Why solar thermal energy still shines

Is the sun a renewable resource?  Well, technically it isn’t, as it will burn out in about five billion years.  But for all practical purposes, 5 billion years is the same as a renewal source.  In contrast, world oil production started in 1859 and will start declining sometime in the next five years.  So, what’s the most reliable natural resource to provide our hot water from for our homes? The sun, oil wells, or electricity?

Remember that electricity in New Brunswick is roughly 60 per cent from fossil fuels.

If you chose the sun, you may be on to something sustainable.  People thinking about solar energy systems may confuse solar thermal with solar photovoltaic (that provides the electricity for your calculator).  One of the types of solar thermal uses a liquid, propylene glycol, to avoid freezing concerns while effectively transferring heat from the sun to your hot water.

A typical collector consist of a number of black-painted aluminum fins or plates bonded to copper tubing in a box that’s covered by a tempered glass cover. The glycol is pumped through the collector on a roof or wall, absorbs heat and transfers it, through an exchanger, to a storage tank for use when required. The interesting part is that there’s no charge for the energy provided by the sun, so it’s inflation-proof.

At the surburban home of Gordie Smallwood of Moncton, you can find a solar thermal system he’s built with reclaimed collectors. The collector area on his roof is 160 square feet (roughly 8 x 20 feet). That’s bigger than your typical system. His hot water is totally solar heated, with the excess going to partially heat the house.

As Gordie explains, “this is not rocket science. The technology has been around for a long time and there are lots of good manufacturers out there.” The day I saw his unit, the collector output was at 140 degrees Fahrenheit.

I also spoke with Gordon MacDonald of Harvest Energy Solutions about solar thermal. He suggested that people take all of the energy conservation steps that they can as a first step to energy independence, being the biggest bang for your dollar. Each site has challenges as the building may not have a good southern orientation, the angle of the roof may be less than optimum and shading may exist. The roof structure should be in good physical shape to support the weight of the collectors, and space is required for the storage tank, among other considerations.

The cost of a system will vary depending on your requirements – how much heat can you effectively use? For example, the heating demand of a home varies greatly in a winter and is not required at all in the summer. However, hot water heating requirements are relatively stable throughout the year and therefore more economic to design for.

Apparently, commercial and industrial users of large quantities of water are the big winners with solar thermal, as the economies of scale kick in and many companies use hot water only during the day, minimizing storage requirements. Paybacks are quick.

So, if there is an economic advantage, why aren’t more residences and businesses using solar thermal? Very simply, initial installation costs are in the thousands of dollars, and you can rent an electric water heater from N.B Power for less than $10 a month. Which would most people logically choose? Lower first cost wins almost every time. In addition, there are few installed systems in New Brunswick to serve as comfort for those of us who only believe in what we see. Lastly, with a small number of retailers and trained installers, you may understand why solar hasn’t heated up our interest.

The federal government has several programs that reduce payback time and stimulate the industry. The EcoEnergy Retrofit program provides $1,250. The temporary Home Reno Tax Credit has a maximum benefit of $1,350. And there may be others. Be careful to ensure that you qualify and that you follow all the right steps.

In Kingston, Ont., the utility will provide a two-panel unit for $49 a month. Larger sizes are slightly higher. You can also purchase the system for $5,000, not including installation. Other utilities in Canada are getting involved as well, including Manitoba Hydro, Enmax and FortisBC.

What could New Brunswick do to encourage solar water heating? NB Power provides hot water tanks that use electricity at a monthly rental rate. That electricity mostly comes from non-renewable sources (oil, coal, and natural gas). The province could require NB Power to lease solar thermal hot water systems, as well. At 10,000 new systems per year, that’s 20,000 collectors or more. These could be produced locally if we chose to do so.

If you include all of the installation work, you have the start of a new green industry in New Brunswick.

Will carbon tax get more New Brunswickers off oil?

Do you think this is true? – “The price of oil will go down if we use significantly less of it.” The law of supply and demand indicates that if supply is relatively fixed, then demand will determine whether price goes up or down. So how are we going to use less? Maybe all of your neighbours will buy a hybrid or a diesel car and you won’t have to change a thing in your life.

Perhaps we can wait for the market to give us even higher prices and then we will conserve. That’s the philosophy of our energy minister Jack Keir and he’s not entirely wrong. However, in a case of inelastic demand and fixed supply or worse, then the market will raise prices until demand is destroyed. A friend told me that even when it costs $300, he’s going to fill his gas tank. Naturally, those who have the means will be able to maintain their lifestyle. The price of gas has almost doubled in the past year but how many people have really changed their driving habits to conserve?

The market can be rough on fishermen, farmers, and truckers who use large quantities of fuel and who sometimes get squeezed between rising fuel and low prices for their products. We can expect to hear screaming from those sectors in the near future. Unfortunately, the average Jack and Jill will have to make unpleasant choices in the near future, and that may include parking the car.

