Fuel Diversity

How the State Fuels Up

Energy, mostly in liquid fuel forms, propels the transportation economy.

As with electric power, every family and business depends on transportation fuels daily. Today, more than 5 billion gallons of fuel are used each year in the Mississippi economy. Gasoline  makes up 85% of this total, and diesel – both on-road and off-road – makes up 14%. Aviation and jet fuel account for the remaining 1%.

The supply system consists of a network of petroleum refineries, interstate pipelines, fuel terminals, distributors, and retail outlets. The map below shows the major transportation fuel distribution assets in the state.

Fuel Asset Map w CO2

Policy, Diversity, and the Future of Coal in America

On April 29, 2014, the Supreme Court upheld the EPA’s Cross-State Air Pollution Rule (or CSAPR) as “a sensible accommodation [and] a [permissible] exercise of executive authority.” Essentially, the rule addresses the issue of “downwind” states not necessarily being responsible for the emissions damage caused in the state because of interstate air pollution created by neighboring “upwind” states. The rule sets standards for upwind states.  Because the rule is yet another regulatory move (see EPA greenhouse gas regulations) adding enormous costs to the operations and construction of coal power plants, the ruling aides this administration’s goal of pricing coal out of the U.S. electric power portfolio–a large blow to current coal production and future technological advances for America’s most abundant energy resource. Read the Supreme Court’s decision here.

Should we be concerned?  At a minimum, we should understand trends in U.S. electric power generation and the scale of global energy demand growth over the next several decades.  Even with gains in energy efficiency, the U.S.’s growing population and economy, along with depreciating power plants, demands more electric power.  Since 1990, approximately 75% of all new U.S. electric power generation capacity is natural gas powered.  Though the shale and natural gas boom has been an economic savior, diversity is wise in all forms of investment—including the future of America’s energy.  Experts predict that, without technological advancements and upkeep, the majority of coal and nuclear plants will go offline by 2036.

Natural gas is a versatile fuel source widely used in manufacturing, for residential and business heating, for electric power generation, and as a transportation fuel source.  By discouraging advancements in cleaner coal technology and a new generation of nuclear power plants, and by pushing the industry to increased natural gas reliance, the economy is heavily leveraged on a single fuel source.  Because of the long-term nature of electric power investments, policymakers should consider whether U.S. policies (whether intentional or unintentional) are discouraging investment in coal and nuclear power, as well as the long-term risks associated with this trend.

Policy decisions such as CSAPR have a major impact on the future of energy investments. Encouraging clean technology innovations while neglecting coal and nuclear innovation ignores the full scope of America’s resources and common economic sense.  Government should focus on encouraging clean technology in all forms, especially those that are most cost-effective for decades to come.

Now, the Obama Administration is expected to soon announce options (i.e. requirements) for states to regulate greenhouse gases.  Like CSAPR, this will also be a long-litigated program with the ultimate effect of increasing energy costs and limiting energy options in the U.S.  Energy policy in the U.S. should encourage innovation and energy abundance, not scarGRAPH2city.




A Plan for Energy Scarcity

The Obama Administration this week unveiled its agenda aimed at combating climate change. The problem is, if we take the President at his word that carbon-based energy (which provides around 80% of all energy used in the U.S. and the world) is damaging the planet, then his plan to regulate energy use in the U.S. will have no significant impact on global carbon dioxide levels.

We can all agree that reducing emissions is a good thing, but  methods for emissions reductions should be considered in the context of the economy and U.S. competitiveness.  Policy actions that increase the cost of energy will have a direct negative impact on the U.S. economy at a time when jobs and household incomes are the overriding quality of life issues in America.

President Obama mentions that U.S. CO2 emissions are down to where they were 20 years ago. Total U.S. carbon emissions for this year are about 5.2 billion, while the 1990 figure was about 5 billion.

And while he does mention the U.S.’s steady decline of carbon emissions, he fails to mention that China and India will continue to be big emitters and therefore cause global CO2 levels to rise. By hindering U.S. development of a new generation of coal technologies, these overseas emitters will continue to burn coal in the traditional manner and will render U.S. government initiatives moot in terms of the overall global picture.

It is worth noting that in this sweeping proposal there is not  serious consideration of nuclear power, the one truly scalable and reliable source of carbon free energy. President Obama mentions the resource once, and that is merely to announce that we are building our first reactors in more than 30 years in Georgia and South Carolina. If the Administration was truly concerned about carbon dioxide levels in the environment, one would think it would be a strong advocate for aggressive expansion in nuclear power.  Instead it didn’t have much to say about America’s nuclear future.

The American public should understand that the Administration’s intention is to regulate energy from coal, America’s largest source of electricity, to the point that it’s priced out of the market.  In other words, electricity costs will increase, and domestic fuel options, a key U.S. competitive advantage, will decrease.   A U.S. economy that has always thrived on abundant, affordable energy could soon be an economy facing energy scarcity, and a sector that has been a foundation of our country and produces numerous high quality jobs will soon be scaled back severely all because we continue to further restrict ourselves while the rest of the world burns on.


Freedom to Use U.S. Energy Resources Thwarted by U.S. Policy

Since technology development in oil and natural gas production has unleashed new domestic energy supplies and dramatically increased known domestic energy reserves, the U.S. has claimed the title as the most energy rich country in the world. However, the key to this title is counting all energy reserves, including coal. In addition to having more nuclear power plants than any other country, the U.S. has the most combined oil, natural gas, and coal reserves.

The question is, “Will U.S. policy allow the freedom to use all energy resources, namely coal?”

Coal-fired power plants have historically generated the largest share of electric power in the United States, and although natural gas has gained a much larger share, coal continues to be the top source of generation, as you will see in the graph below.

(Click to enlarge.)

So what is the problem? There are 1,400 coal-fired power plants operating in the U.S. today. Of these 1,400, only 90 have been built in the last 20 years. 82% of these plants are greater than 30 years old, and 64% of these plants are greater than 40 years old. Therefore, if U.S. ratepayers are to continue benefitting from its abundance of coal, new plants will be required.

But in a not-so-obscure way, the federal government is doing its best to price coal out of the marketplace, through onerous regulation, thus eroding American wealth of energy resources. With the EPA’s persistently debilitating regulations, coal plants look as though to have a bleak future. Rules like Utility MACT and Boiler MACT place unreasonable and unachieveable emissions limits on current coal plants. Companies are required to use Maximum Achievable Control Technology (MACT), as determined by regulators, to curb the emissions coming from coal plants.

While this may sound good, this requires companies to go far beyond a rational approach for emissions reductions. The cost to install this new technology is so high that instead of installing the technology, companies will be forced to close plants, which will likely cost ratepayers more in some other form and diminish the American energy portfolio. The likely result of these policies will be little, if any, building of new coal plants.

Because of the very long-term operating life of power plants, diversity in power production remains the right policy. Natural gas is a very good and versatile fuel, useful for many purposes in our economy – power, manufacturing, transportation, heating, and now exporting. However, relying too heavily on natural gas brings much exposure. Policy should support the construction of nuclear and coal as a way to provide stability to U.S. power production for the next generation.

Other countries, such as China, are building coal-fired and nuclear power plants at a staggering rate. With unreasonable rules in place, the US will begin to lose one of its greatest advantages in power generation, which is its diversity. Emissions reductions can be achieved without giving up on an abundant American source of energy.

Fuel diversity is the key

The New York Times recently published an article about New England’s over-reliance on natural gas for electric power generation and, consequently, the precipitous price spike after a surge in demand.

What does this event in New England teach us? It teaches us diversity is critical to both reliability and stability of supply and cost in electric power generation. This microcosm shows the fallacy in allowing short term market conditions to over-influence decisions best made in long term perspective. This New England event also shows us the critical importance of infrastructure and delivery in energy. Along with adequate production and fuel supply, robust infrastructure and regular upgrades are the key components to what the public expects – electricity and energy available on the spot at a fair price.

The shale gas revolution has dynamically changed the economic picture in the U.S., especially in manufacturing. If not for the explosion in energy production over the past 5 years, who knows where our the U.S. economy would be? But all of these gains do not mean we should make ourselves over-reliant on natural gas. A diverse energy portfolio is the right answer.

Well over half of Mississippi’s electricity is generated using natural gas. Coal and nuclear account for the remainder of electricity generated in Mississippi, so while Mississippi does have some balance, the state as a whole is already heavily leveraged on natural gas (see graph below.)

Figure 5, graph 1

“It is certainly true that a region like New England that relies on a single fuel source like natural gas for the bulk of its power does leave itself open for more disruptions than a region with a more diverse fuel mix,” said Jay Apt, executive director of the Electricity Industry Center at Carnegie Mellon University in Pittsburgh. “It’s not a knock against natural gas; it’s a knock against a single fuel source.”

With Mississippi Power’s Kemper plant one of the latest targets of the anti-build-anything-in-America coalition, it is important for us, ratepayers, in Mississippi to take heed of Mr. Apt’s words. These opponents saying we should be adding natural gas generation are missing the fundamental point about the importance of a diverse fuel portfolio in electric power generation. It cannot be stressed enough that diversity in fuel options is critical to stability and reliability coupled with the infrastructure capacity to meet demand. We must understand that electric power generation investments have very long lifespans of 40 years or more, so making decisions on today’s fuel costs make no sense. That’s why diversity will always be the best policy.

As discussed in the Times’ article, when New England experienced an early cold snap over Thanksgiving, there was an overreliance on gas- an overreliance that could not be met because of shortage of pipeline capacity. The demand was outpacing the delivery capacity of gas infrastructure. Thankfully, Indian Point, a twin-unit nuclear plant on the Hudson River, was able to contribute 1,400 megawatts.

New England’s near crisis is an excellent case study for not only Mississippi, but the nation. When an area relies heavily on one energy source (one that is delivered only as needed and requires an abundant infrastructure of pipelines) that area is susceptible to a volatile price market and shortage of energy.

Heritage Foundation Summarizes Federal Regulatory Onslaught on Energy

For decades, politicians have talked about goals of energy growth, independence, and diversity, and today’s political rhetoric is not much different than in years past. While inaction in many areas is the same, what is different today is the aggressive regulatory action taken by Federal agencies, particularly the EPA, that is negatively impacting the availability and cost of energy.

To be clear, reasonable regulations are both necessary and beneficial in setting clear standards in business, and a healthy environment and a healthy economy are inextricably related because a healthy economy will foster technology development and other innovations that cut pollution and improve the environment (Google ‘Environmental Kuznets Curve’). Therefore, in order to promote both the economy and the environment, regulatory costs and economic benefits must be carefully considered together. Looking at recent and ongoing regulatory actions within EPA and other Federal agencies, it is clear this Administration is not consideringcosts and is on a path, through a myriad of regulatory moves with either insignificant environmental benefit or none at all, to try and diminish or stop the use of coal, an affordable and tremendously abundant U.S. energy resource.

With the surge of shale oil and natural gas production in the U.S. along with conventional energy reserves, the U.S. is the richest energy country in the world. This is an enormous economic advantage for our country but only if we useall our resources efficiently, especially our most affordable resources.