Toward Government-Renewable Energy Industry Complex

In 1961, President Eisenhower warned of an expanding “military-industrial complex”. Now the danger is government-renewable energy industry complex. Consumers and Taxpayers must be warned!

The problem is not only specific to the US military. It is a US wide problem which started with biofuels. The commercialization of first-generation biofuels relied heavily upon government programs such as Renewable Fuels Standard, biofuels tax credits, agriculture research and rural development programs, and biomass initiatives. They bolstered ethanol and biodiesel.

A recent Oil and Gas Journal editorial makes it clear: “A growing mandate for sales of something nonexistent shows yet again why Congress must correct its errors on biofuel.” True, the Environmental Protection Agency requires the sale of 10.45 million gallons of cellulosic ethanol, already a much lower amount that the US Congress stipulated for 2012 in the Energy Independence and Security Act of 2007. “Even at the drastically reduced level, however, the required amount of cellulosic ethanol probably won't be available. Despite volumetric mandates and generous subsidies, the substance has proven difficult to produce at commercial scale.” Then why Congress admits the error or repair the damage? Well, ask the congressmen. Why the US government institutions, particularly DOD, should be pushed to spend millions of dollars to industries that end up with failure. When praising these failed adventures the US officials should not say anymore that “it won’t cost taxpayers a dime.”

Another OGJ article (Renewable energy stool) looks at the recent failures:

The recent closing of Range Fuel Corp.'s cellulosic ethanol plant in Soperton, Ga, is an example. After 4 years (since November 2007) and more than $300 million in taxpayer and private investment, the plant was unable to produce quantities of ethanol from wood chips and other cellulosic material because there is no effective cellulose-to-ethanol, large-scale production process.

There is also little light for subsidized programs in solar energy, as illustrated by the $500 million taxpayer loss on Solyndra Corp., the result of going to market with a noncompetitive technology and process.

In the Nevada desert near the town of Ivanpah, ground was broken recently on a 4,000 acre Concentrated Solar Power project using a $1.6 billion taxpayer guaranteed loan.

The Obama administration is being accused of "picking specific winners" in energy technology instead of leaving the decision to the marketplace. That's not the real problem. The real problem is spending billions to prematurely push unworkable and uneconomic programs into production.

In the wake of failed federal loan guarantees for green companies such as Solyndra and Range Fuels, the alternative-energy industry is looking for solutions that decrease government risk and elicit bipartisan support.

Is the situation in the European Union different? No. Consumers and taxpayers are paying a premium for the ill-defined European energy policy.

European Union policies to promote the use of biofuels for transportation will cost consumers as much as 126 billion euros ($166 billion) between now and 2020, according to two environmental groups. Two reports released by the Friends of the Earth and ActionAid campaign groups contend that biofuels do little to combat climate change, while pushing up prices for European motorists, who stand to pay an additional €18 billion a year for petrol and diesel as a result. The research predicts that by 2020, bioethanol would be €0.19-€0.41 more expensive than petrol per litre, and biodiesel €0.35-€0.50 dearer. Yet the authors identify government agricultural subsidies for biofuels production in Germany alone amounting to some €370 million. 

The European Commission said that while biofuels cost more than fossil fuels, it’s “reasonable” for motorists to pay extra. So, for high salaried officials it is easy to say “reasonable.”

A draft Commission impact assessment, obtained by EurActiv indicates that the greenhouse gas emissions from biofuels such as palm oil, soybean and rapeseed may exceed those of fossil fuels when wider factors are considered. This is because tropical forests and wetlands are often cleared to compensate for lands taken to grow biofuels elsewhere, a process known as indirect land use change, or ILUC. “consumers and taxpayers are paying the price for a flawed green policy that delivers no environmental benefits,” said Robbie Blake, biofuels campaigner for Friends of the Earth Europe. “Motorists and the environment will bear the brunt of these ill-conceived biofuel targets – with higher prices at the pump and higher CO2 emissions.