With the recent increase in gas prices, Canadians are feeling a little economic stress. We’re paying $55 billion more per year (or $1700 more per capita) for oil based products since last year. That means less money for consumers to spend on restaurants, vacations and other discretionary items.

Historically, the price of carbon based energy has been cheap and has been taxed at a low rate in North America. Economists argue that the market price for fossil fuels doesn’t account for external factors such as pollution and CO2 gases. Carbon taxes are intended to rebalance the business equation – to add a penalty for pollution, discourage greenhouse gases, make renewable energy more competitive, and also encourages conservation of fuel.

What would be the impact of a carbon tax and is it necessary?

British Columbia is the first in North America with a comprehensive consumer based policy, starting with a 2.4 cent increase at the pumps and $10 per tonne of CO². These amounts will gradually increase until 2012 at which time the gas tax will be 7.2 cents and the CO² will be $30 per tonne. The tax is revenue neutral although the provincial budget has increased expenditures to reduce the effect of climate change. The cost to the consumer at the gas pumps is expected to vary between $20 and $65 dollars per year based on vehicle efficiency.

The BC legislation increases the cost of gas only 2% initially with a total of 5% when fully implemented in 2012. The Green Party suggests a more aggressive 12-cent hike as their policy. To put this into perspective, a 10-cent increase in the cost of diesel happened in mid May in New Brunswick. After a few days of discontent, it was back to business as usual for most people.

Quebec introduced a carbon tax in 2007 on oil and gas companies at the wholesale level to finance a green fund to reduce CO² emissions. As the majority of electric power in Quebec is from hydropower, there is little effect on electric prices.

Carbon taxes have existing in Finland and Sweden since the early 90’s and those economies are doing well. It has been demonstrated by the European example that higher fuel prices help people choose vehicles that have excellent mileage. Fuel including taxes in Europe are about $2.10 a liter as opposed to $1.32 in Canada.

The BC Liberals, federal Liberal, or Green Party have implemented or propose systems that are revenue neutral (easier to sell). This means that for every $100 in new tax, $100 is returned to Canadians in reduced personal, corporate tax, or other method. Prime Minister Stephen Harper seems to skip over the revenue neutral part and paints a carbon policy as a tax grab. His approach to reducing emissions has been to build a regulatory environment so complex and mysterious that greenhouse gases will give up out of frustration – far in the future, of course. The NDP is opposed to a carbon tax and favours the cap and trade model. Ontario and Quebec just announced a plan to implement a cap and trade system for their two provinces, which was immediately denounced by the federal minister, John Baird.

So we have ideas floating all over the map. Perhaps we need have a reasoned discourse on the subject of greenhouse gases and peak oil and determine what we need to do to be effective. Taxes at the right level are only a small part of the solution. I like the simplicity of a carbon tax and believe that as proposed, it is harmless to the economy but won’t do much for peak oil as well. “Much ado about nothing” as Shakespeare would say.

We haven’t seen the last of the energy file. Next stop will be panic driven interventions in energy conservation and off-oil efforts. Fatih Birol, chief economist of the International Energy Agency urgently recommends to the world “leave oil before it leaves us. The really important thing is that even though we are not yet running out of oil, we are running out of time.”

Do you think we’ll be ready?

A little transparency, please … on nuclear power

Our present board of directors, Shawn Graham, Jack Keir among others, have come up with a creative proposal in the energy hub concept – a second nuclear power plant at Point Lepreau. However, the shareholders of the province, have not being given much information and no alternatives are being discussed.

In previous columns, I have discussed the urgent need for conservation, and for substitution of NB Power’s oil fired generation, with nuclear being one of the possible options. We are within a few years of the peak of world oil production, supplies are tight and prices are rising. In the current year NB Power will spend roughly $300 million dollars on heavy fuel. Within a short time, the cost of heavy fuel will be extremely expensive and we will have to replace that three million kWh’s from another source.

A privately owned consortium, Team Candu, proposes to construct an 1100 MW nuclear plant adjacent to the existing Point Lepreau reactor on the Bay of Fundy. As part of the “energy hub” developments, we would see Team Candu provide energy to the Maritime Provinces and sell into the export market in New England with the plant operated by NB Power. Team Candu is a consortium of Babcox and Wilcox, GE, Hitachi Canada, AECL and SNC Lavalin who would be the engineers, suppliers of the material, and provide the financing for the project.

What will it cost to build?
If the project were a strictly private merchant power plant, the cost wouldn’t affect us. However, because NB Power will be a major buyer of power in a long-term contract, it does matter greatly. The cost of the original Lepreau station was $1.4 billion in 1983. In present day dollars, that would be $2.8 billion. Although no cost has been officially published by the government, some reports indicate the 4-5 billion range. There hasn’t been a Candu built in Canada for many years so we don’t really know what the ultimate cost might be now. As well, the ACR-1100 is new technology, and design changes during construction could happen, raising costs.

Due to a lengthy licensing process, and since the design process is not yet finished, the roughly four-year construction schedule takes us six or perhaps 8 years to completion (2014 or 2016).

