AEIdeas » Steven F. Hayward The public policy blog of the American Enterprise Institute Wed, 23 Jul 2014 19:11:17 +0000 en-US hourly 1 Energy fact of the week: The rapid decline of coal Wed, 20 Jun 2012 20:36:13 +0000 read more >]]> Recently released figures from the Department of Energy reveal this stunner: coal-fired electricity is at its lowest point since January 1973, which, as our pal Robert Bryce reported recently at National Review Online, was well before energy policy deliberately shifted to emphasize greater use of coal-fired power in the late 1970s.  (Yes, you read that right: once upon a time, the federal government wanted vastly more coal-fired power on purpose. Now Washington is trying to kill coal by any means necessary—the joys of consistent energy policy directed from Washington.) Coal used to account for nearly 50 percent of total electricity generation. Now it is down to barely one-third.

The figures below show the distribution of net electricity generation by fuel type from March 2011 and March 2012 (the last month for which data is available), showing that the share of coal fell from 42 percent a year ago to 34 percent this year, while the share produced by natural gas rose by 9 points to 30 percent. This is before most of the current and proposed EPA regulations targeting coal have taken effect, showing how fast cheap natural gas is displacing coal. Gas may well pass up coal soon as the leading electricity source. Coal prices are falling in response, but the future of American coal may well be as an export industry—if Washington will allow it. The histrionics of the Keystone pipeline are certain to be repeated with every proposed coal export terminal.

Source: Energy Information Administration.

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Energy fact of the week: Peak ethanol? Tue, 12 Jun 2012 18:08:49 +0000 read more >]]> A few weeks ago, we noted here the sharp decline in biodiesel production during a one-year hiatus in the blending tax credit—more evidence of how biofuel production is dependent on government subsidies to grow. The Wall Street Journal reports today that the game may be up for corn ethanol, too. Now that Congress has cut $6 billion in annual subsidies for ethanol, growth in ethanol production is noticeably stalling. Between 2005 and 2011, ethanol production grew from 3.8 billion gallons to 13.9 billion gallons, but looks to be topping out.

Figure 1

However, the ethanol industry is lobbying the Environmental Protection Agency to increase the amount of ethanol used in the fuel supply from 10 to 15 percent, with a mandate for gas stations to offer E85. As the Journal story reports:

In several steps in the past year and a half, the Environmental Protection Agency has effectively increased the cap to allow gasoline that is 15% ethanol, known as E15. The ethanol industry is pinning its hopes on rapid adoption of E15. “We are putting a lot of faith in E15,” said Walter Wendland, CEO of two ethanol plants in northern Iowa. “We have a market problem out there for our production.”

Very revealing, that last phrase. But as the Journal continues:

But large-scale adoption of E15 faces sizable challenges. Not a single fuel station sells it today. Gasoline stations need to spend money changing pumps and alerting customers. The auto and oil industries have voiced strong concerns about E15, saying the fuel could damage cars and leave customers with expensive repairs.

Figure 2 shows the latest Department of Energy projections for ethanol use in gasoline and in E85, showing that continued growth in ethanol will almost all come in E85, if it comes anywhere at all. Blending of 10 percent ethanol in gasoline is only expected to grow at an annual rate of 0.8 percent through 2035, while E85 ethanol use is expected to grow at an annual rate of 27.5 percent. The power of mandates.

Figure 2: DoE Forecast of Ethanol Growth, 2010-2035


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Energy fact of the week: The U.S. has the best CO2 reduction record in the world Wed, 06 Jun 2012 13:56:55 +0000 read more >]]> The latest bulletin on greenhouse gas emissions from the Paris-based International Energy Agency (IEA) notes that while total global emissions rose by one full gigaton in 2011, emissions by the United States fell by 92 megatons. But the real surprise of the bulletin is this sentence: “U.S. emissions have now fallen by 430 Mt (7.7%) since 2006, the largest reduction of all countries or regions.” Re-read that last clause slowly: “the largest reduction of all countries or regions.”