A Bloomberg New Energy Finance’s report says that producers based on edible feedstocks have the potential to produce aviation fuel at US$1.20/litre if they move to large-scale production, on the basis of current vegetable oil prices. This is well above current jet fuel prices, which are around US$0.85 in early 2012. (Biofuels could be competitive as aviation fuel by 2020).

We like it or not, we have to live with fossil fuels for a long time. No matter what we do they will not only be with us but will account majority of the energy we will consume in the decades to come. This means we have to focus more on greening of fossil fuels. Financial resources are better spent on renewables research and development. In the meantime, new combined cycle natural gas plants can replace coal with greatly reduced environmental impact. The immense shale gas resources in the US could be used to produce liquid fuels at surely competitive prices.

The US government and military can use purchasing guarantee mechanism to boost the renewable energy industry. This is quite normal, as long as the purchase price is competitive and not more expensive than conventional fuel. Any additional benefit to the industry should get the approval of tax payers.

This is why I call all this government-renewable energy industry complex. Remove all kinds of subsidies that are paid from the pocket of consumers! (in Europe, especially the ones on agriculture).

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PS. A separate issue, US Government Accountability Office released a report on January 31, 2012 (GAO-12-336R) summarizing the 8 required energy efficiency reporting issues in the DOD’s Annual Energy Management Report for FY2010. GAO found that: On Issue 2, DoD did not address cost.On Issue 4: DoD did not assessed costs. On Issue 7, DoD assessed the feasibility of net-zero installations but costs were not assessed.

Good effort GAO. Do not let the DOD to hide costs.  

Pentagon's Love with Helios and Anemoi

In an Opinion Article (An unfair fight for renewable energies) appeared in Washington Post on 5 October 2011, former governor of California Arnold Schwarzenegger argues that “More energy from the sun hits Earth in one hour than all the energy consumed on our planet in an entire year.” Apparently this statement doesn’t seem absurd to him.

But he adds that “It is absurd that our federal government spends tens of billions of dollars annually subsidizing the oil industry, which pulls diminishing resources from underground, while the industry focused above ground on wind, solar and other renewable energies is derided in Washington…. We need a level field on which the United States allows renewable energies to develop by the same rules as oil.” No, Mr former governor, all subsidies should be eliminated in a free market economy.

What really absurd is his following argument: “When the oil, gas and nuclear industries were forming, federal support for those energies totaled as much as 1 percent of federal spending. Subsidies available to the renewables industry today are just one-tenth of 1 percent.” This twisted logic reminds me of the DoD budget talks. Remember, the Pentagon officials have been saying that the DOD budget represents only 4% of the US Gross Domestic Product.  Right, only $700 billion dollars.

By the way, Helios and Anemoi are the Greek Gods of the sun and wind.

I am quite surprised to see solar energy being promoted as a miraculous solution. For instance, I suppose you heard already that Project SolarStrong is worth more than $1 billion under which developer SolarCity will install, own, and operate rooftop solar systems on up to 160,000 privatized military residences on as many as 124 military bases across 33 states. The project would double the current number of residential rooftop solar systems in the U.S. It calls for installing a total of 371 megawatts of solar PV systems on military housing. U.S. Energy Secretary Steven Chu announced the offer of a conditional commitment for a partial guarantee of a $344 million loan to help secure financing for the project. Unfortunately, in no such news you read anything about the backup system.

Moreover, supporters of a “green” military often claim that it will lead to the creation of jobs and reduced expenditure on imported fossil fuels. In other words, they misplace hopes that “green” energy will produce “green” jobs.

This is said to justify the massive state handouts to renewable energies. Subsidies, grants, tax exemptions, feed-in tariffs with state guaranteed prices, and other aids such as renewable fuel mandates have nothing to do with the free market.