Some concerns arise
Where are the ownership ambitions of the Atlantic utilities? Has AECL nationalism trumped economics? Will the federal government kick in a significant subsidy to compensate for the first build of the ACR class? Does the proposed technology offer the lowest cost construction, and overall simplicity of operation and maintenance? Remember the $25 million maintenance mistake of plywood being left in the piping. Whose responsibility is the waste fuel down the road?

The government approach might raise some flags. As the ultimate owner of Lepreau, only one bidder has been chosen to use the site. (Atomic Energy of Canada – AECL) How will we know the fixed cost construction figure and resultant kWh price from Team Candu is the best deal that we could have received and reasonable value? What value does New Brunswick receive for the use of the Lepreau property?

I do worry that a non-competitive bidding process may leave the door open to charges of “special deals” and that is something that nobody wants, given the volume of dollars involved. A long-term contract with Team Candu will commit NB Power for 6 to10 billion dollars.

The cost of the new plant would be between $3600 and $4500 per kW of capacity ($4 or $5 billion /1100,000 kW). A figure of 500 employees is suggested as the staffing level for the new nuclear plant. Given that the existing plant employs roughly 800 people, one might imagine significantly lower levels due to gains from commonality of function.

Are there alternatives?
One viable alternative could be the proposed Lower Churchill Falls hydro plant at Muskrat Falls and Gull Island, which is estimated between 6 and 9 billion for an output of 2800 MW’s. Even allowing for a lower capacity factor and a submarine cable, the cost is lower or equal to the nuclear option. Operating costs for hydro plants are typically very low and remain almost immune to inflation. Power is expected to be available from the first of two plants in 2015. The cost of power from the original Churchill Falls, which was finished in 1971, is now approximately ¼ of a cent per kWh. The typical life of a hydro plant is 75 to 100 years.

Ironically, it’s another high tech solution that may be one of the competitors eventually for our electric dollars. According to an October article in Fortune magazine, solar has a sunny future. The present cost of 25 to 30 cents per kWh will descend to meet with rising grid power price in the 2015 timeframe. What impact might cheaper solar power have on the sales of a completed nuclear plant?

The MZ consulting report on a second nuclear power plant in New Brunswick has not yet been released to the public and the Team Candu report will not be open to public scrutiny. It may turn out that a second Lepreau unit is a wise investment. One can hope that a little more information would eventually be made available to the general public before we are committed to a multibillion-dollar kWh purchase contract.

What’s on New Brunswick energy horizon

We hear about people making choices between food and heat and that is not good. NB Power recently advised that December’s colder weather would generate higher bills.  But what about the long-term outlook for energy prices?  Will it get better or worse in the coming years?  It’s important that we all stay warm during these cold winter nights this winter and into the future.

Recently, I’ve been helping a Sussex based community group working on getting a wood briquette plant organized.  There are many of us who have a “warm” spot for wood heating with its link with our primeval past, and of course, its low cost.  It takes a little more work because of the physical weight of it. My domicile is heated with natural gas but in the past I have lived with electric, some wood, and oil heat.

Efficiency NB has been promoting the use of central heating systems that can use oil, natural gas or wood as the home heating source.  This policy related to oil has some serious negatives but is not entirely wrong.  On the positive side, oil burned at NB Power’s generating plants has a 35 to 40% efficiency rating, so using an oil furnace at home with an 80% rating burns less oil overall and is relatively good for the environment. However, in the past year, the price of oil has gone up from $55 to $100 a barrel, an increase of 81%.

Is this a significant event?  Yes, it signals a turning point in the world supply of oil.  Demand in China, India and the rest of the world is growing and the supply appears to be plateauing.  Typical economic theory would suggest that higher prices would bring additional supplies to market that would collapse prices.  After several years of higher prices, no supply relief is evident.  Analysts also see no combination of projects under construction that would provide abundant supply.  So the trend to higher oil prices appears very strong.  We are likely to see oil price increases making heating homes or generating electricity for heat prohibitively expensive.

Roughly 60% of New Brunswickers use electric heat, which has lower initial cost of installation, low maintenance, and relatively low cost of product – three important reasons for its success.   Government policy from the 1970’s until recently was to get Canadians off oil heat.  NB Power spent billions on a robust generation, transmission and distribution system capable of furnishing our electric heating needs.  The only problem was that a part of the generation was oil based.

Coleson Cove uses heavy fuel oil, which is also known as #6 heavy oil, or residual oil, or bunker C.  It is the leftover of the refining process.  NB Power uses roughly 5 million barrels a year that generates approximately 3.1 billion kWh’s, which is 17% of total sales.  In the current fiscal year they expect $60 a barrel and a total oil cost of slightly over $300 million.(up a hundred million)  Next year (08/09) could be $400 million as the hedging of lower prices ends and a barrel of heavy oil is closer to $80.

Electric heat comes on in the winter and it is necessary to use higher priced generation (Coleson Cove) to meet that extra demand when the power requirements goes from 1600 megawatts in summer to 3200 megawatt peak in winter.  So there is a correlation between the higher cost power and electric heat.  It’s not 100% but let’s take the worst case for an example.

