissipated as each crisis has passed. That is how steps forward have been reversed and efforts have stood still even as the problem has gotten worse.

In 1981, our car and light-truck fleet had a fuel efficiency rate of 20.5 miles per gallon. Today, that number is essentially the same. The only difference? Back then we imported about a third of our oil; today we import 70 percent.

In recent years, Congress and the administration have made some progress. In 2007, fleet-wide fuel efficiency standards were raised for the first time since the Carter administration. In February we passed an economic recovery package which was America’s largest single investment in clean energy that we have ever made. [But] the lion’s share of the hard work still lies in front of us.

It’s a particular pleasure to have President Carter here, because President Carter had the courage, as President of the United States, to tell the truth to Americans about energy and about these choices, and he actually set America on the right path in the 1970s.

He created what then was the first major effort for research and development into the energy future, with the creation of the Energy Laboratory, out in Colorado, and tenured professors left their positions to go out there and go to work for America’s future.

Regrettably, the ensuing years saw those efforts unfunded, stripped away, and we saw America’s lead in alternative and renewable energy technologies, that we had developed in our universities and laboratories, transferred to Japan and Germany and other places, where they developed them. In the loss of that technology, we lost hundreds of thousands of jobs and part of America’s energy future. President Carter saw that, knew and understood that future. He dealt with these choices every day in the Oval Office, and he exerted genuine leadership. He’s been a student of these issues and a powerful advocate for change in the decades since, and we’re very grateful that he’s taken time today to share insights with us about this important challenge that the country faces.


JIMMY CARTER, Former PRESIDENT of the United States, Plains, Georgia

It is a pleasure to accept Senator Kerry’s request to relate my personal experiences in meeting the multiple challenges of a comprehensive energy policy and the interrelated strategic issues. They have changed very little during the past three decades.

Long before my inauguration, I was vividly aware of the interrelationship between energy and foreign policy. U.S. oil prices had quadrupled in 1973 while I was Governor, with our citizens subjected to severe oil shortages and long gas lines brought about by a boycott of Arab OPEC countries. Even more embarrassing to a proud and sovereign nation was the secondary boycott that I inherited in 1977 against American corporations doing business with Israel.

We overcame both challenges, but these were vivid demonstrations of the vulnerability that comes with excessive dependence on foreign oil. At the time, we were importing 50% of consumed oil, almost 9 million barrels per day, and were the only industrialized nation that did not have a comprehensive energy policy.

It was clear that we were subject to deliberately imposed economic distress and even political blackmail and, a few weeks after becoming President, I elevated this issue to my top domestic priority.

In an address to the Nation, I said: ‘‘Our decision about energy will test the character of the American people and the ability of the President and Congress to govern this Nation. This difficult effort will be the ‘moral equivalent of war,’ except that we will be uniting our efforts to build and not to destroy.’’

First, let me review our work with the U.S. Congress, which will demonstrate obvious parallels with the challenges that lie ahead. Our effort to conserve energy and to develop our own supplies of oil, natural gas, coal, and renewable sources were intertwined domestically with protecting the environment, equalizing supplies to different regions of the country, and balancing the growing struggle and animosity between consumers and producers.

Oil prices were controlled at artificially low levels, through an almost incomprehensible formula based on the place and time of discovery, etc., and the price of natural gas was tightly controlled—but only if it crossed a State line. Scarce supplies naturally went where prices were highest, depriving some regions of needed fuel. Energy policy was set by more than 50 Federal agencies, and I was determined to consolidate them into a new department. In April 1977, after just 90 days, we introduced a cohesive and comprehensive energy proposal, with 113 individual components. We were shocked to learn that it was to be considered by 17 committees and subcommittees in the House and would have to be divided into 5 separate bills in the Senate. Speaker Tip O’Neill was able to create a dominant ad hoc House committee under Chairman Lud Ashley, but the Senate remained divided under two strong willed, powerful, and competitive men, ‘‘Scoop’’ Jackson and Russell Long. In July, we pumped the first light crude oil into our strategic petroleum reserve in Louisiana, the initial stage in building up to my target of 115 days of imports. Less than a month later, I signed the new Energy Department into law, with James Schlesinger as Secretary, and the House approved my omnibus proposal.

In the Senate, the oil and automobile industries prevailed in Senator Long’s committee, which produced unacceptable bills dealing with price controls and the use of coal. There was strong bipartisan support throughout, but many liberals, preferred no legislation to higher prices. Three other Senate bills encompassed my basic proposals on conservation, coal conversion, and electricity rates.

I insisted on the maintenance of a comprehensive or omnibus bill, crucial—then and now—to prevent fragmentation and control by oil company lobbyists, and the year ended in an impasse. As is now the case, enormous sums of money were involved, and the life of every American was being touched. The House-Senate conference committee was exactly divided and stalemated. I could only go directly to the people, and I made three primetime TV speeches in addition to addressing a joint session of Congress.

Also, we brought a stream of interest groups into the White House—several times a week—for direct briefings. The conferees finally reached agreement, but under pressure many of them refused to sign their own report, and both Long and Jackson threatened filibusters on natural gas and an oil windfall profits tax. In the meantime, I was negotiating to normalize diplomatic relations with China, bringing Israel and Egypt together in a peace agreement, sparring with the Soviets on a Strategic Arms Limitation Treaty, allocating vast areas of land in Alaska, and trying to induce 67 Members of a reluctant Senate to ratify the Panama Canal treaties.

