May 22, 2011

GOVERNMENT IS TERRIBLE AT PICKING WINNERS, BUT EXTRAORDINARILY EFFECTIVE AT PICKING LOSERS...:

A Car Subsidy That Makes Sense: Electric cars have many faults. Converting cars to run on compressed natural gas would do justice to both physical and geopolitical reality. (Gary Jason, May 18, 2011 , The American)

As background, I first need to review the current status of what is proving to be America’s saving grace in energy: natural gas. Robert Bryce has surveyed recent developments in natural gas in his recent paper, “Ten Reasons Why Natural Gas Will Fuel the Future.” [...]

Let me briefly highlight Bryce’s points.

• First, natural gas is already saving Americans money. The price reduction in natural gas over the last two years alone saved consumers about $65 billion a year on their energy bills.

• Second, Bryce notes the sad fact that the nuclear reactor problems caused by the huge earthquake in Japan has soured (at least temporarily) the public on nuclear power. Environmentalists around the world have rallied to shut down existing plants. But the electricity supplied by nuclear power (about 20 percent of America’s electricity, and much higher in other countries, such as France, where it is about 85 percent) would have to be replaced, either directly by inexpensive and relatively clean natural gas, or by grotesquely expensive wind and solar power. But those latter sources are only intermittent, so they must be backed up by power plants fueled by gas or some other fossil fuel. Gas is the preferred solution.

• Third, natural gas is so abundant that its global use is increasing rapidly. Over the last 35 years, global gas consumption has jumped more than 150 percent, a faster growth in use than that of any other energy source besides nuclear. However, in spite of this growth, the IEA’s chief economist says the world has an excess of gas now, and will have for the next decade at least. In addition to the rapid growth of unconventional gas production, there has been a concomitant rush of major discoveries of conventional natural gas reservoirs.

• Fourth, there is a nice positive side effect of the growth in unconventional gas production: it is driving a growth in unconventional oil production as well. Just as fracking releases shale gas, it releases shale oil as well. Unconventional oil fields are being exploited from the Bakken shale field in North Dakota to new spots in the Permian Basin, the oldest oil filed exploited in the United States.

• Fifth, U.S. unconventional gas production is in turn driving the U.S. petrochemical industry and the global oil industry to greater heights of production. The U.S. production on natural gas liquids such as ethane hit a new high of 2 million barrels per day in late 2010. This spurred petrochemical companies such as CP Chem and Eastman Chemical to restart dormant plants, and Dow to expand production.

• Sixth, the United States is uniquely positioned to shift to natural gas. The United States is now both the biggest producer and consumer of natural gas. It has the world’s biggest natural gas distribution system, with the most pipeline miles (2.2 million) and the most storage capacity (4 trillion cubic feet, ten times that of France). And we have the biggest and most transparent liquid gas market.

• Seventh, as the Environmental Protection Agency and other regulatory bodies continue to put pressure on coal power, more of our electric power will come from natural gas.

• Eighth, low prices in natural gas translate into lower prices for electricity.

• Ninth, the trend towards increasing decarbonization and urbanization points towards natural gas. Decarbonization refers to a historical trend over the last two centuries observed by a group of scientists towards human use of the cleanest (defined as lowest ratio of carbon “C” to hydrogen “H”) fuel readily available at a given time. For much of man’s existence, wood was the most widely used fuel. Wood has a C:H ratio of 10:1. Then came the rise of coal, with a C:H of 2:1. Coal was in turn replaced by oil, with a C:H of about 1:2. Natural gas has a C:H of 1:4. It produces less carbon dioxide than any other fossil fuel when burned. Add to this the historical trend towards people in highly urbanized areas, which again calls for decreasing pollution, and the arrows turn to natural gas.

• Finally, Bryce makes the simple point that the global appetite for reliable, clean electricity is growing. From 1990 to 2007, world electricity usage increased nearly 70 percent (or about three times as fast as oil usage). The IEA projects growth of another 80 percent over the next quarter century.

Let me now connect the dots. In our effort to lessen dependence on foreign oil and lower pollution levels, we are subsidizing EVs at upwards of $7,500 per vehicle. But the cars are flops with the public, because of their limitation on battery capacity and their overall expense. Worse, EVs do not contribute much to cleaning up the environment, because they use mainly coal-derived electricity and the batteries are highly toxic.

Meanwhile, we are in the middle of a turning point in energy history, where more and more conventional and unconventional reservoirs of natural gas are being discovered and exploited. In addition to all this, coal—of which America has about a 200-year supply—can be used to produce natural gas as well. Under present air quality regulations, it is cheaper to burn coal directly, but if in the future air quality standards get tighter, it might prove cost-effective to use coal to produce natural gas.

What’s more, natural gas can easily power cars and buses reasonably cheaply and has no air pollution as a byproduct—just water vapor and carbon dioxide. In fact, natural gas already powers much of our bus fleet nationwide. Cars can be converted to run on compressed natural gas (CNG)—or to run on either gasoline or CNG—for about one-fourth the subsidy for EVs.


...so instead of subsidizing what we think we want, we ought to simply tax what we don't and let the market do the choosing among the alternatives.

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Posted by at May 22, 2011 1:45 PM
  

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