Andrew Barr says “In reality, renewable fuel mandates are little more than subsidies to a select group of companies (with governmental connections like SunRun, Solazyme and Solyndra) that are often long on promises but short on results.”

For two more recent critics see the latest DoD Inspector General’s report which mentions that The Department of the Navy Spent Recovery Act Funds on Photovoltaic Projects that Were Not Cost-Effective, Geothermal Energy Development Project at Naval Air Station Fallon, Nevada, Did Not Meet Recovery Act Requirements.

Kevin Rosner recently published an excellent article (Post Mortem on Germany's Nuclear Melt-Down). Below I repeat two good examples from Kevin.

According to a 2009 study since the year 2000 renewable subsidies have created less than 50,200 jobs in Spain. The average subsidy per worker added in these three sources of renewable energies [mini-hydro, wind, and solar] is more than half a million Euros (€571,138), ranging from €542,825 per worker added in or by the mini-hydro sector and two-thirds of a million Euros per worker added in or by the photovoltaic sector, to well over €1 million per worker added in or by the wind industry.

The UK’s experience with wind-power in December 2010 is another example. In December the UK’s 3,153 turbines produced a mere 0.2 % of the needed power during a time of bitter cold. Operating at peak efficiency the turbines should have been able to provide almost 10% of the needed power, but unreliable wind had the turbines functioning at less than 2.5 percent of their capacity. Germans might want to consider this experience as potentially part of their own Nein Danke nuclear future.

In sum, Pentagon energy officials must learn that solar and wind systems cannot provide reliable, base-load electricity. These systems have to be supported by the backup baseload, provided by fossil fuels or nuclear. So much with the zero net installations! Pentagon officials must also keep in mind that we waste much of the electricity we generate because we do not have the sufficient technology to store all the electricity generated. This is why we need more R&D and innovation for energy storage solutions. In the absence of a storage solution, installations will continue to rely on civilian grid (unless power is generated by small nuclear plants inside the installations). I hope before the New Year starts all senior DOD energy officials will find some time to read more on basics of energy. My reading will be on gardening.

A happy, healthy and peaceful new year!

DOD's Green Chaos

A US congressional “super committee” has been assigned to develop a plan to reduce the federal deficit by more than $1.2 trillion over the next 10 years. This amount is more or less equals to the war expenses in Afghanistan and Iraq in the past 10 years.

Today, the US Department of Defense (DOD) is under “devastating” budget cuts but it continues to play the proud role of leader in the country’s green energy transition. Some of the main goals of this vision are reducing dependence on imports, increasing dependence on clean energy technologies, improving energy efficiency and conserving energy through culture change. This transition is deemed necessary and urgent by the DOD senior management.

We have heard many times by DOD officials that there are also many energy related threats to national security. Climate change, high priced and unsure supplies of imported oil coming from “unfriendly” nations, dependence on civilian electricity infrastructure, brining fuel to forwards operating bases are only a few but much publicized examples.

All these understandable intentions backed with unjustified arguments have been disturbing me for a while. Let’s take the argument of being dependent on oil imports from “unfriendly” countries.

If you go to the Energy Information Administration website, you will read the following: “Some may be surprised to learn that 49% of U.S. crude oil and petroleum products imports came from the Western Hemisphere (North, South, and Central America, and the Caribbean including U.S. territories) during 2010. About 18% of our imports of crude oil and petroleum products come from the Persian Gulf countries of Bahrain, Iraq, Kuwait, Qatar, Saudi Arabia, and United Arab Emirates. Top Sources of Net Crude Oil and Petroleum Product Imports: Canada (25%), Saudi Arabia (12%), Nigeria (11%), Venezuela (10%), Mexico (9%).” I interpret the term “unfriendly” countries as OPEC countries in general and the countries in the Persian Gulf in particular.