Our closest allies were critical of our profligate waste of energy, and OPEC members were exacerbating our problems. Finally clearing the conference committee and a last-minute filibuster in the Senate, the omnibus bill returned to the House for a vote just before the 1978 elections, and following an enormous White House campaign it passed, 207–206.

The legislation put heavy penalties on gas-guzzling automobiles; forced electric utility companies to encourage reduced consumption; mandated insulated buildings and efficient electric motors and heavy appliances; promoted gasohol production and car pooling; decontrolled natural gas prices at a rate of 10 percent per year; promoted solar, wind, geothermal, and water power; permitted the feeding of locally generated electricity into utility grids; and regulated strip mining and leasing of offshore drilling sites. We were also able to improve efficiency by deregulating our air, rail, and trucking transportation systems. What remained was decontrolling oil prices and the imposition of a windfall profits tax.

This was a complex and extremely important issue, with hundreds of billions of dollars involved. The big question was how much of the profits would be used for public benefit. By this time, the Iranian revolution and the impending Iran-Iraq war caused oil prices to skyrocket from $15 to $40 a barrel ($107 in today’s prices), as did the prospective deregulated price. We reached a compromise in the spring of 1980, with a variable tax rate of 30 percent to 70 percent, the proceeds to go into the general treasury and be allocated by the Congress in each year’s budget. The tax would expire after 13 years or when $227 billion had been collected. Our strong actions regarding conservation and alternate energy sources resulted in a reduction of net oil imports by 50 percent, from 8.6 to 4.3 million barrels per day by 1982—just 28 percent of consumption. Increased efficiency meant that during the next 20 years our Gross National Product increased four times as much as energy consumption. This shows what can be done, but unfortunately there has been a long period of energy complacency and our daily imports are now almost 13 million barrels.

The United States now uses 2.5 times more oil than China and 7.5 times more than India or, on a per capita consumption basis, 12 times China’s and 28 times India’s. Although our rich Nation can afford these daily purchases, there is little doubt that, in general terms, we are constrained not to alienate our major oil suppliers, and some of these countries are publicly antagonistic, known to harbor terrorist organizations, or obstruct America’s strategic interests.

When we are inclined to use restrictive incentives, as on Iran, we find other oil consumers reluctant to endanger their supplies. On the other hand, the blatant interruption of Russia’s natural gas supplies to Ukraine has sent a warning signal to its European customers. Excessive oil purchases are the solid foundation of our net trade deficit, which creates a disturbing dependence on foreign nations that finance our debt.

We still face criticism from some of our allies who are far ahead of us in energy efficiency.

A major new problem was first detected while I was President, when science adviser Frank Press informed me of evidence by scientists at Woods Hole that the earth was slowly warming and that human activity was at least partially responsible.

It is difficult for us to defend ourselves against accusations that our waste of energy contributes to [climate change]. Everywhere, we see the intense competition by China for present and future oil supplies (and other commodities), and their financial aid going to other key governments. Recently I found the Chinese to be very proud of their more efficient, less polluting coal power plants. They are building about one a month, while we delay our first full-scale model. We also lag far behind many other nations in … the efficiency of energy consumption

Let me emphasize that our inseparable energy and environmental decisions will determine how well we can maintain a vibrant society, protect our strategic interests, regain worldwide political and economic leadership, meet relatively new competitive challenges, and deal with less fortunate nations. Collectively, nothing could be more important.

An omnibus proposal could be addressed collectively by the Congress by committees brought together in a common approach to this complex problem, because no single element of it can be separated from the others. I think it would also minimize the adverse influence of special interest groups who don’t want to see the present circumstances changed or a new policy put into effect to deal with either energy or with the environment. Another advantage of an omnibus bill is it gives the President and other spokespersons for our Government, including all of you, an opportunity to address this so the American people can understand it.

I think that it is almost necessary to see a single proposal come forward combining energy and environment, as was the case in 1977 to 1980, so that it can be addressed comprehensively. This is not an easy thing, because now, with inflation, I guess several trillion dollars are involved; back in those days, hundreds of billions of dollars. And the interest groups are extremely powerful. I had the biggest problem, at the time, with consumer groups who didn’t want to see the price of oil and natural gas deregulated. It was only by passing the windfall profits tax that we could induce some of them to support the legislation, because they saw that the money would be used for helping poor families pay high prices on natural gas for heating their homes and for alternative energy sources.

Global warming is a new issue that didn’t exist when I was in office, although it was first detected then. I would hope that we would take the leadership role in accurately describing the problem, not exaggerating it, and tying it in with the conservation of energy. And the clean burning of coal, I think, is a very important issue, as well.

I mentioned very briefly the constraints that are already on us. We are very careful not to aggravate our main oil suppliers. We don’t admit it. But, we have to be cautious. And I’m not criticizing that decision. But, some of these people from whom we buy oil and enrich are harboring terrorists; we know it. Some of them are probably condemning America as a nation. They have become our most vocal public critics. We still buy their oil, and we don’t want to alienate them so badly that we can’t buy it.