To be sure, some of this reduction is recession-related, and some of it is related to the rapid substitution of newly-cheap natural gas for coal-fired electricity generation. But the IEA notes one unappreciated aspect of what’s also going on in the U.S. right now: “This development has arisen from lower oil use in the transport sector (linked to efficiency improvements, higher oil prices, and the economic downturn which has cut vehicle miles traveled).”

Calling these numbers “a stunner,” Canadian environmental analyst Barry Saxifrage notes, “Here is the biggest shocker of all: The average American’s CO2 emissions are down to levels not seen since 1964 — over half a century ago. . . Per person, Americans are back to 1960 levels of oil consumption. Oil is the biggest source of CO2 in the USA. Now with rising oil prices, new vehicle regulations, and the emergence of electric cars it looks like the USA’s biggest source of CO2 will continue to fall. . .  Coal is the number two source of CO2 for Americans. Today the average American burns an amount similar to what they did in 1955, and even less than they did in the 1940s.”

Here’s Saxifrage’s chart that shows the long-term trends of per capita CO2 emissions and energy use:

Of course, none of this fits the narrative that the U.S. is the climate renegade, the foot-dragger, the holdout, the crusher of global hopes and dreams. Oh well, you can’t have everything.

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Energy fact of the week: Oil and gas growth thump renewables Thu, 31 May 2012 14:26:58 +0000 read more >]]> One of the oldest misleading statistical tricks is to cite percentage growth from a low base. For example, if the units of something produced go from 1 to 2, that’s 100 percent growth! But if you go from 100 units produced to 102 units produced—twice as much in absolute volume as the first example—the growth would only be 2 percent. But using only percentage growth figures, it appears the first example is growing much faster than the second example.

This is the way the renewable energy cheerleaders often pump up their story, citing “explosive” growth rates for wind and solar power. Figure 1 below shows the percentage growth rate of domestic production of oil, dry natural gas, and gas liquids and wind, solar, and biomass energy from 2008 – 2011, measuring in additional BTUs. Just going by percentages, it appears that renewables are growing more robustly than fossil fuels.

But Figure 2 shows the absolute growth, in BTU’s, of fossil fuels and renewables from 2008 to 2011, and here you can see that fossil fuel output has grown more than three times as much as renewables. It seems the “fuels of the past,” as Obama calls them, are clobbering the fuels of the future.

Figure 1: Percentage Growth in US Domestic Fossil Fuel and Renewable Energy Production, 2008 – 2011 (BTUs)

Figure 2: Absolute Growth U.S Domestic Fossil Fuel and Renewable Energy Production, 2008 – 2011 (BTUs)

Source: Energy Information Administration.

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Energy fact of the week: Refining tax credits Thu, 24 May 2012 13:58:59 +0000 read more >]]> The Energy Information Administration recently produced the figure below of biodiesel production that is admirable for its candor in displaying just how crucial the $1.00 per gallon blending tax credit is. When the tax credit expired at the end of 2009, biodiesel production fell instantly in half, and did not rise again until the credit was reinstated at the beginning of 2011.

We often hear that fossil fuels—oil and gas especially—also get large subsidies, though there is legitimate argument about how “subsidy” is defined, since in some cases the alleged “subsidy” is merely the same tax treatment accorded to all manufacturing industries. But try out the following thought experiment: Even if you use the most generous definition of oil and gas “subsidies” and then eliminated them entirely, does anyone think there would be a 50 percent decline in the amount of oil and gas produced and refined into finished products? (If you need help thinking through the answer to this, go back and look at this previous Energy Fact, and also this one.)

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Energy fact of the week: The shale whale Mon, 14 May 2012 21:09:07 +0000 read more >]]> One of the most tired talking points of the “hydrocarbon deniers” (as I am going to call them) is that the U.S. must move beyond oil because we have less than 2 percent of the world’s proved reserves, though we consume about 20 percent of global oil production. After last week’s testimony from Anu Mittal, the director of natural resources and environment for the Government Accountability Office, to the House Committee on Science, Space, and Technology, anyone who persists in using this talking point again (that would include the president) deserves to be labeled an anti-science ignoramus.