The fact is that the US imports less and less crude oil from the Persian Gulf. Now let us have a look at the Annual Energy Outlook 2011 of the Energy Information Administration (released in April 2011). Table A11 (Liquid fuels supply and disposition) tells us that EIA expects US crude oil imports to decline from 9 million barrels per day in 2009 to 8.24 mb/d in 2030. If you include petroleum products the numbers will change but the picture will remain the same. Share of net oil imports (crude oil + petroleum products) in total oil supply will decline (from 52% in 2009 to 42% in 2035). (see data here).

The share of crude oil imports from the Persian Gulf in total crude imports is expected to decline from 24% in 2008 to 18% by 2035 (or from 2.34 million barrels per day in 2008 to 1.45 million barrels per day in 2035, see the table below). Even if the US imported very small volumes of crude oil from the Persian Gulf, it would remain sensitive to the impact of any halt in supplies from that region would have on oil prices. So, the DOD officials should not mix the level of oil imports with price setting in world oil markets.

I wonder how the DOD senior management would answer the following question: Does this justify the massive US military presence in the Gulf in the future? So, the arguments like protecting the flow of oil from the Persian Gulf is not a convincing reason anymore. Here is the logic the Pentagon tries to impose on people’s small brains: We have to protect the flow of oil from the Persian Gulf because it is vital to the US national security. Therefore the US military has to be there. On the other hand, the US has to reduce its reliance on oil imports from the region. This is one of the reasons why pushing for biofuels is important.

Ethanol has been used as fuel in the U.S. since at least 1908 and has been subsidized since 1978. A century later we are still told that biofuels has a bright future and will be costs competitive. Well, let me tell you one thing. People may be naïve but not necessarily stupid.

Pentagon's quest to "unleash us from the tether of fuel" is transparent nonsense under the current reality. Pushing for “green” energy to make the world safer because climate change poses a “serious threat” to America's national security (towards the end of this century) is another bogus argument. If we want to make the world safer we should show this same vision down the throat of the billions of the world’s poor who today risk death because of starvation and disease. Of course, the DOD has the authority to make its own energy choices but not at the expense of tax-payers.

DOD’s energy costs in 2010 were over $15 billion. Almost $12 billion of it was for oil. According to my rough estimates the DOD’s energy expenses in 2011 will exceed $18 billion, around $15 billion of which for oil. Yes, this is a large sum. Well, instead of trying to find ways to reduce its oil expenses the DOD buys more expensive biofuels, and then it complains that increasing oil costs will have negative impact on its capabilities.

Let me remind you what the current Secretary of Defense Leon E. Panetta wrote in Monterey County Herald on May 7, 2006: “It is not government but consumers that hold the key to smart energy policy in the future. What all of the presidential pledges of the past failed to do, the price of gas may just accomplish. It may not be pleasant to confront the prospect of $5.00 or higher a gallon gasoline but if that high price can ultimately create a demand for less oil and more alternative fuels like ethanol, then perhaps this high price may not just be a curse but a blessing.” Today, Mr Panetta is the Secretary of Defense. He should remember his words when the DoD services ask for extra funds to cover their oil costs.

The DOD should be responsible for the energy policy decisions it takes and accountable for the resulting consequences. The DOD’s current energy goals and policies are too expensive, too ambitious. They lack realism and coherence. The negative results of DOD’s unsustainable and chaotic green energy policy will soon show its face which will lead to the downsizing or abandonment of several plans.

Let me be clear. I am not against renewable energy sources. I am only against the blind push for them, for the sake of pretending “green”.

If the Pentagon is serious about its energy problem, it should first know how much energy it uses (paid for and unpaid for), where and how. I would like to ask a simple question to DoD senior energy officials: How do you explain the discrepancy concerning the DOD’s annual energy consumption documented in the EIA’s Annual Energy Review and DoD’s Federal Energy Management Report (for any given year)?

Moreover, the vague terms like operational energy and installation energy do not mean anything. For years I have been repeating the same question: How much energy does the DOD consume in continental US and how much outside continental US? My point is that the Pentagon must first get the facts right.