We also see our allies refraining from putting, I’d say, appropriate influence—I won’t say ‘‘pressure’’—on Iran to change their policy concerning nuclear weapons because they don’t want to interrupt the flow from one of their most important suppliers of oil. So, I think, to the extent that the Western world and the oil-consuming world can reduce our demands, the less we will be constrained in our foreign policy to promote democracy and freedom and international progress.

One of the things that surprised me, back in the 1970s, was that we even lost a good bit of our supplies from Canada. Because when we had the OPEC oil embargo, Canada sent their supplies to other countries, as well. So, we can’t expect to depend just on oil supplies from Mexico and Canada. I would guess that our entire status as a leading nation in the world will depend on the role that we play in energy and environment in the future, not only removing our vulnerability to possible pressures and blackmail.

Senator Lugar (Indiana)

President Carter, in your State of the Union Address, January 23, 1980, you articulated what became known to many as the Carter Doctrine, that the United States would use its military to protec our access to Middle Eastern oil.

At the same time, in the same speech, you went on to say, ‘‘We must take whatever actions are necessary to reduce our dependence on foreign oil.’’ You have illustrated in your testimony today all the actions you took.

It seems to me to be a part of our predicament, historically, at least often in testimony before this committee, the thought is that our relationship with Saudi Arabia has, implicitly or explicitly for 60 years, said, ‘‘We want to be friends; furthermore, we want to make certain that you remain in charge of all of your oil fields, because we may need to take use of them. We would like to have those supplies, and in a fairly regular way.’’

Now, on the other hand, we have been saying, as you stated, and other Presidents, that we have an abnormal dependence on foreign oil. I suppose one could rationalize this relationship by saying that Saudi Arabia is reasonably friendly in comparison, to, say, Venezuela or Iran or Russia. And so, we might be able to pick and choose among them. Perhaps regardless of Presidential leadership, throughout all this period of time, the American public has decided that it wants to buy oil or it wants to buy products, whether it be cars, trucks, and so forth that use a lot of oil.

As our domestic supplies have declined, that has meant, almost necessarily, that the amount imported from other places has gone up. And so, despite the Carter Doctrine, say, back in 1980s, we have a huge import bill. Increasingly, our balance-of-payment structure has been influenced very adversely by these payments.

And so, many of us try to think through this predicament, and each administration has its own iteration. President Bush, most recently, in one of his State of the Union messages, said we are ‘‘addicted to oil.’’ At the same time, I remember a meeting at the White House in which he said, ‘‘A lot of my oil friends are very angry with me for making such a statement, said, ‘What’s happened to you, George?’ ’’

You know, there’s this ambivalence in the American public about the whole situation. Now, what I want to ask, from your experience, how could we have handled the foreign policy aspect and/or the rhetoric or the developments, say, from 1980 onward, in different ways, as instructive of how we ought to be trying to handle it now? I’m conscious of the fact that many of us are talking about dependence upon foreign oil. We can even say, as we have in this committee, that you can see a string of expenditures, averaging about $500 million a year, even when we were at peace, on our military to really keep the flow going, or to offer assurance.

Secretary Jim Baker once, when pushed on why we were worried about Iraq invading Kuwait, said of course it was the upset of aggression, but it’s oil. And many people believe that was the real answer, that essentially we were prepared to go to war to risk American lives, and were doing so, all over oil so we could continue to run whatever SUVs or whatever else we had here with all the pleasures to which we’ve become accustomed.

Why hasn’t this dependence, the foreign policy dilemmas or the economic situation ever gripped the American public so there was a clear constituency that said, ‘‘We’ve had enough, and our dependence upon foreign oil has really got to stop, and we are not inclined to use our military trying to protect people who are trying to hurt us’’? Can you give us any instruction, from your experience?


President CARTER

In the first place, no one can do this except the President—to bring this issue to the American public, to explain to them their own personal and national interest in controlling the excessive influx of oil and our dependence on uncertain sources. And it requires some sacrifice on the part of Americans— lower your thermostat. We actually had a pretty good compliance with the 55-miles-per-hour speed limit for a while, and people were very proud of the fact that they were saving energy by insulating their homes and doing things of that kind.

I made three major televised prime-time addresses, and also spoke to a special session of Congress, just on energy; nothing else. That was just the first year. I had to keep it up. The public joined in and gave us support. The oil companies still were trying to get as much as possible from the rapidly increasing prices. They were not able to do so because of the legislation passed.

In 1979, at Christmastime when the Soviet Union invaded Afghanistan, and I looked upon that as a direct threat to the security of my country. I pointed out to the Soviet Union, in a speech, that we would use every resource at our command, not excluding nuclear weapons, to protect America’s security, and if they moved out of Afghanistan to try to take over the oil fields in the Middle East, this would be a direct threat to our existence, economically, and we would not abide by it. And, secretly, we were helping the freedom fighters—some of whom are no longer our friends—in Afghanistan overcome the Soviet invasion. And it never went further down into Iran and Iraq. Unfortunately that same area was then taken over by the war between Iran and Iraq, and all the oil out of those two countries stopped coming forward in those few months. That’s when prices escalated greatly.