Mittal reviewed the geological survey data of oil shale in the western United States that show we have about 3 trillion barrels of oil equivalent. This represents about two-thirds or more of the total shale oil estimated to exist worldwide. About half of it, according to Mittal’s testimony, is thought by public and private analysts to be recoverable. With droll understatement, Mittal offered the following conclusion, which should be read slowly: “This is an amount about equal to the entire world’s proven oil reserves.”

So let’s look at what this means graphically. Figure 1 shows the estimated proven reserves of conventional oil. But add in “unconventional” shale oil (though this distinction is increasingly meaningless with the advance of extraction technology), and you get Figure 2, which shows that instead of having only 2 percent of global oil reserves, the U.S. actually has 82 percent as much oil as the rest of the world, and almost twice as much as the Middle East. Maybe we should start exporting oil to China and join OPEC?

Sources: EIA and IEA.

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Energy fact of the week: Don’t mess with Texas Thu, 26 Apr 2012 17:48:29 +0000 read more >]]> Both Mark Perry, on his invaluable Carpe Diem blog, and I have been tracking the oil boom in North Dakota, occasionally predicting that North Dakota could come to displace Texas as the top oil producing state in the U.S. (It’s already number 2.) But not so fast. Looks like Texas isn’t going to give up its crown without a fight.

New figures from the Texas State Railroad Commission show how rapidly oil production is growing in the Eagle Ford shale region. Figure 1 below shows a nearly 600 percent increase in just one year, and a 9,700 percent increase since 2009.

One overlooked aspect of the current technology-driven fossil fuel energy boom going on in the U.S. right now is that if Washington had any premonition it was going to happen, they would surely have done something to stop it. Sure enough, ELIC (the Enviro-Lawsuit Industrial Complex) is stepping up with endangered species lawsuits to slow down oil production in Eagle Ford and elsewhere in Texas.

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Energy fact of the week: The gold price-oil price nexus Thu, 19 Apr 2012 20:34:13 +0000 read more >]]> A recent conversation with John Tamny of turned to an old, favorite issue of Ronald Reagan and Robert Bartley, among other great figures; namely, that some of the volatility in the price of oil represents the weakness of the dollar (since oil is priced and traded in dollars) and as such the relation between the price of oil and the price of gold is one possible proxy for understanding important aspects of the oil market. The clear implication here is that a strong dollar policy might do more to relieve pain at the pump than drilling for more oil.

Here’s how the Gipper put it in his very second press conference in 1981:

One economist pointed out a couple of years ago—he didn’t state this as a theory, but he just said it’s something to look at—when we started buying the oil over there, the OPEC nations, 10 barrels of oil were sold for the price of an ounce of gold. And the price was pegged to the American dollar. And we were about the only country left that still were on a gold standard. And then a few years went by, and we left the gold standard. And as this man suggested, if you looked at the recurrent price rises, were the OPEC nations raising the price of oil or were they simply following the same pattern of an ounce of gold, that as gold in this inflationary age kept going up, they weren’t going to follow our paper money downhill? They stayed with the gold price. Of course, now, if we followed that, why, they should be coming down, because the price of gold’s coming down. But I think that that’s like the inflation-contributing factor that you’ll have sometimes simply because of a poor crop. That is not based on the economy, that’s simply supply and demand. And if there’s a crop failure and you’ve got a bigger demand than you have supply, the price goes up.

Of course, the price of oil did come down—a lot—in the 1980s, as the dollar strengthened. Cause and effect? While there is likely some relationship here, it would seem on the surface that there are other, larger factors at work. The chart below shows the ratio of the nominal price of gold to the nominal price of oil, and this ratio shows that between 1973 and today the ratio has ranged from a high of 27.3 barrels (that is, one ounce of gold would buy 27.3 barrels of oil) in 1988 (the peak) to a low of 7.8 in 2005, with a lot of variation. Today, it stands at about 14.5 barrels—a better ratio than throughout most of the George W. Bush years. But the thing to note about the chart back in the 1980s is that the ratio strengthened during precisely the period when the U.S. was pushing down the value of the dollar (1986-1988) for trade-related reasons. I think the gold bugs will need to refine this a bit further.

