Book Summer 2006.qxd Assessing U.S. energy policy Article (Published Version) http://sro.sussex.ac.uk Brown, Marilyn A, Sovacool, Benjamin K and Hirsh, Richard F (2006) Assessing U.S. energy policy. Daedalus, 135 (3). pp. 5-11. ISSN 0011-5266 This version is available from Sussex Research Online: http://sro.sussex.ac.uk/id/eprint/58099/ This document is made available in accordance with publisher policies and may differ from the published version or from the version of record. If you wish to cite this item you are advised to consult the publisher’s version. Please see the URL above for details on accessing the published version. Copyright and reuse: Sussex Research Online is a digital repository of the research output of the University. Copyright and all moral rights to the version of the paper presented here belong to the individual author(s) and/or other copyright owners. To the extent reasonable and practicable, the material made available in SRO has been checked for eligibility before being made available. Copies of full text items generally can be reproduced, displayed or performed and given to third parties in any format or medium for personal research or study, educational, or not-for-profit purposes without prior permission or charge, provided that the authors, title and full bibliographic details are credited, a hyperlink and/or URL is given for the original metadata page and the content is not changed in any way. http://sro.sussex.ac.uk/ For decades, our political leaders have told us that we need to use energy more ef½ciently and derive more of it from domestic sources.1 Since the energy cri- sis of 1973, U.S. presidents have declared the need to gain independence from un- stable foreign energy suppliers and to do so with the same moral fortitude as if ½ghting a war. Some politicians have proposed massive government programs to achieve the goals of their energy poli- cies; others have sought to unleash free- market forces that would encourage companies to develop novel sources of energy and motivate consumers to use energy more wisely. Despite more than three decades of such efforts, the United States has not achieved the goal of energy indepen- dence. While progress in adopting more energy-ef½cient technologies has saved billions of dollars throughout the econo- my, most other indicators of energy au- tonomy–such as the percentage of im- ported fuel–demonstrate that the coun- try has become less independent than ever. President Bush acknowledged this fact in his recent State of the Union ad- dress, telling Americans that the coun- try has become “addicted to oil” and urging citizens to ½nd alternative ways to satisfy their energy needs. For those with a sense of history, Bush’s clarion call sounded eerily familiar. Even though energy ef½ciency has tak- en root in some sectors of the economy, Dædalus Summer 2006 5 Marilyn A. Brown is interim director of Oak Ridge National Laboratory’s Engineering Science and Technology Division. An expert on the com- mercialization of new energy and environmental technologies and the evaluation of government programs and policies, she has authored more than 140 publications. Benjamin K. Sovacool is a Eugene P. Wigner Postdoctoral Fellow at the Oak Ridge National Laboratory. Through the National Science Foun- dation’s Electric Power Networks Ef½ciency and Security Program, he has investigated the social impediments to distributed and renewable energy systems. Richard F. Hirsh is professor of History and Sci- ence & Technology Studies at Virginia Polytech- nic Institute and State University. The author of “Technology and Transformation in the Ameri- can Electric Utility Industry” (1989) and “Power Loss: The Origins of Deregulation and Restruc- turing in the American Electric Utility System” (1999), he currently manages Virginia Tech’s Consortium on Energy Restructuring. Comment by Marilyn A. Brown, Benjamin K. Sovacool & Richard F. Hirsh Assessing U.S. energy policy © 2006 by the American Academy of Arts & Sciences 1 The authors are grateful to Oak Ridge Na- tional Laboratory (operated by ut-Battelle, llc, for the U.S. Department of Energy) and the National Science Foundation for supporting elements of the work reported here. Any opin- ions, ½ndings, conclusions, or recommenda- tions expressed in this material are those of the authors and do not necessarily reflect the views of Oak Ridge National Laboratory or the Na- tional Science Foundation. it has not compensated for the growth in energy consumption that has occurred since 1973, nor will it (if current trends continue) accommodate the growth that forecasters anticipate in coming decades. Moreover, America’s depen- dence on oil from insecure or politically unstable countries has required exten- sive diplomatic and military efforts that incur huge costs borne by energy users and taxpayers. Today’s information economy also remains inextricably tied to reliable power and to just-in-time manufacturing and distribution process- es that depend on fleets of petroleum- guzzling trucks and