When I became President, the average gas mileage on a car was 12 miles per gallon, and we mandated, by the time I went out of office, 27.5 miles per gallon within 8 years. But, President Reagan and others didn’t think that was important, and so, it was frittered away. We have gone back to the gas guzzlers which I think has been one of the main reasons that Ford and Chrysler and General Motors are in so much trouble now. Instead of being constrained to make efficient automobiles, they made the ones upon which they made more profit. Of course, you have to remember, too, that the oil companies and the automobile companies have always been in partnership, because the oil companies want to sell as much oil as possible, even the imported oil—the profit goes to Chevron and others. I’m not knocking profit, but that’s a fact. And the automobile companies knew they made more profit on gas guzzlers. So, there was kind of a subterranean agreement there.

I would say that, in the future, we have to look forward to increasing pressures from all these factors. There’s no doubt that, as China and India, just for instance, approach anywhere near the per capita consumption of oil that America is using now, the pressure on the international oil market is going to be tremendous, and we’re going to, soon in the future, pass the $110-per-barrel figure again. And when that comes, we’re going to be in intense competition with other countries that are emerging. I’ve just mentioned two of the so-called BRIC countries. I’ve mentioned Brazil and China. But, we know that India is also in there, and Russia is, too. I used the example of the increasing influence of Brazil in a benevolent way. That’s going to continue. We’re going to be competitive with Brazil, and we’re also going to be competitive, increasingly, with China.

Everywhere we go in Africa, you see the Chinese presence, a very benevolent presence and perfectly legitimate. But, anywhere that has coal or oil or copper or iron or so forth, the Chinese are there, very quietly buying the companies themselves if they’re under stress, as they are in Australia right now, or they’re buying the ability to get those raw materials in a very inexpensive way in the future. We’re going to be competing with them. They have an enormous buildup now of capital because of our adverse trade balance and buying our bonds, and they’re able to give benevolent assistance now, wisely invested in some of the countries that I mentioned earlier. So, I think the whole strategic element of our dealing with the poorest countries in the world, of our dealing with friendly competitors, like Brazil, of our dealing with potential competitors in the future, like China, our dependence on unsavory suppliers of oil, all of those things depend on whether or not we have a comprehensive energy policy that saves energy and cuts down on the consumption and also whether we deal with environment.


Senator CARDIN of Maryland

You made an interesting observation that the interest groups will make it difficult for us to get the type of legislation passed that we need to get passed. I find it disappointing is our failure to get the interest groups that benefit from significant legislation active—as active as the opponents. So, is there any experience that you can share with us as to how we could do a better job in mobilizing these interest groups? I know there’s a patriotism, everybody wants to do the right thing, but, when it gets down to it, they’re also interested in what they think is in their best immediate interest. I agree that the legislation needs to be a bill that deals with energy and the environment, that if we separate it, we’re likely to get lost on both.


President CARTER

I deliberately mentioned three different interest groups—one was oil, one was automobiles, and one was consumers—just to show that there’s a disparity among them in their opposition to some elements of the comprehensive energy policy that I put forward. The oil companies didn’t want to have any of their profits go to the general treasury, renewable energy and that sort of thing. The consumers didn’t want to see the price of natural gas and oil deregulated, because they wanted the cheapest possible prices. The energy companies wanted to sell their natural gas, for instance, just in their own States where they were discovered, because the only price control on natural gas was if it crossed a State line. There was no restriction if they sold it in Texas or if they sold it in Oklahoma, where the gas was discovered. Those interest groups were varied, and they still are.

You will find some interest groups that will oppose any single aspect of the multiple issues that comprise an omnibus package, and they’ll single-shot it enough to kill it, and just the lowest common denominator is likely to pass if it’s treated in that way. The only way you can get it passed is to have it all together in one bill so that the consumers will say, ‘‘Well, I don’t like to see the increase in price, but the overall bill is better for me’’ and for the oil companies to say, ‘‘Well, we don’t like to see the government take some of our profits, but the overall bill is good for me.’’ That’s the only way you can hope to get it. It was what I had to deal with for 4 solid years under very difficult circumstances in the Congress and so forth. And I think that’s a very important issue to make.

And, to be repetitive, the only person that can do this is the President. The President has got to say, ‘‘This is important to our Nation, for our own self-respect, for our own pride in being a patriot, for saving our own domestic economy—for creating new jobs and new technology, very exciting new jobs, and also for removing ourselves from the constraint of foreigners, who now control a major portion of the decisions made in foreign policy and who endanger our security.’’ So, the totality is the answer to your question. You’ve got to do it all together in order to meet these individual special interest groups’ pressure that will try to preserve a tiny portion of it that’s better from them and, one by one, they’ll nibble the whole thing away.

I think that the fact that this Foreign Relations Committee is addressing this is extremely important, not just the Environmental Committee or the Energy Committee, but Foreign Relations, because it has so much to do with our interrelationship with almost every other country on Earth.

I would say this is about the only issue that I thought had to be treated comprehensively. It took me an entire 4 years. And I made so many speeches to the American people—fireside chats, and so forth—that the American people finally got sick of it, of my talking. [Laughter.] And the Congress was—the Senate and the House were very reluctant to take this up the second year, but I kept on the pressure, and I would say that it was costly, politically, just to harp on this issue repetitively. Anyway, I think, in general, comprehensive legislation may not be good, but, in this case, I think it’s absolutely necessary.



For the better part of 50 or 60 years, our foreign policy had been deeply entwined with oil, in one form or another. Despite past campaigns for energy independence and the steady improvement in energy intensity per dollar of GDP, we are more dependent on oil imports today than we were during the oil shocks of the 1970s.

Now, we could have made a case for bringing democracy and human rights and education for children, and so forth, to a number of countries, but some would say, ‘‘This is, at best, sort of a second or third order of rationalization as to why you were there to begin with and what sort of wars you engendered by your physical presence.’’ And why were we there? Well, in large part because we were attempting, as President Carter expressed in the Carter Doctrine, to make certain we cannot be displaced from oil sources that were vital to our economy throughout that period of time.

We put people in harm’s way to make sure that all of those vital things occurred, did the best we could to rationalize that we were doing a lot of other good things while we were in the area. And that still is the case.


FREDERICK W. SMITH, CHAIRMAN, PRESIDENT & CEO, FEDEX Corp., CO-CHAIRMAN, Energy Security Leadership Council, Washington, D.C. 

FedEx delivers more than 6 million packages and shipments per day to over 220 countries and territories. In a 24-hour period, our fleet of aircraft flies the equivalent of 500,000 miles, and our couriers travel 2.5 million miles. We accomplish this with more than 275,000 dedicated employees, 670 aircraft, and some 70,000 motorized vehicles worldwide. FedEx’s reliance on oil reflects the reliance of the wider transportation sector, and indeed the entire U.S. economy.

Oil is the lifeblood of a mobile, global economy. We are all dependent upon it, and that dependence brings with it inherent and serious risks. The danger is clear, and our sense of urgency must match it.

I understand that this may seem contradictory. We talk about ending our dependence on oil, and in the next sentence about drilling for more oil. But the reason for this is simple: Our safety and our security must be protected throughout the entire process. It would be ideal if we could simply snap our fingers and stop using petroleum today. But that is a pipe dream, not a policy. There are no silver bullets, and we cannot allow the perfect to be the enemy of the good—especially when faced with very real dangers to our economic and national security.

Energy and climate change are related issues. That said, it is important to emphasize that the fundamental goal of reducing oil intensity is a distinct one that needs to be considered based on its own merits and the very real dangers of inaction. Put simply, pricing carbon as a stand-alone policy, whether through a tax or a cap-and-trade system, will not allow us to reach that goal. Carbon pricing will almost automatically target the power industry in general and coal in particular. The power industry, however, is responsible for a fairly small percentage of the petroleum we consume as a nation. So pricing carbon will not meaningfully affect the price of oil, the demand for oil, and therefore oil dependence.

All you have to do is to watch the nightly news and look at the enormous human cost and the cost in national wealth of prosecuting these wars in the Middle East. And any way you slice it, in large measures they are related to our dependence on foreign petroleum. There are other issues, to be sure; but, just as Alan Greenspan said in his book, ‘‘neat,’’ you know, the situation was about oil. And if we continue along the road we’ve been on these last 40 years, we’re going to get into a major national security confrontation that makes these things that we’ve been in, here the last few years, pale in comparison. So, I think every American can understand that issue by just simply relating to what we’ve been involved in, the last few years, and watching the enormous human cost of these involvements that we have in areas of the world which we wouldn’t necessarily be involved in if we weren’t as dependent on foreign petroleum. We have other issues and other interests, but I think they would not require the level of boots on the ground that we’ve been forced to get into there in these last two wars.


Energy security, to me, has been an important issue for the last at least two decades in my career; and, ironically, the first time it really became apparent to me, I think, in a big way, was when I was in War College in 1990, here in Washington, DC. And at that time, we were talking about strategy, which plenty of us thought we knew what it was, but we were learning. And the Carter Doctrine came up. And, at that time, I think, even then, 10 years after President Carter declared his doctrine, it was, I think, a surprise to many people that President Carter had been the first one to say that we would use military force to ensure the free flow of oil in the Middle East. That’s 38 years ago. Since then, I personally have spent years in the Persian Gulf, for example, and at least 16 years of my career overseas, much of it defending resources that are important to, not only us, but the rest of the global economy. And energy is, I think, paramount in that effort today and will continue to be. Our national security is definitely threatened by the fact that we are dependent upon oil and energy from places that don’t like who we are and what we do. Independence is not in the cards, necessarily, but becoming less dependent on places that don’t like us are certainly in the cards.

As you are all acutely aware, our country is now confronting a range of pressing challenges, both at home and abroad. The financial crisis, health care reform, and climate change are all serious issues that demand leadership and careful attention.

But based on my career and professional experience, I can think of no more pressing threat, no greater vulnerability, than America’s heavy dependence on a global petroleum market that is unpredictable, to say the least.

In 2006, I retired from the United States Air Force after 35 years of service. In my final assignment, I served as the Deputy Commander of United States European Command. Currently, EUCOM’s jurisdiction covers more than 50 countries and over 20 million square miles spanning the region north of the Middle East and subcontinent from the North Sea all the way to the Bering Strait. Though EUCOM is no longer responsible for Africa, it included that continent during my tenure.