Supposing a customer uses 15000 kWh of electric heat a year and this is mostly on the lower second block at roughly 8 cents per kWh.  This customer pays $1200 for the kWh’s. It takes 24 barrels of oil to provide these kWh’s, which at $60 is $1440 and at $80 is $1920.   NB Power does not even recover fuel cost.  Although an oversimplified case, we can see that $100 heavy oil would give 16-cent kWh’s just for the fuel without considering O&M or debt repayments on the plant.

It appears that NB Power will be spending $200 Million more each year on heavy oil.  Note that a $10 million increase in costs is 1% rate increase.  So we are looking at a twenty to thirty per increase in rates in the next two or three years.

We have a problem.  We spent $750 million to rebuild Coleson Cove with the expectation of cheap fuel.  Now, we can only get expensive fuel and it’s getting worse very quickly.  Pet coke will help a bit but a nuclear plant won’t be available until 2016 because all the workers will be tied up on the refinery project first.  It looks like we’ll be spending at least $2 billion extra on oil before 2016.  And maybe a lot more than that.

In my next articles, I make some suggestions on how we could work towards real energy self-sufficiency right now.

Jevons Paradox and the value of conservation

William Stanley Jevons made an observation about the usage of coal in England in 1865, when the increased efficiency of the Watts steam engine actually caused the use of coal to increase rather than decrease, as he would have expected.  The use of the improved steam engine in a wide spectrum of industries increased coal usage as a direct result of the cost-effectiveness of coal.

Today, a number of people use the paradox to argue that increases of energy efficiency only leads to more use of energy and that attempts at conservation are doomed to fail. For example, “if cars double their gas mileage, then people will drive more.”  They’re mainly wrong for the following reasons.  First, when fuel costs are rising rapidly, such as hitting a resource production ceiling in the past several years, any increase in the efficiency of passenger cars and trucks will reduce the litres burnt, not the actual cost of a tank of fuel.  Airline fares have been increasing even though the efficiency of jet engines increase with newer technology.   Reason: fuel prices are rising faster than airlines can upgrade their fleets.  Westjet is an example of a company that invested heavily in newer efficient planes and it shows in their profits.

On the home front, adding extra insulation will reduce the amount of oil, natural gas, wood, or electricity used to heat your house.  You are unlikely to change the setting on your thermostat far from its normal level.  In a rapidly rising cost of energy environment, all categories of conservation will produce good results.

Secondly, some categories of usage, like transportation of goods are relatively fixed.  For example, the amount of produce transported from California to Canada each week is unlikely to change greatly based on a decrease in the cost of transportation.  We can only eat so much lettuce.

In the infinitely slow path to energy efficiency, our friends south of the border recently passed an energy bill mandating an increase from 25 to 35 mpg, a 40% increase in vehicle fuel standards by 2020.  The increases start in 2011, but there are a number of loopholes related to alternative fuel, trucks and swapping of credits.  The entire bill is 1055 pages and deals with a huge variety of topics from incandescent lamps to biofuel.   Was the legislation partially a pre-emptive strike to ward off more severe legislation on car mileage from California and 12 other states who wanted SUV’s and light trucks treated the same as cars and higher mileage implemented sooner than later?

Around the world, there are countries with higher standards than North America. China has already a 35-mpg standard in place.  Europe and Japan standards are over 40 mpg.
Here in Canada, our energy policies are guided by American legislation. The automotive companies are integrated across North America and have driven the agenda.  Perhaps Stephen Harper will now feel comfortable raising our mileage standards to meet those of his friend George.  Don’t expect to see anything different or better.  The auto industry will have to invest billions of dollars in retooling factories to meet the requirements of lighter, more aerodynamic vehicles.  The aluminum and carbon fibre industries are big winners and steel, being heavy, will be replaced where possible.

Canada’s “new” government has been interested in clean emission technology.  This follows the American lead on misdirecting the public.  Common sense alone makes it clear that burning less fuel reduces emissions of all types, whether CO2 or other varieties, less expensively than technology alone.    The auto industry has wanted to keep its high profit margin SUV and trucks at all costs, even at the risk of its long-term demise.

It is unfortunate that politics is an averaging process where you give a little bit in each direction and end up often in the same location with the same problem.  The American legislation is too little, too late and we will soon see the California’s of this world forcing deeper changes.

What most people don’t realise is that we are starting on the second half of our oil reserves.  This is the tough expensive oil to recover, and the worst part of it will be the gradual decline of world production.   $100 oil will seem cheap in the near future and the resulting economic catastrophe will be unprecedented.

Jevons was concerned that the supply of coal would run out in his time.  He couldn’t foresee that coal use would be partially displaced by the rise of oil for 150 years and that other reserves would be found.  Likewise today, we are concerned that oil is starting a decline very soon.  There is a small chance that we will find technological solutions to our energy needs in time.  There is also a small chance that we will find additional reserves of significant size.