airplanes. Disruptions in increasingly fragile energy systems can cause havoc to the nation’s economy and to everyday life. We have already had a taste of such dis- ruptions in the form of the California electricity crisis of 2000 to 2001, the 2003 Northeast blackout, and the fuel- supply interruptions resulting from the Gulf Coast hurricanes in 2005. These disruptions may be trivial preludes to what could be more substantial future catastrophes. Indeed, the country faces at least ½ve immense and interconnected energy challenges due to (1) the risk of oil-supply disruptions; (2) increasing electricity usage; (3) a fragile electric- power (and overall energy) infrastruc- ture; (4) the lack of sustained efforts to push energy-ef½ciency practices; and (5) the growing environmental impacts of increasing energy consumption. First, the United States remains vul- nerable to the risk of oil-supply disrup- tions, despite plenty of warnings over the past three decades. In 1973 the Arab members of the Organization of Petro- leum Exporting Countries (opec) or- chestrated an oil embargo, the ½rst sup- ply disruption to cause major price in- creases and a worldwide energy crisis. In unadjusted terms, the price of oil on world markets rose from $2.90 per barrel in September 1973 to $11.65 per barrel in December 1973. Further price hikes and economic repercussions accompanied the Iranian revolution in 1979. Eleven years later–in 1990–when Iraqi forces invaded Kuwait, opec controlled rough- ly 5.5 million barrels per day (mbd) of spare capacity, enough to replace the oil from the combatant countries and to supply about 8 percent of global de- mand. Even so, the elimination of Iraqi and Kuwaiti shipments contributed to oil prices jumping from around $21.50 per barrel in January 1991 to $28.30 in February 1991. In 2005, opec’s spare production ca- pacity stood at only 2 percent of world demand, with roughly 90 percent of this spare capacity located in Saudi Arabia. The rapidly growing demand for oil by China and India to fuel their expanding economies has placed unprecedented pressure on the world supply of oil, lead- ing to recent prices of crude oil at $70 per barrel and higher. Because spare pro- duction capacity is both extremely limit- ed and concentrated in one volatile re- gion, world oil markets remain vulnera- ble to short-term disruptions. This situa- tion will not likely improve since almost half of the world’s proven reserves of conventional oil are in Saudi Arabia, Iraq, and Iran. The United States remains more sus- ceptible today to oil-supply disruptions and price spikes than at any time in the recent past. It has grown to become the world’s largest oil consumer by a consid- erable margin while its domestic oil pro- duction has rapidly diminished. Oil im- ports have ½lled the expanding gap and accounted for 58 percent of total U.S. oil consumption in 2005–up from 22 per- cent in 1970. To obtain a sense of the consequences of a disruption in a constrained world 6 Dædalus Summer 2006 Comment by Marilyn A. Brown, Benjamin K. Sovacool & Richard F. Hirsh oil market, the National Commission on Energy Policy, a bipartisan group of six- teen leading energy experts, simulated an ‘oil-supply shockwave’ in 2005. Un- rest in oil-producing Nigeria, an attack on an Alaskan oil facility, and the emer- gency evacuation of foreign nationals from Saudi Arabia precipitated the imagined shockwave, which removed three mbd from the world’s market of oil. As result of these events, the price of gasoline in the United States rose to $5.75 per gallon, two million Americans lost their jobs, and the consumer price index jumped 13 percent. Worse, pan- elists who participated in the study con- cluded that we could do nothing to avoid these impacts after the hypothetical dis- ruptions began. The stagnating fuel economy of cars has contributed to America’s vulnerabil- ity to oil disruptions. Corporate Average Fuel Economy (cafe) standards for cars peaked in 1985 at 27.5 miles per gallon. For the past two decades, consumer (and manufacturer) preferences for larger and more powerful autos have negated tech- nological advances in front-wheel drive transmissions, electronic fuel injection, enhanced power-train con½gurations, and computer-controlled engines, which would improve gas mileage even if noth- ing else were changed in cars. New-vehi- cle fuel economy therefore remains no higher today than in 1981, but automo- bile weight has increased by 24 percent and horsepower has almost doubled. In addition, more cars populate the roads, and are driven more miles each year. The net result of these trends has been grow- ing demand for oil in the transportation sector and greater imports to meet that demand. Second, the United States continues to see increasing demand for electricity in a way that threatens its ability to produce it. The country consumed about 167 per- cent more electricity in 2004 than it did in 1970, with power usage growing from 25 percent of the nation’s total energy use in 1970 to 40 percent in 2004. And this demand for electricity will continue to grow: the Energy Information Admin- istration forecasted in 2005 that electric- ity use will increase at a rate of 1.9 per- cent annually through 2025. Though much lower than the 7 percent annual growth rate experienced before the 1973 energy crisis, the current rate would still require a doubling of electricity produc- tion in about thirty-seven years. Increased demand for power in the past decade has been met almost exclu- sively through the use of quickly built and increasingly ef½cient natural-gas combustion turbines or combined-cycle equipment. Indeed, more than 150 giga- watts (gw) of gas-½red power genera- tion have been added to the power grid between 1999 and 2004, which totaled about 1,000 gw for the nation in 2004. Despite the high price of this clean- burning gas in the last few years, its use in new power plants seems likely to in- crease. But energy analysts see problems with this trend. The National Petroleum Council predicts that current North American sources will be able to satisfy only 75 percent of domestic demand for natural gas. Questions of security will likely emerge as the trend of natu- ral-gas imports begins to emulate the increasing trend of petroleum imports. Aggravating this concern is the possi- bility that today’s nuclear-power plants could be retired over the next ½fty years as current licenses expire, depriving the nation of one of its key noncarbon ener- gy sources and pushing up demand for natural gas if that fuel replaces nuclear energy for electricity production. What about other sources of power? Coal’s high carbon content and added Dædalus Summer 2006 7 Assessing U.S. energy policy cost of pollution abatement will con- tinue to pose challenges for power pro- viders. Clean coal technologies such as integrated gasi½cation combined cycle and fluidized bed combustion offer policymakers a way to capture concen- trated streams of carbon dioxide, but they still remain years away from com- mercial viability. Because of security problems related to fuel sources and waste disposal, as well as potential pub- lic opposition, new nuclear technology also cannot be counted on for wide- spread near-term use. And despite some impressive federal and state efforts to promote them, non-hydro renewables (such as biomass, geothermal, wind, and solar) have gained only a 2 percent share of electricity generation over the past thirty years. Reductions in the cost of power produced from renewables in this time have been impressive, making them look increasingly attractive for fu- ture use. Yet the intermittence of renew- ables–especially the most cost-effective wind turbines–coupled with high capi- tal costs, a host of lingering utility-mo- nopoly rules, and public opposition to local siting will likely prevent such tech- nologies from taking over the bulk of the generation burden, at least in the next thirty years. Overall, it appears that meeting future demand for electricity will become an increasingly arduous un- dertaking. Third, the electric-power-transmission infrastructure remains precarious and brittle, despite its increasing use. Data from the Edison Electric Institute and the Electric Power Research Institute note that utility investment in transmis- sion peaked at almost $10 billion in 1970, but declined to an inadequate level of $2.2 billion in 1998 (in 2003 dollars). Spending grew to $3.8 billion in 2002 and $4.1 billion in 2003, though many analysts still feel more investment is necessary to transmit power to the grow- ing wholesale and retail markets that have been created since utility-industry restructuring began in the 1990s. But much higher spending may not be forthcoming, given that (as noted in a 2003 rand Corporation study) incen- tives in the partially deregulated utility industry favor minimal investments in transmission facilities. Because federal regulators generally limit rates of return on transmission investments, compa- nies often prefer to construct and oper- ate new generation facilities, whose un- capped rates of return depend only on market conditions. To complicate mat- ters more, local opposition to new pow- er lines has grown over the years as the country has become more populated, re- sulting in delayed construction (or can- cellation) of some transmission facili- ties. Taken together, these trends have resulted in a decreasingly reliable trans- mission network in many regions of the United States, with grid components be- ing operated close to (or at) their techni- cal limits. The Energy Policy Act of 2005 includes provisions to respond to some infra- structural problems, such as incentives to increase investment in transmission lines and to simplify the planning and permitting process for building them. These measures may help, as thousands of miles of new transmission lines may be required if the electric-utility system expands along the same lines as it has for the past several decades. Increasing demand for other forms of energy in the future may also stress the country’s infrastructure. Numerous new port ter- minals will be required to handle in- creased imports of lique½ed natural gas and oil, for example. At the same time, new carbon-sequestration sites, bio- energy facilities, and hydrogen reposito- ries and pipelines may be needed, espe- 8 Dædalus Summer 2006 Comment by Marilyn A. Brown, Benjamin K. Sovacool & Richard F. Hirsh cially as efforts increase to reduce envi- ronmental pollution. But these needs will not be easily met. Carbon seques- tration, for example, may require use of depleted oil and gas ½elds, unmine- able deep coal seams, or cavernous sa- line formations. The successful use of these geological formations will depend on techniques that resist operator and equipment failure, extreme weather, and malicious interference or attacks. Similar concerns over technical errors and assaults arise when considering the need for expansion of natural-gas and petroleum facilities. Opposition to con- struction of these new infrastructural elements has already become evident. Put simply, the future health of the country’s energy infrastructure may be in peril. Fourth, the country faces immense challenges in promoting more energy- ef½cient technologies. Before the 1973 opec oil embargo, U.S. energy con- sumption grew in lockstep with the na- tion’s gross domestic product (gdp). Measured in terms of energy consump- tion per dollar of gdp, the energy inten- sity of the nation remained constant. Economic growth appeared to require consuming more energy. This trend changed in the period after the 1973 energy crisis, when the econo- my (as measured by the inflation-adjust- ed gdp) grew by 148 percent (from 1973 to 2004). Total U.S. energy consump- tion, meanwhile, grew from about sev- enty-six quadrillion British Thermal Units of energy (quads) to almost one hundred quads in the same period, an increase of 32 percent. The energy in- tensity of the economy, in other words, dropped considerably. What accounted for the change? In- dividuals purchased more fuel-ef½cient cars and appliances; they insulated and weatherproofed their homes; and they adjusted thermostats to reduce energy consumption. These measures led to a decrease in per capita residential ener- gy use of 27 percent (and 37 percent per household) despite a 50 percent increase in new home size since 1970 and the growing use of air conditioning, elec- tronic equipment, and a multitude of ‘plug loads.’ Businesses retro½tted their buildings with more ef½cient heating and cooling equipment and installed en- ergy management and control systems, accounting for a 25 percent decline in en- ergy use per square foot of commercial building space. Factories adopted more ‘energy-stingy’ manufacturing processes and employed more ef½cient motors for conveyors, pumps, fans, and compres- sors. These gains in energy productivi- ty, prompted by high fuel costs and gov- ernment policies, represent one of the great economic success stories of this century. If the nation’s energy intensity remained the same today as it stood in 1970, the United States would be con- suming twice as much energy, and its energy bill would be approximately $1 billion higher per day. While such data suggest that energy- ef½ciency investments provide an eco- nomic and relatively rapid strategy for meeting the growing demand for ener- gy services, many experts assert that ef½ciency can only play a limited poli- cy role. For example, Hans Blix, the for- mer director of the International Atomic Energy Agency, has argued, “The more ef½cient use of energy will only partially slow down the expanding use of energy. Although our light bulbs will save elec- tricity, we shall have more lights.” Simi- larly, Vice President Dick Cheney stated in 2001 that “conservation may be a sign of personal virtue, but it is not a suf½- cient basis for a sound, comprehensive, energy policy.” And Spencer Abraham, President Bush’s Secretary of Energy Dædalus Summer 2006 9 Assessing U.S. energy policy from 2001 to 2005, reiterated this view when he told senators that “improved energy ef½ciency cannot do the whole job . . . . [T]he United States will need more energy supply.” In short, ef½ciency may help the nation overcome some of its energy woes, but policymakers do not feel it will be the ultimate solution. As a result, the potential for improved energy ef½ciency is not being vigorously tapped. Fifth and ½nally, the trend toward more energy consumption will exacer- bate already prominent concerns about the environment. Since the 1960s, tech- nically trained people, politicians, and the public have become aware of the health consequences of the exploration, extraction, transportation, and combus- tion of fuels used for making energy. They have also become alert to possible dangers of living near high-voltage pow- er lines and radioactive-waste sites. More recently, people have pointed to the ecological damage created by hydro- electric dams and wind turbines, while also noting that the use of biomass from energy crops may promote agricultural monocultures that can pose severe risks to