During my tenure at EUCOM, I saw firsthand the dangers posed by our Nation’s dependence on oil. And those dangers have only become more acute in the time since.

The implicit strategic and tactical demands of protecting the global oil trade have been recognized by national security officials for decades, but it took the Carter Doctrine of 1980, proclaimed in response to the Soviet Union’s invasion of Afghanistan, to formalize this critical military commitment. In short, it committed the United States to defending the Persian Gulf against aggression by any ‘‘outside force.’’

President Reagan built on this foundation by creating a military command in the gulf and ordering the U.S. Navy to protect Kuwaiti oil tankers during the Iran-Iraq war.

The gulf war of 1991, which saw the United States lead a coalition of nations in ousting Iraq from Kuwait, was an expression of an implicit corollary of the Carter Doctrine: the United States would not allow Persian Gulf oil to be dominated by a radical regime—even an ‘‘inside force’’—that posed a dangerous threat to the international order.

The United States military has been extraordinarily successful in fulfilling its energy security missions, and it continues to carry out those duties with great professionalism and courage. But, ironically, this very success may have weakened the Nation’s strategic posture by allowing America’s political leaders and the American public to believe that energy security can be achieved by military means alone.

In the case of our oil dependence problem, however, military responses are by no means the only effective security measures, and in some case are no help at all.

The United States now consumes nearly 20 million barrels of petroleum a day. About 11 million barrels—or 60% of the total—are imported. In 2008, we sent $386 billion overseas to pay for oil. Our oil and refined product, in fact, accounted for 57% of the entire U.S. trade deficit. This is an unprecedented and unsustainable transfer of wealth to other nations.

Our transportation system accounts for 70% of the petroleum we consume, and 97% of all fuel used for transport is derived from oil. In other words, we have built a transportation system that is nearly 100% reliant on a fuel that we are forced to import and whose highly volatile price is subject to geopolitical events far beyond our control.

In my time as a military leader, I labored to develop a proactive risk-mitigation strategy for just those kinds of geopolitical events. It was an unwieldy challenge. Petroleum facilities in the Niger Delta were subject to terrorist attacks, kidnappings and sabotage on a routine basis—just as they are today. Export routes in the Gulf of Guinea were plagued by piracy, just as routes in the Gulf of Aden have been more recently. We can share intelligence and train security forces, but our military reach is limited by cost, logistics, and national sovereignty.

In 2008, the 1-million-barrel-per-day BTC pipeline—which runs from the Caspian Sea in Azerbaijan to the Turkish port of Ceyhan—was knocked offline for 3 weeks after Turkish separatists detonated explosives near a pumping station, despite the best efforts of local security forces. The pipeline spewed fire and oil for days. The following week, Russian forces launched a month-long incursion into the Republic of Georgia during which the pipeline was reportedly targeted a number of times.

And sitting in the heart of the Middle East is the greatest strategic challenge facing the United States at the dawn of a new century: The regime in Tehran. We cannot talk about energy security, national security, or economic security without discussing Iran. From nuclear proliferation to support for Hezbollah, oil revenue has essentially created today’s Iranian problem. I recently participated in a study group sponsored by the Bipartisan Policy Center that produced a report titled, ‘‘Meeting the Challenge: U.S Policy Toward Iranian Nuclear Development. It is entirely possible that events related to Iran could produce an unprecedented oil price spike in the future, a spike that—given the fragility of the domestic and global economy—could very well be catastrophic.

With 90% of global oil and gas reserves held by state-run oil companies, the marketplace alone will not act preemptively to mitigate the enormous damage that would be inflicted by a serious and sudden increase in the price of oil. What is required is a more fundamental, long-term change in the way we use oil to drive our economy.

In the military, you learn that force protection isn’t just about protecting weak spots; it’s about reducing vulnerabilities before you get into harm’s way. That’s why reducing America’s oil dependence is so important. If we can lessen the oil intensity of our economy, making each dollar of GDP less dependent on petroleum, we would be less vulnerable if and when our enemies do manage to successfully attack elements of the global oil infrastructure. The best ways to reduce oil intensity are to bring to bear a diversity of fuels in the transportation sector.

The United States needs a comprehensive policy for achieving genuine energy security. This policy should include (1) increases in oil and natural gas production in places like the Outer Continental Shelf along with strict new environmental protections; (2) implementing fuel efficiency standards for all on-road transport that were signed into law last year;

One of the major issues in Afghanistan today is resupplying the troops with fuel. And it’s ironic that in Iraq we have ready access to readily available fuel out of Saudi Arabia. Today, there is no fuel whatsoever made in Afghanistan, there’s no pipelines that go in there. So, our troops have to be resupplied by convoy, which is problematic. You’ve seen what’s happened there. And then we fly in with airplanes that aren’t able to refuel; they can fly it back to Baku, so now we’re dependent on Azerbaijan, for example, or other places. So, that, in itself, is a huge strategic issue for us.