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LMI Study on DoD Use of Renewable Fuels

A new report entitled “Opportunities for DoD Use of Alternative and Renewable Fuels: FY10 NDAA Section 334 Congressional Study” conducted by LMI was released recently.

This LMI study is different in quality from another LMI study (in 2007) entitled “Transforming the Way DoD Looks at Energy: An Approach to Establishing an Energy Strategy,” which I described as Much Ado for Nothing. The 2011 report is much better, but not as much one would expect from a $419,592 price tag.

The report assesses renewable fuel supply (anticipated feedstock availability, production capacity and production) and demand (projected fuel quantities based on the military Services’ requirements and plans) through 2020.

Here are its major findings:

Increased DoD renewable fuel use helps advance U.S. strategic energy security interests, achieve the Services’ goals, and gain some limited military utility (such as lower freeze points, cleaner combustion).

At present, these fuels command a price premium, but it is anticipated to decline significantly as the market develops. Despite that, the Services’ renewable fuel goals could still impose $2.2 billion in additional estimated annual fuel costs by 2020.

The Services’ 2020 goals for renewable jet fuel alone far exceed even the high-end projected domestic supply.

 DoD would require more than 40 percent of the total projected U.S. drop-in renewable fuel supply (regardless of fuel type) in 2020, just to meet the military Services’ stated demand for 745 million gallons.

Camelina appears to be a promising renewable feedstock for producing hydrotreated renewable jet (HRJ) fuel, but annual production capacity for camelina-based HRJ is projected at only 68–98 million gallons by 2020.

Third generation renewable fuels production systems, such as photosynthetic algae, are unlikely to supply significant quantities of feedstock oil by 2020.

The additional costs and potential adverse effects of creating a new DoD commodity class outweigh the potential benefits.

Many of these fuels are expensive to produce, and how rapidly their costs will drop over time is unclear. Drop-in renewable fuels are expected to cost more than their petroleum counterparts: the estimated price premium will be between $1.43 and $5.24 per gallon in 2015. Given the Services’ goals, mid-range estimates suggest that DoD’s drop-in renewable fuel use would represent an additional annual fuel cost of $865 million by 2015 and $2.2 billion by 2020, which represents a 10– 15 percent increase over just conventional petroleum fuels.

Without a medium-term guaranteed demand and price floors for renewable fuels, many renewable fuel products lose their cost competitiveness (even with incentives) because of the short 5-year period that investors need to recover their capital investment costs.

In conclusion, increased DoD renewable fuel use contributes to U.S. national security interests, achieves Service energy security goals, and offers some limited military utility. However, the projected supply of drop-in renewable fuels will not be sufficient to meet anticipated DoD demand for renewable jet fuel products. Also, price premiums for drop-in renewable fuels and the budgetary implications associated with meeting renewable fuel goals may be considerable. Further action by DoD and Congress could help to promote renewable jet fuel production and address the price premiums necessary for the Services to achieve their renewable fuel goals.

Almost all these conclusions are supported with convincing (although some production cost data are outdated) calculations. What is missing is a thorough comparison, a chart or table, with conventional fuel.

What the report also does not say or question is the fact that the DOD will never ever be short of fuel supply. SO, all these fuel supply security arguments are void. You will have the same problems with nonpetroleum alternative liquid fuels as well. If the aim is to reduce the amount of imported oil, then the US should simply open Outer Continental Shelf to exploration. OR better produce liquid fuels from shale gas. If the aim is to generate income for renewable energy industry then the DOD is right. It should continue spending millions of tax payers’ dollars.

The exaggerated focus of DOD on biofuels as if it is a remedy is nonsense. Subsidising them is even bigger nonsense. Here is what I suggest. Give the companies a guarantee to buy large amount of biofuels at the price of conventional petroleum based fuel per gallon in the next 10 years, whatever the conventional fuel price may be in the future.  If they can produce cheaper, they can pocket all the difference as profit. Let them take some risk. Guaranteed business over many years with large profits is a common practice in countries where corruption is widespread.