ecological diversity. Efforts resulting from three decades of clean-air legislation have decreased sulfur-dioxide emissions from electric generators in the United States. Never- theless, air pollution remains a serious threat to human and ecosystem health. Americans have experienced a rise in respiratory illnesses, and visibility con- tinues to degrade in formerly pristine areas as a result of pollution from ve- hicles and coal-burning power plants. Rarely, for example, does visibility in the Great Smoky Mountains National Park achieve its ‘natural’ limit of nine- ty-three miles. Instead, average annual visibility has decreased to twenty-½ve miles in the winter and to twelve miles in the summer. Beyond air-pollution issues, current energy trends will lead to expanded emissions of greenhouse gases, which appear to be contributing to increased global temperatures, reces- sion of glaciers, and more frequent and powerful weather events such as hurri- canes. The pollution associated with elec- tric-power production was vividly doc- umented by the August 14, 2003, North- east blackout. Not only did the event shut off electricity for 50 million people in the United States and Canada, it also halted emissions from many fossil-½red power plants across the Ohio Valley and the Northeast. In effect, the power out- age served as an inadvertent demonstra- tion of the environmental consequences of electricity generation: twenty-four hours after the blackout, New York City’s sulfur-dioxide concentrations dropped 90 percent; particulate matter fell by 70 percent; and ozone concentra- tions slipped to half. Beyond federal clean-air initiatives, state-government policies have, in cer- tain cases, made positive inroads to pol- lution abatement. Due to legislative and regulatory initiatives, California–which generates roughly one-fourth of its elec- tricity from ef½ciently distributed and renewable energy technologies–emitted only 493 metric tons of carbon dioxide in 2002, a mere 12 percent increase from its emission levels in 1990, despite an in- crease in electricity demand of almost 25 percent. Though making impressive inroads in pollution abatement efforts, California (and a few other states) remains the ex- ception, not the rule. Few people dispute the fact that total U.S. emissions of car- bon dioxide from energy consumption have increased signi½cantly: from 4.3 billion metric tons in 1970 to 5.9 billion metric tons in 2004. Moreover, the Ener- 10 Dædalus Summer 2006 Comment by Marilyn A. Brown, Benjamin K. Sovacool & Richard F. Hirsh gy Information Administration forecast- ed in 2005 that carbon-dioxide emis- sions from energy use will grow an aver- age 1.5 percent annually for the next twenty years, resulting in 8.1 billion met- ric tons of carbon-dioxide emissions in 2025. Clearly, the last thirty years have not seen the adoption of the low-carbon power and fuels needed to help stabilize atmospheric concentrations of green- house gases. Continued growth in ener- gy usage will likely exacerbate environ- mental problems. To conclude, despite three decades of ‘progress’ since the 1973 energy crisis, the United States faces a host of energy challenges that threaten the nation’s economy, security, and lifestyle. Because of its huge dependence on imported oil to fuel a transportation sector that has seen little improvement in energy ef½- ciency, the nation could be ravaged by disruptions to oil supplies due to weath- er, war, or terrorist attacks. At the same time, growing electricity consumption and reliance on power plants employing natural gas, along with a constrained transmission grid, make the electric- utility infrastructure increasingly vul- nerable to service disruptions. And while ef½ciency efforts have successful- ly stemmed the growth rate of fuel con- sumption in the last few decades, popu- lation increases and economic expan- sion have forced up the nation’s overall use of energy, exacerbating the country’s environmental problems. As a consequence of these trends, the goal of energy independence seems more distant in 2006 than it did in 1974, when President Nixon ½rst proposed it as a way to deal with the oil embargo. While one can fruitfully debate whether complete reliance on domestic energy sources should be the objective of gov- ernment policy, the fact remains that the United States cannot continue upon its present course. The country has become progressively vulnerable to economic, political, and military threats because of its growing fuel consumption and an increasingly challenged energy infra- structure. The nation’s policymakers in business and government, as well as the citizenry, need to realize that the recent trends in energy consumption, produc- tion, and distribution reflected in this energy assessment cannot be sustained inde½nitely. Americans must confront energy concerns as a top priority and learn to overcome the social, political, and technical obstacles that have hin- dered true progress for more than three decades. Dædalus Summer 2006 11 Assessing U.S. energy policy