I think the biggest threat we face today, personally, in America is the Iranian situation, and I think that’s a difficult wild card. And if that situation goes in a direction that we don’t want it to be, we are going to be in a significant problem here in America, from an economic standpoint, as well as a security standpoint. So, I think there is a way for people to articulate this problem, and I think every time we seem to go someplace and talk about this, it resonates. So, I—frankly, I believe it starts right here in Washington. And I don’t think we should overly frighten people, but they need to be aware of the fact that we are severely threatened today and vulnerable.


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European Union Emissions Trading Scheme & Australian Carbon Tax

HRG. 113-623. 2014-7-22. U.S. Security implications of international energy and climate policies and issues. U.S. Senate 113th congress



The Emissions Trading Scheme (ETS) was launched by the EU in January 2005 as an attempt to comply with the 1997 Kyoto Protocol. It was the world’s first cross-border greenhouse gas emissions (GHG) trading program, regulating more than 11,500 installations and about 45% of total EU carbon dioxide emissions. Under the ETS, European companies must hold permits to allow them to emit carbon dioxide. A certain number of those permits were distributed at no cost to the industries that must reduce their output of carbon dioxide emissions. If businesses emit less carbon dioxide than the permits they hold, they can either keep the excess permits for future use or sell the excess permits and make a profit on them.

The early results of the program were that EU emissions were not significantly lowered until the global recession hit in 2008, which lowered emissions for all countries.

There were also misuses and abuses in the system because of its complexity, politicized decision-making, and the incentive to manipulate it.

Before the global recession hit, some EU countries saw faster carbon dioxide emissions growth than the United States, which was not subject to the policy. From 2000 to 2006, the rate of growth of European emissions under the cap-and-trade policy was almost 5 times higher than the rate of growth in emissions in the United States. 1 After the global recession, however, EU carbon dioxide emissions in 2009 were almost 8% below 2008 levels. 2 Due to the global recession, carbon dioxide emissions, in many cases, were lowered below the targets set by the cap-and- trade policy, so companies did not have to take further actions to reduce their emissions. 3 Severe downturns in economic activity result in significant reductions in emissions.

Because the free allocation of permits was based on future estimates of higher emissions levels, which did not materialize, there were too many free government-issued permits. As a result, companies hit hard by the recession were able to make profits by selling the excess permits but chose not to pass those savings onto their customers. Consumers ended up paying higher energy and commodity costs; taxpayers paid for the program’s implementation; and a new middleman was created to run the carbon permit trading program. 4

Europe found the costs of the program to be large. In 2006, individual business and sectors had to pay $24.9 billion for permits totaling over 1 billion tons. In 2011, the global carbon markets were valued at US$176 billion, with 10.3 billion carbon credits traded.5

The World Watch Institute estimated the costs of running a trading system designed to meet the EU’s Kyoto obligations at about $5 billion. The costs of a trading system to meet the EU’s commitments of a 20% reduction by 2020 (against a 1990 baseline) were estimated to be about $80 billion annually. 6

Unlike traditional commodities, which at some time during the course of their market exchange must be physically delivered to someone, carbon credits do not represent a physical commodity, which makes them particularly vulnerable to fraud and other illegal activity.

Carbon markets, like other financial markets, are at risk of exploitation by criminals due to the large amount of money invested, the immaturity of the regulations and lack of oversight and transparency.

The illegal activities identified include the following :

  1. Fraudulent manipulation of measurements to claim more carbon credits from a project than were actually obtained
  2. Sale of carbon credits that either do not exist or belong to someone else;
  3. False or misleading claims with respect to the environmental or financial benefits of carbon market investments
  4. Exploitation of weak regulations in the carbon market to commit financial crimes, such as money laundering, securities fraud or tax fraud;
  5. Computer hacking/ phishing to steal carbon credits and theft of personal information.

German prosecutors searched 230 offices and homes of Deutsche Bank, Germany’s largest bank, and RWE, Germany’s second-biggest utility, to investigate 180 million euros ($238 million U.S.) of tax evasion linked to emissions trading.

The U.K., France, and the Netherlands also investigated carbon traders, who committed fraud by collecting the tax, and disappearing without returning the tax funds.

According to estimates from Bloomberg New Energy Finance, about 400 million metric tons of emission trades may have been fraudulent in 2009, or about 7% of the total market.8

Tax evasion linked to emissions trading is still a problem. This year Frankfurt prosecutors sought the arrest of a British national in connection with suspected tax fraud worth 58 million euros ($80 million).9

Another problem is the lack of predictability regarding the emissions permit price. Companies need to know the price for long-term planning to decide on what actions they should take. The EU permit price ranged by a factor of 3, but even at the higher price range, it was insufficient to meet the emission reduction targets before the global recession hit. 10

A cap-and-trade policy is a highly complex system to implement because there are a large number of participants and the components of the system are difficult to get right as EU’s experience has shown.

Last year, the EU commenced phase three of the ETS toward meeting their target of a 40% reduction in greenhouse gas emissions below 1990 levels by 2030.11 Phase 3, which has a number of significant rule changes, will continue until 2020. As of 2011, carbon dioxide emissions of the original 27 member EU were just 8% below 1990 levels, and the majority of the reduction was achieved by the global recession.

That means the EU has a long way to go to meet its target. In the meantime, energy prices have increased and more and more Europeans are facing fuel poverty, meaning they pay more than 10% of their household income for energy. For example, industrial electricity prices are 2 to 5 times higher in the EU than in the United States and are expected to increase more. Europe’s once comfortable middle class is being pushed into energy poverty as a result of the carbon reduction measures and EU’s renewable programs. According to the European Commission, electricity prices in the Organization for Economic Cooperation (OECD) Europe have risen 37% more than those in the United States when indexed against 2005 prices. By 2020, at least 1.4 million additional European households are expected to be in energy poverty. EU’s ETS and clean energy programs have not significantly reduced emissions, but rather have dramatically raised energy prices, increased national debt, driven businesses out of Europe, led to massive job losses and unemployment, greatly increased energy poverty, and have been plagued by fraud and corruption. This economic malaise, in turn, has made Europe less capable of expending funds for their national defense needs and has contributed to the weakening of multilateral defense organizations like NATO. The European members of NATO are now spending less than 2% of their GDP on defense spending, which is below NATO guidance. 12


Australia implemented a carbon tax in 2012.   The carbon tax, which is currently set at $24.15 Australian currency ($22.70 U.S.) per metric ton, was initially implemented in July 2012 and was designed as a precursor to a cap and trade scheme, with the transition to a flexible carbon price as part of the trading program beginning in 2015. The tax applies directly to around 370 Australian businesses. But the September 7, 2013, election put a damper on the program. Australia’s new government wants to dismantle the legislation that levies fees on carbon emissions and replace it with taxpayer funded grants to companies and projects that reduce emissions. The Emissions Reduction Fund would be funded at A$2.55 billion ($2.4 billion U.S.). 13

Repealing Australia’s carbon tax on July 1, 2014, is estimated to :

  • Reduce the cost of living of its citizens—the Australian Treasury estimates that removing the carbon tax in 2014 to 2015 will reduce the average costs of living across all households by about $550 more than they would otherwise be in 2014 to 2015.
  • Lower the cost of retail electricity by around 9 percent and retail gas prices by around 7 percent than they would otherwise be in 2014 to 2015.
  • Boost Australia’s economic growth, increase jobs and enhance Australia’s international competitiveness by removing an unnecessary tax, which hurts businesses and families.
  • Reduce annual ongoing compliance costs for around 370 entities by almost $90 million per annum.
  • Remove over 1,000 pages of primary and subordinate legislation.

Australia’s lower House of Parliament voted to scrap the carbon tax on July 14, and the Australian Senate voted in favor on July 17, 2014.15 According to Tony Abbott, Australian Prime Minister speaking at a news conference, ‘‘Today the tax that you voted to get rid of is finally gone, a useless destructive tax which damaged jobs, which hurt families’ cost of living and which didn’t actually help the environment is finally gone.’’ The repeal will save Australian voters and business around A$9 billion ($8.4 billion U.S.) a year.16 Australia’s residents found the carbon tax experience to include soaring electricity prices, rising unemployment, income tax hikes, and additional command-and-control regulations. Electricity prices increased 15 percent over the course of a year (which included the highest quarterly increase on record), and companies laid off workers because of the tax. Further, government data shows that the tax had not reduced the level of Australia’s domestically produced carbon dioxide emissions, which is not surprising, since under the carbon tax Australia’s domestic emissions were not expected to fall below current levels until 2045.17

To reduce greenhouse gas emissions to comply with the Kyoto Protocol, Europe (EU) set mandates for renewable generation (20% of its electricity to be generated by renewable energy by 2020) coupled with hefty renewable subsidies as enticements.

The Europeans have found that these subsidies have grown too large, are hurting their economies, and as a result, they are now slashing the subsidies, so enormous that governments are unilaterally rewriting their contracts with renewable generating firms and reneging on the generous deals they initially provided.

End Notes

1 Energy Information Administration, International Energy Data Base.

2 Ibid.

3 The Wall Street Journal, Cap and Trade Doesn’t Work, June 25, 2009.

4 The Wall Street Journal, Cap and Trade Doesn’t Work, June 25, 2009.

5 Interpol, Guide to Carbon Trading Crime, June 2013.

6 The Wall Street Journal, Cap and Trade Doesn’t Work, June 25, 2009.

7 Interpol, Guide to Carbon Trading Crime, June 2013.

8 Bloomberg, Deutsche Bank, RWE raided in German probe of CO2 tax, April 28, 2010.

9 Reuters, Germany seeks arrest of Briton in carbon trading scam, April 10, 2014.

10 Bloomberg, Deutsche Bank, RWE raided in German probe of CO2 tax, April 28, 2010.

11 European Commission, The EU Emissions Trading System.

12 Defense News, U.S. Pushes NATO Allies to Boost Defense Spending, May 3, 2014.

13 Huffington Post, Australia’s Carbon Tax Set for Final Showdown, July 14, 2014.

14 Department of the Environment, Australian Government, Repealing the Carbon Tax.

15 ABC, Senate Passes Legislation to Repeal Carbon Tax, July 17, 2014.

16 Wall Street Journal, Australia Becomes First Developed Nation to Repeal Carbon Tax, July 17, 2014.

17 Australia’s Carbon Tax: An Economic Evaluation, September 2013.

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