However, there is a much larger chance that we will not solve the problem and we will suffer greatly.  In 1865, there were 1.2 billion people on this planet in a mostly agricultural lifestyle using little energy.  Today, we are 6.6 billion people who use a great deal of energy.

What should be our resolutions for 2008?  Certainly, we should plan for higher efficiency in all of the products that we purchase.

Get your free car – Part 2

Not long ago, I talked about the Renault Logan, a car with good mileage and a very low sticker price that made converting from a gas-guzzler to a better mileage car virtually free, based on gas savings. Unfortunately, it is not available here in Canada yet.

First of all, it should be clear that I don’t support one particular manufacturer of vehicles. We should all celebrate superior fuel and emission technology wherever it may come from. In recent surfing, I came across the Volkswagen Polo BlueMotion, which is sold in Europe for roughly $20,000. It has a combined mileage rating of 60 miles per imperial gallon (4.7 liters / 100 kilometer).

The average vehicle travels 20,000 km per year (12,000 miles) for discussion purposes and the cost of gas is $1 dollar per litre. The annual fuel cost for the Polo at 60 mpg is $908. A typical gas-guzzler at 20 mpg would cost $2,724 per year in fuel. The difference saved is $1816 per year, which although substantial, is not quite enough to make the payment on the car.

What is likely to happen within several years are dramatic increases in fuel cost. My calculations indicate that fuel at $1.57 / litre would provide enough savings to pay for the vehicle over a long period. BINGO! You now get your car free, paid off with the savings ($2,851) you would have made at the gas pump every year. (Calculated with interest at 7%, payments over ten years) If payments can’t be stretched that far, the car will cost you money out of your pocket.

The Polo is a 1.4 L three cylinder turbo-diesel with CO2 emissions of 102 grams / km. In comparison, the best vehicle on Natural Resources Mileage list is the Prius hybrid, which has 98 grams of emissions and a fuel rating only slightly better. The Prius costs $10,000 more than the Polo.

Alas in real life, you can’t have your car that almost makes it’s own payments, because they aren’t sold in Canada yet. You might ask your Member of Parliament or local Member of the legislature why we don’t insist that manufacturers sell more models with excellent fuel ratings.

After the oil embargo of 1973, fuel efficiency standards called CAFE (corporate average fuel economy) were introduced in the United States. As with all things, enthusiasm waned as fuel prices took a dive and Canada never saw the need to define its own objectives. Groups such as the Sierra Club of Canada note that while Automakers stonewall efforts to increase fuel economy in North America, they are implementing improvements in Europe.

In a discussion with Jack Keir, the Minister of Energy, it was suggested that the Provincial government is preparing a program to help New Brunswickers purchase vehicles with high fuel economy. This would be in addition to the Federal program in place.

The amount of the subsidy per vehicle or the method of program delivery is always subject to debate. It would be possible to finance this program by only a cent or two at the pumps. A one-cent increase per liter affects the average person by $16 per year. The revenue would be $15 million. Considering that approximately 30,000 vehicles are purchased in NB each year, perhaps 6000 units would be high economy units. The subsidy could be $2500 on the 20% of vehicles purchased.

Think of this idea as a lottery ticket where a huge number of people win big every year. Your ticket is $16 / year and you decide if and when you want to win. When you do, the feds chip in $2000, the province $2500 and your gas bill saves you $1800 a year. If the price of fuel rises, the savings are high enough to pay for your new vehicle over time. The odds on this bet are considerably better the Lotto 649.

Now if we could only get some exceptionally high economy vehicles on sale here. Detroit based manufacturers have consistently been trying to convince us that we need 320 hp in a car. They don’t realize that the real target is 100 mpg and it isn’t far away if they could focus on the future.

Hummer versus Prius: Who wins

There is an old joke about why sharks don’t attack lawyers. Answer – professional courtesy. Sharks do attack other sharks, however. Rosie O’Donnell and Donald Trump, both entertainment sharks, have been verbally biting each other gathering excessive news coverage. In contrast, the average print columnist rarely attacks other journalists because they are usually too busy writing to worry about what someone else may be saying.

But let’s make an exception and examine what drives the news makers and the reporters who transmit the message to you. CNW Marketing Research spent two years gathering information on the relative life cycle cost of different vehicles, called the “Dust to Dust” report. Public interest was definitely aroused by their suggestion that the Hummer is more environmentally friendly than the Toyota Prius. Common sense would indicate that the Prius, which uses considerably less gas, emits considerably less CO2, costs considerably less to purchase than the Hummer, would be the superior vehicle from a environmental and consumer cost point of view.

Most people buy a vehicle to meet their needs for transportation and typically the mileage varies little from year to year. To help choose that vehicle, we compare fuel economy figures provided by government test data that uses a standard course.

Remarkably, the CNW study indicates the Hummer H1 would last 35 years and is driven 379,000 miles before being scrapped. (Good luck in finding parts after 15 years) In contrast the Toyota Prius was judged to last 12 years and be driven only 109,000 miles before final adieu. This is a difference of 347%. The ultimate measuring stick of this report is a cost per mile, making any difference in mileage very significant to the final costs. Are the owners of small cars really that different than large vehicles?