Sources:, National Mining Association

P.S. It is worth recalling that one of Reagan’s first acts upon entering office was to complete the decontrol of oil prices begun tentatively by Jimmy Carter. Liberal interest groups seemed to compete with each other for the most fulsome expression of economic illiteracy in response. In the annals of public policy prognostication it is difficult to find such a wide assembly of wrongheadedness. Senator Howard Metzenbaum of Ohio took to the Senate floor the day after to predict that “we will see $1.50 gas this spring, and maybe before. And it is just a matter of time until the oil companies and their associates, the OPEC nations, will be driving gasoline pump prices up to $2 a gallon.” Senator Don Riegle of Michigan said that “It will hurt our people within a matter of days.” Senator Dale Bumpers of Arkansas had previously predicted that “without rationing, gasoline will soon go to $3 a gallon,” and added that “Decontrol is designed to see how much we can squeeze out of the American people before they take to the streets.” Maine’s Senator George Mitchell said “Every citizen and every family will find their living standards reduced by this decision.” Democratic Congressman Ed Markey said “I believe that decontrol as a cure will prove to be worse than the disease of oil addiction.” A Naderite advocacy group predicted that oil prices might go as high as $870 a barrel “under assumptions which many experts believe are realistic.” Instead, oil prices started falling almost immediately; from an average high of $1.41 in February 1981, pump prices fell steadily to a national average of 89 cents a gallon in the spring of 1986.

Worth keeping in mind when liberals today say increased domestic production will make little difference to oil markets, as well as prattling on about “speculators.”

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Energy Fact of the Week: Why Obama deserves little credit for U.S. oil and gas boom Mon, 09 Apr 2012 15:04:34 +0000 read more >]]> President Obama and Vice President Biden are taking victory laps for the unforeseen (by government, that is) increase in domestic oil and gas production over the last three years, dodging and weaving as best they can to disguise the Administration’s relentless hostility to fossil fuel production and use.

If you need any more confirmation that this energy story is overwhelmingly a tale of private sector innovation taking place mostly on private land, check out a report from the Energy Information Administration released late last month entitled Sales of Fossil Fuels Produced from Federal and Indian Lands, FY 2003 through FY 2011. The data tables in the report make clear that oil production on federal lands has been more or less flat for most of the last decade, though with a slight bump in 2010 that disappeared in 2011, mostly because of falling offshore production in the wake of the Deepwater Horizon disaster.  The red line in Figure 1 shows that oil production on federal lands as a proportion of total U.S. production has remained flat at around 30 to 35 percent.  Most of the increase seen between 2008 and 2010 is likely attributable to leases finalized during the Bush Administration.

The story of natural gas is more interesting. While the gas sector is booming, total production on federal land has fallen more than 30 percent over the last decade, and as the red line in Figure 2 shows, the proportion of gas produced on federal land has fallen from 35 percent in 2003 to just above 20 percent today.  Anyone think the gas deposits being unlocked with directional drilling and fracking somehow stop at the federal property line?

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Energy Fact of the Week: Will gas triumph over coal? Tue, 03 Apr 2012 17:35:24 +0000 read more >]]> This week the EPA released its long-promised new source performance standards for coal-fired power plants. They appear aimed to effectively ban the construction of any new coal power plants, unless they can implement carbon capture and sequestration—an extremely expensive proposition.  But right now the conventional wisdom is that the EPA rules are redundant as a practical matter, because natural gas has gotten so cheap that it looks much preferable to coal even without the EPA putting its lead-free foot on the scales.

But perhaps not.  In a terrific piece of reporting in today’s Wall Street Journal, Liam Denning notes some counter-intuitive aspects of the scene that might actually turn what we think on its head.  Denning notes that natural gas is now cheaper than coal on an energy-content basis (as shown in the figure below), and also that new gas-fired plants are about two-thirds cheaper than coal to build. But we shouldn’t assume that coal prices won’t also fall, or that gas price volatility is a thing of the past:

The twist, as BofA points out, is that while gas-fired power is very competitive against the coal-fired variety based on near-term prices, it is less so based on futures prices beyond the end of this year. That is because measures like the EPA proposals point to tighter gas markets further down the road. For utilities, that reduces the incentive to switch to gas. