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Comparing Energy Sources

January 19, 2009
Stanford University Professor Mark Z. Jacobson recently published a new paper in the journal Energy & Environmental Science, "Review of solutions to global warming, air pollution, and energy security." According to Stanford News Writer Louis Bergeron,

Jacobson has conducted the first quantitative, scientific evaluation of the proposed, major, energy-related solutions by assessing not only their potential for delivering energy for electricity and vehicles, but also their impacts on global warming, human health, energy security, water supply, space requirements, wildlife, water pollution, reliability and sustainability."

The paper claims to demonstrate that wind and solar power are preferable options to nuclear power and biofuels. Of course, Professor Jacobson makes all the best-case assumptions in favor of wind and solar power and all the worst-case assumptions about biofuels and nuclear power, saying, for example, that there is a limit of 30 percent market share for biofuels but no limit to other technologies. In his words, wind and solar power "could theoretically power the entire US onroad vehicle fleet." He takes this assumption despite the significant hurdle and cost to consumers of replacing that entire internal combustion fleet with electric vehicles.

The comparison of fuels is skewed, to say the least.

More interesting though is Jacobson's views on how costs and benefits should be weighed when considering investment in technology to address climate change. His views are relevant to the discussion of discount rates that the EPA is currently considering in its ANPR on Regulating Greenhouse Gas Reductions Under the Clean Air Act and the delayed NOPR on the Renewable Fuel Standard. (See earlier post on the growing debate of discount rates.)

Jacobson offers reasoning that makes a case against the application of a discount rate in the NOPR:

Costs are not examined since policy decisions should be based on the ability of a technology to address a problem rather than costs (e.g., the U.S. Clean Air Act Amendments of 1970 prohibit the use of cost as a basis for determining regulations required to meet air pollution standards) and because costs of new technologies will change over time, particularly as they are used on a large scale. Similarly, costs of existing fossil fuels are generally increasing, making it difficult to estimate the competitiveness of new technologies in the short or long term."

In other words, the benefits of implementing a technology now should not be discounted because its costs can be expected to fall while oil's costs rise. Further on, he makes a statement that seemingly belies his analysis that solar and wind for electric vehicles are preferred to biofuels:

The investment in an energy technology with a long time between planning and operation increases carbon dioxide and air pollutant emissions relative to a technology with a short time between planning and operation. This occurs because the delay permits the longer operation of higher-carbon emitting existing power generation, such as natural gas peaker plants or coal-fired power plants, until their replacement occurs. In other words, the delay results in an opportunity cost in terms of climate- and air-pollution-relevant emissions. In the future, the power mix will likely become cleaner; thus, the opportunity-cost emissions will probably decrease over the long term."

Biofuels are available today and can immediately reduce greenhouse gas emissions from fossil fuels. Solar- and wind-fueled electric vehicles will take time to implement, representing what Jacobson clearly considers an opportunity cost.

According to the EPA's arguments, a positive discount rate should be applied to greenhouse gas reduction technologies, such as biofuels, because investing in them today represents an opportunity cost to save that money and invest in cleaner technologies at a later date. Further, because there will be only small benefits today compared to increased benefits in the future, their value to the current generation is less.

It will be interesting to see how the incoming Obama administration treats the discount rate issue. Clearly they accept that greenhouse gas emissions are an immediate challenge requiring a variety of technologies, each representing part of the solution. That should say that it is inappropriate to discount the value of any technology that can be implemented immediately.