The CNW study also considers the energy cost of the complete life cycle such as construction cost and disposal of the scrapped vehicle parts, which is an excellent idea. However, there are few details on how this is calculated for different vehicles. In addition there is no consideration of the cost of CO2 contribution of various vehicles.

A number of other studies have shown the cost of disposal of a vehicle to be roughly 5% of total costs. CNW includes a charge of 30 to 65% of the total costs for the disposal of the non-recyclable parts of the vehicle. The increased weighting of this aspect reduces the value of fuel economy. Not enough information is shown in the report to judge whether it is a reasonably based environmental accounting method.

The response of some journalists was predictable. George Will, of the Washington Post, accepted the report at face value, indicating that a campaign without precedent is underway to indoctrinate the population on global warming. His implication being that there is really no harm to buying a Hummer, that we can’t really reduce CO2 emissions and that the other guy (China) isn’t playing his part anyway. The Globe and Mail, Car and Driver and many other publications raised no questions either.

The easy ride given by the press wasn’t to be found in the environmental community such as the Rocky Mountain Institute or the Pacific Institute. Those groups initiated reviews of the available documentation, with RMI pointing out “the deep divide between CNW’s study and all scientifically reviewed and accepted work on the same topic”. Dr Peter Gleick of the Pacific Institute indicated that “the report’s conclusions rely on faulty methods of analysis, untenable assumptions, selective use and presentation of data, and a complete lack of peer review.”

The EPA green vehicle guide gives the Toyota Prius the best rating on GHG’s, air pollution and mileage ratings of 60/51 mpg but the Hummer had a poor pollution score and no data on the mileage ratings. I did find the H2 Hummer ratings listed elsewhere at 10/13 and the H3 at 16/19 miles per gallon city/highway.

So we have two questions of interest. Why would a report effectively assassinate the benefits of hybrid cars and promote the value of large vehicles? Secondly, should seasoned journalists have raised red flags about a report with claims that were outside the common sense box?

In a worst case scenario, CNW may have tailored its research to benefit its subscriber’s interests. Portrayed in a generous light, CNW has demonstrated incompetence in the design and execution of its research. The 400 + page report is three hundred pages too long.

The Society of Professional Journalists suggests that “public enlightenment is the forerunner of justice and the foundation of democracy. The duty of the journalist is to further those ends by seeking truth and providing a fair and comprehensive account of events and issues”.

Have you read virtually the same article in different newspapers written by different journalists? Theoretically this shouldn’t happen but press releases often become news stories without serious research. Call it “cut and paste” journalism or just working to a tight deadline but the result is the same. Many journalists missed the boat on this item.

The standards of journalism are relaxed to a degree for op-ed columnists and the right / left wing ideology sometimes creates an interesting counterpoint to the standard view of journalists. George Will and Neil Reynolds, as staunch defenders of the status quo and the corporate interest, have let their denial ideology trump basic journalistic values. They can best be considered as light entertainment with little educational value.

If the evolving energy crisis related to peak oil weren’t so serious and compelling, one could laugh about the folly of those involved in this process. Unfortunately, the CNW report is essentially corporate dis-information that will add to the general confusion on energy matters over the world.

Get your free car

After you’ve made your car mechanic a rich man and terminal rust is devouring the metal frame of your car, it may be time to re-evaluate your “investment” in your car. Statscan figures there are 1.6 million commercial and passenger vehicles sold annually in Canada. There are roughly 20 million on-road vehicles registered in Canada, which means that the average vehicle life is 12.5 years.

Collectively we burn 55 billion liters of gas and diesel.   At $1 a liter, we spend $55 billion per year to keep our tanks with fuel.

A rough value of Canada’s vehicle fleet is $560 billion if we assume an average value of $28,000. Remember that trucks are included in this total.   Each year we spend $45 billion on new vehicles.

My ailing vehicle is 12 years old and has six months to live. The tedious process of finding a replacement speaks volumes about the state of my finances. The rich write a cheque for the new car of their choice. The “financially challenged” agonize over mileage ratings, the sound of an engine, the slip of a transmission or the colour of exhaust. Options are weighed as salesmen spin their stories and our heads.

But there is a glimmer of hope in the distance. Perhaps you’ve read about the new low cost cars being built in Romania, China, Brazil, India and elsewhere. Some of these cars may cost as little as $3000. On the higher end is the Renault Logan, which costs roughly $8600 and has sold over 300,000 units. It has mileage ratings of 40 mpg (6.8 L/100 km) with a gas engine.

 

Where this car becomes very interesting is combining the low initial cost with annual fuel savings by replacing gas-guzzlers in Canada. With an average 20,000 km annually, the fuel used would be 1360 liters or $1360 dollars. Large numbers of Canadian vehicles are getting less than half the mileage rating of this car (20 mpg or less) and would use $1360 more. Over a 12-year life, the present value of gas savings for those people changing to efficient vehicles would be $10,802 (based on 7% interest).

This means that a new low cost car would be totally paid for in less than 12 years with the money that is saved on gas, with benefits of reduced CO² emissions and reducing national oil consumption. The annual benefit of taking a gas-guzzler off the road and replacing it with something like this is 3600 tonnes per year. If ten million vehicles were replaced and efficiency doubled, then we have reduced CO² by 36 Mt per year and that is 20% of the required Kyoto reduction. And it doesn’t have to cost the government any money to accomplish this.

So, could we turn this idea into a practical program without costing much government money? The key is to use the existing financial institutions as the administrators and source of funds. A minimum program would see loans of $10,000 at commercial rates to every person who wishes to replace their vehicle with a new vehicle that gives double the gas mileage. It is necessary that the previous vehicle be certified as scrapped / recycled off the road to derive the maximum benefit for the environment. The loan is repaid from cash available from fuel cost reduction. When fuel prices rise, the business case just gets better.

Not all people would want a Renault Logan or similar low-end vehicle.  Some individuals would purchase vehicles of greater cost and absorb the repayment costs above fuel savings via income, as is the case today.

We should expect that as world oil production tends toward a decline, the status quo will become unacceptable.  I got a chuckle hearing that GM is building a Yukon / Tahoe hybrid in 2008 that will take it’s average fuel rating from 18 to 22 mpg.  Minor tinkering with fuel consumption is unlikely to save the SUV models and won’t stop GM from bankruptcy in the near future.

Automakers can’t immediately change course without large retooling costs but is there a really a choice if Ontario wishes to retain an auto industry?  Witness the rise of the Japanese, Korean, and soon the Chinese automakers.  What future exists for a Canadian industry that is anchored in the past and doesn’t provide vehicles that we will need in a post oil society?

The annual purchase of $45 billion worth of vehicles has an enormous impact on Canada. Our choices are influenced by auto industry spin (advertisements).  It would be interesting to see an effective long-term liquid fuels strategy by the federal government. At what point will Stephen Harper inform Canadians that we urgently need vehicles with superior mileage ratings? His mantra that control of CO² emissions is either impossible or requires enormous tax dollars wears thin.

Capitalism and the Environment

If you saw the Live Earth concerts recently, you may have an opinion on the value of the effort to save the planet. Certainly, there is skepticism whether progress was actually made by this approach which differed from the documentary film “An inconvenient truth”. Although I am not a Metallica fan, some of the artists were great (according to my taste) but perhaps the ultimate benefit of the concerts will be greater than most people understand. Political change happens when ideas percolate throughout society and become commonly accepted as the only way to proceed. This was a major event where leaders of the entertainment industry reached out to millions of fans, who otherwise might not been receptive to an environmental sermon.

No, we will not see any substantial changes this week or the next. The value of this event is more symbolic, hopefully being the date when capitalism got an invitation to the chiropractor for a major adjustment. In the past we have had to send capitalism out to the woodshed to stop child labour abuses, legislate safety regulations to prevent worker deaths, and begin the first waves of environmental regulations to slow down the abuse of this planet where we live and breathe.

Capitalism is celebrated around the world as being effective in producing goods for the masses at affordable prices. It’s tremendous force is related to the way that it marches over all obstacles, whether human or environmental, to achieve its prime objective – profit. Classical economics use supply and demand as its primary tools of analysis. Environmental damage is just part of externalized costs that are pushed off onto society in general to look after. Think about the individuals who are affected by severe air pollution. The degradation of the air and the health costs are borne by individuals and healthcare programs but not by the company who has avoided the cost of proper pollution abatement equipment.

A number of ecological economists have observed that the typical models proposed have not properly described human economic activity. In the view of Robert Costanza who set the annual net worth of nature at $33 trillion, the costs related to the destruction of “natural capital” or the value of nature are an intrinsic part of the economic equation to be considered by government decision-makers.

Today’s serious environmental issues of climate change, global over-population and the resultant decline in world resources such as oil and natural gas are still actively opposed by a majority of the business community and their linebackers, the politicians. What Al Gore has done with his film “An inconvenient Truth” and Live Earth is to throw millions of footballs over the heads of this defensive line and ask the entire world to catch the pass and run with it into the end zone. He has asked millions of people to play on his team in order to win quickly and decisively. Not your typical representative politics.

In the near future, the business community and the existing political chameleons will have to make a decision whether they want to participate in the decision to restrain the rapacious assault on our environment or to watch from the sidelines when a new government does it.

Although there are some technological advances and product efficiencies (like compact fluorescents) that can help the situation, it appears likely that industrial type solutions requiring restraint will be required. One example implemented in Europe is carbon trading, where emitters of CO² are given limits beyond which they must buy credits from those who have not used their quota. Those companies who build energy efficiency into their operation will profit. Limits will decrease annually to meet target for CO² reduction. But carbon trading has its down side and other options are possible.

