Local Chapter Activities
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19th Annual Washington Energy Policy Conference
A Joint Program of the National Capital Area Chapter, USAEE (NCAC) and
Johns Hopkins School of Advanced International Studies (SAIS)
James Koehler (NCAC Vice President) and R. Omar Cabrales (NCAC President) at the 19th Annual Washington Energy Policy Conference.
The National Capital Area Chapter of the U.S. Association for Energy Economics (NCAC) held its 19th Annual Energy Policy Conference on April 29, 2015, on the theme, "Fossil Fuel Reserves: Will We Leave Them In The Ground? Can We Afford Not To? The Economic Costs of (Not) Utilizing Existing Reserves to Meet Potential Limits on GHGs”. This year’s conference was co-sponsored with The Johns Hopkins University School of Advanced International Studies (SAIS), and was held at the main auditorium of the SAIS campus in Washington, DC.
During this day-long program, speakers explored economic issues and the impact of current and potential policies and actions designed to reduce GHG emissions and concentrations. The main question was whether companies who derive their value from hydrocarbon reserves could see their value drop if these reserves are “left in the ground” in order to meet carbon emission targets. The conference was well attended, with approximately 100 members, guests, panelists, and SAIS faculty and students, attending for all or part of the day. Conference presentations may be found on the NCAC-USAEE web-site at http://ncac-usaee.org/archives2015.php .
The conference began with brief opening statements by R. Omar Cabrales, President of the NCAC-USAEE; and Deborah Bleviss, Administrative Director of the SAIS Energy, Resources and Environment Program. This was followed by the morning keynote speaker Dr. Joe Romm, Senior Fellow, Center for American Progress, who delivered a though provoking speech on the potential effects of climate change under various scenarios. He also discussed some of the technological advances that may allow a move away from hydrocarbons, mainly the cost and efficiency of PV solar panels and the increase in battery storage capabilities. One of his most interesting comments was that by 2030, give or take 5-years, people will no longer be able to buy flood insurance for low lying coastal properties, which will lead to a collapse in those property prices.
Panel 1: Fossil Fuels: What are they worth to the economy? Moderated by Dr. Ben Schlesinger, President of BSA Associates, the first panel included Gretchen French, Vice President and Senior Credit Officer, Moody’s Investor Service; John Felmy, Chief Economist, American Petroleum Institute (API); and Paul Forward, Managing Director, Coal Mining and Base Metals, Stifel Equity Research. Mr. Felmy pointed out that at this time there is no realistic substitute for petroleum as a transportation fuel, and that most projections show a rise in global energy demand from oil, natural gas, and coal. Trying to stop consumption of petroleum products would bring the world economy to a halt.
Ms. French remarked that in rating oil and gas companies, Moody’s generally has a short window, 3-5 years, so although any climate policy driven drop in hydrocarbons demand would increase credit risk, they will have little effect on company valuations in the near term. Over the short term, demand for hydrocarbons will remain high because of growth in non-OECD countries. On the other hand, long term investment is challenged by the lack of consistent policy at the global level.
Mr. Forward talked about the shift in coal production in the U.S., from Appalachian to Powder River Basin coal, as the latter has lower sulfur content. Coal producers are at risk because of lower demand and prices. Prices are projected to drop from $60 to$40 per ton in the next decade, and demand fell by 200 million tons/year between 2007 and 2015. He also pointed out that smaller and less efficient coal plants will likely continue to shut down. However, the U.S., which has the largest coal resources in the world, is finding markets abroad, and is the second largest exporter of metallurgical coal and the world swing supplier of thermal coal.
Panel 2: What is the economic cost of climate change? John Jimison, Managing Director, Energy Future Coalition, moderated the panel that included Dr. Jae Edmonds, Chief Scientist and Battelle Laboratory Fellow, Pacific Northwest National Laboratory’s Joint Global Change Research Institute, Dr. Anand Parwardham, Professor at the University of Maryland’s School of Public Policy, and Capt. James Goudreau, USN, Director of Policy and Partnerships, Office of the Deputy Assistant Secretary of the Navy (Energy).
Highlights of this panel include Mr. Edmond stating that ultimately C02 emissions have to go to zero because of their cumulative effect in the atmosphere. He stated that the most cost effective mitigation steps would be decarbonizing the power sector and electrifying various end use sectors.
Dr. Patwardham made the eye opening remark that we should not care about the difference in the cost of mitigation for a 2 degree vs. a 4 degree scenario, since we are not going to meet the 2 degree goal, so we should focus on the impact of a 4 degree scenario. He said that in setting policy goals, we must look at multiple reasons for concerns to unique systems, not just try to monetize total cost. Additionally, we must take into account tipping points which are not well accounted for in models.
Captain Goudreau stole the show with a forceful presentation on the Department of the Navy’s Energy program. He pointed out that they make decisions that allow them to complete their mission and bring their servicemen and women back alive and well. Energy efficiency in this realm is about increasing capabilities with shrinking resources so combat readiness does not suffer. However, they are facing the major challenge that by 2050 the world will have 9 billion people, and need 50% more food, 55% more water, and 80% more energy.
Jeff Eckel, CEO Hannon Armstrong Capital, delivered the luncheon keynote address. He pointed out that to him decarbonizing the economy is not so much a technology issues as it is a financing issue. Relying on congress and public policies is not a good tactic because support for clean technology can vanish as quickly as it started. Also, although technology has been progressing quickly, especially for solar, amortization and financing are the key to green/renewable power generation. Being able to make the case that a project is economically feasible and profitable will result in funding becoming available. Tapping the different sources of green funding will be key to decarbonizing the economy.
Panel 3: Real costs of effective substitution for fossil fuels. The moderator for this panel was Dr. James Koehler, the incoming NCAC-USAEE President who is now with Berkeley Research Associates. The panelists were Dr. Irving Mintzer, Managing Director, Potomac Energy Fund and Professor, SAIS Energy, Resources and Environment Program; Ethan Zindler, Director of Policy Analysis, Bloomberg New Energy Finance; and Dr. Paul Sotkiewicz, Chief Economist, Market Services Division, PJM.
Dr. Mintzer pointed out the fact that energy needs have increased steadily for 150 years, and will likely continue to increase. He posited that we are not running out of energy, but of cheap oil, environmental space to absorb waste, tolerance for inequity, time for a smooth transition, and political leadership to support cooperative international solutions. He further commented that we need to pay special attention to the technology that will give grid operators the data needed to best manage the contribution of intermittent generation.
Mr. Zindler observed that we are in the era of plenty of competition, as consumers have more choices and supplies because of increased oil and gas production, a flood of clean energy equipment from China, and alternatives that can compete with traditional energy sources. In addition, demand is sluggish because of the slowdown in China and Brazil, slowing consumption in developing countries, and alternative fuels and technology. This is shifting the balance of power from fossil fuel producers and producing countries to distributors and consumers.
Dr. Sotkiewicz gave the industry overview from PJM’s perspective, making the point that demand has slowed below prior projections. Meanwhile, cleared installed capacity for natural gas is surpassing coal, which comes with the added advantage that gas plants are more flexible.
Panel 4: Can these resources be left in the ground? The fourth and last panel, moderated by NCAC-USAEE President Omar Cabrales, included three panelists: Ruth Greenspan Bell, Public Policy Scholar, Woodrow Wilson Center for International Scholars; Mandy Gunasekara Senior Counsel, Majority Staff, Senate Environment and Public Works Committee; and Dr. Karen Palmer, Research Director and Senior Fellow at Resources for the Future.
Ms. Greenspan Bell spoke of the challenges and possibilities of climate negotiations, and of the need to find alternative pathways to achieve some degree of progress in climate treaties, while stressing that major treaties always take time. She used the example of weapons negotiations, where it took decades of negotiations before the U.S. and Russia finally reached a meaningful agreement on reducing nuclear weapons. The lesson she draws from this example is that achieving agreement between those countries with the greatest impact on climate is crucial, and that universal consensus, while ideal, may be unnecessary or even hamper meaningful progress.
Ms. Gunasekara spoke of the climate in the current congress, which is concerned with EPA and Executive overreach and would like to ensure climate related action does not negatively affect local and national economic growth. She also commented that there is no support in congress for agreements coming out of the international fora, so any agreements will likely not be binding and will not have teeth.
Dr. Palmer discussed the Clean Power Plan in detail, including the building block approach: Building block one is reducing GHG emissions from coal, two is switching from coal to gas, while blocks three and four include increased use of renewables and energy efficiency. Different states focus on different building blocks. The advantage of this approach is that even if some rules are struck down in court, others could still stand.
Closing Remarks: The conference ended with Adele Morris, Senior Fellow and Policy Director of Climate and Energy Economics Project at Brookings exhorting the audience, as knowledgeable energy economics people, to help educate policy makers through the use of good and credible data and analysis.
All panels ended with interesting and meaningful Q&A sessions, and although the conversation was at times heated, the tone of the conference was respectful and collegial. At the end, audience members agreed that this conference brought together many different viewpoints, and allowed for informative and valuable exchange of ideas.
--- Contributor: R. Omar Cabrales, President, NCAC-USAEE