Military, Climate and Renewable Energy

An article of Joseph Nevins published on commondreams.org has the title Greenwashing the Pentagon (14 June 2010). In it, he argues that the DOD is “the single entity most responsible for destabilizing the Earth’s climate.”

He is in line with what wrote before on my blog: It is hard to tell whether the DoD’s slogans like going green, green revolution, combating climate change etc are not more than a greenwashing.

He is right that from the degradation of the world’s oceans, to a steep decline in biodiversity and intensifying climate destabilization, war and militarism threaten humanity and life more broadly in unprecedented ways.

However, I have reservations for his conclusion: “given its engagement in multiple wars, a network of hundreds of military bases around the world and dozens more in the United States, and a budget now roughly the equivalent of all of the rest of the world’s militaries combined, the Pentagon must be the central focus of efforts to protect the biosphere by challenging war and militarism. More than ever, humanity—and Mother Earth—can no long afford them.”

However it sounds very logical, this conclusion is against the very nature of humanity. We may have some distinct superiorities but we are not much different from animals. Throughout the human history we have been killing each other, and will continue doing it through symmetric or asymmetric warfare until we become extinct. In fact, Mother East cannot effort us -humans.

The US Department of Defense can argued to be a War Empire. Such an empire surely causes a negative impact to Mother Earth.

The Defense Environmental Programs Annual Report to Congress gives us the following information:

Over the past 10 years, the Department of Defense has invested approximately $42 billion to ensure the success of its environmental programs. In FY2009, DoD obligated approximately $4.3 billion in resources for environmental activities.

DoD generated a total of approximately 5.2 million tons of solid waste in FY2009, consisting of 2.2 million tons of non-hazardous municipal solid waste and 3.0 million tons of construction and demolition C&D debris. The generation of municipal solid waste equates to 3.2 pounds per person each day.

In calendar year (CY) 2008, DoD disposed over 76,000 tons of hazardous waste.

In CY2008, DoD reported 31.7 million pounds of toxic release inventory (TRI) chemical releases and off-site transfers, including releases from operational ranges.

DoD installations reported emitting 1,225 tons of Hazardous Air Pollutants from Stationary Sources (U.S. and Territories & Overseas) in CY2008 (see page 35)

(Source: 2009 Fiscal Year Defense Environmental Programs, Annual Report to Congress, Prepared by the Office of the Under Secretary of Defense for Acquisition, Technology and Logistics, April 2010) (warning: more than 850 pages)

Add to that Greenhouse Gasses Emissions created by burning fossil fuels. I demonstrated many times on my blog that the US is the largest single energy consuming and (perhaps) CO2 emitting entity in the world. And yes, the DoD is also a Go Green leader. But the fine line between Go Green and Greenwashing is not clear. In many respects the word “Green” resembles more the color of the greenback dollar than a true clean energy future.

Let us have a look at a recent GAO Report (Defense Infrastructure: Department of Defense Renewable Energy Initiatives. GAO-10-681R, April 26, 2010 (86 pages).

The report investigates Costs of Renewable Energy Initiatives Reported by DOD.

GAO lists DOD's 454 renewable energy initiatives with a range of costs associated

* 189 initiatives cost under $1,000,000.

* 138 initiatives cost $1,000,000 or more.

* 127 initiatives for which DOD provided no cost data.

GAO found that while some initiatives have clearly specified goals, other initiatives do not, and in many cases it is unclear whether the initiatives are actually meeting their goals. This brings about the issue of increasing oversight of DOD's renewable energy activities.

I would recommend GAO to include all energy related research and development activities and costs in their analysis as well. While assessing them, GAO should include a new column in its table and show which could be called gadget and which would have a probability to be commercially deployed in the long run.

There is no such thing as a green military, and there cannot be!