A second option, suggested by David Fleming, is called the Tradable Energy Quota (TEQ). This is a debit card where industry and individuals are given energy credits for the year. When they purchase energy, they must show their card and it is electronically subtracted. If they exceed, they must purchase other credits. If this sounds like a modern day rationing system, it is. The alternative to reducing demand for oil when the production of oil declines is continual high prices which is just rationing by economic wealth. Like or not, our future is bleak unless we act.

Capitalism harnesses the greed of humans and transforms that force into a self-adjusting production system that has no equal. The question is whether capitalism can adapt to the new reality of diminished natural resources, less growth, and the requirement to reduce the CO² levels. Can planet Earth really afford capitalism as it is presently operating? On the political level, can we afford the do-nothing policies of Stephen Harper? Here in New Brunswick, we have the façade of an energy and environmental policy. Can the Graham government provide us with a rational “road map” to survival or will it always be useless expenditures on more new roads?

Personally, I don’t have a ticket on the space shuttle to another planet so I would prefer that we save this one from the myopic management presently at the helm. How about taking a serious look at our leaders and giving the boot to those who aren’t “getting it on the environment” and real sustainability at the next election?

Things go better with “Coke”?

Recently NB Power came to Saint John to talk about the use of petroleum coke as a way to reduce the cost of heavy fuel oil for Coleson Cove now that Hugo Chavez of Venezuela has said no to an Orimulsion contract. A recent $750 million refit was based on the cheaper Orimulsion fuel paying for the upgrade. A significant part of the cost was to install environmental controls and according to the annual report that I picked up: SO2, NOx, and particulate rates have decreased greatly, by roughly 75% since 2005.

NB Power indicated to the assembled group that by using a mixture containing 20% petroleum coke, the savings could be in the vicinity of $60 million per year. This would tend to moderate upcoming increases in power rates. On the negative side, the “pet coke” has more carbon content and CO² emissions would rise by 5% but would be offset by the introduction of wind power and reduced generation by oil at Coleson Cove.

Almost no one in the audience was receptive to a fuel that wasn’t clean and environmentally friendly. To tell the truth, Saint John is renowned for the large number of emitters of contaminants and CO². Recent talk of an energy hub means that a proposed new refinery, an LNG plant and other possible projects has those who consider the environment to be of primary concern going into “sensory overload.” The number of people on the environmental side of the argument is increasing every day and the existing dynamic is changing.

When it was indicated that Coleson Cove would be reduced in output as a result of wind power, it was surprising to hear that shutting down Grand Lake plant, which has limited environmental controls and burns low quality coal, wouldn’t be the first choice. The answer is twofold, as Grand Lake supplies a cheaper production cost and the unspoken reason – retention of jobs in the Minto area.

Certainly it is a good idea to put the finances of NB Power in order and a less expensive fuel would seem to be a good way to do this. However, when reading the annual report of NB Power, I was left with some questions regarding environmental and financial items: For example, what is the present day and proposed corporate CO² output in the coming years? Are there any reasonable possibilities for co-generation with existing plants to raise efficiency? These are issues that concern many people. 2005/06 was the first year in a while where export sales actually started to make money with higher revenue of $74 million. Better hydro production brought in an extra $54 million. This being the case, one would expect a good year but government withdrew an extra $50 million for Electric Finance Corporation. There may be a good reason for this. There are also the questions about the contracts with third party power supply agreements that cost $150 million in natural gas. The old PUB was not allowed to examine those contracts in the last hearings.

The annual report seems to skip over many important details or prevents the direct calculation of fuel costs for certain plants. The division of the company adds to the confusion with little apparent benefit. The debt jettisoned onto Electric Finance Corporation, an arm of the government allows the government to put its hand into NB Power’s pocket without a clear accounting for the results. The sooner the real debt of NB Power is returned, the sooner we can really see how the company is doing. A banker once told me that it doesn’t matter how many horses you own if you leave the barn door open. All things considered, there is a considerable lack of transparence in the financial operations of NB Power.

Our electric company could save money by using “pet coke” and this would help them financially in the future. However, unless the new government is willing to shine a bright light onto NB Power and it may plan to do so with the new Energy and Utilities Board, then it will become an accomplice to the political games of the past and the money saved may be squandered.

NB Power should be congratulated for their clear presentation of what they plan to do with “pet coke” and the improved environmental controls at Coleson Cove. However, we have come to a moment where we are jaded by “spin” that is out of control, coming at us from all directions. Wouldn’t it be unique to hear the absolute truth from an organization like NB Power? (The good and the bad) How can there be confidence instilled in the people of Saint John and the rest of the province until environmental concerns and the structural deficiencies of the organization are clearly examined?

Recently, Robert Gates sailed through confirmation hearings to become the new US Defence secretary. People were astounded that he actually voiced the truth when asked about the Iraq war. In a similar vein, the recently elected Liberal government has a window of opportunity of less than a year to clear up the problems of NB Power. Insisting that NB Power cooperate transparently in all areas with the EUB would be a good start.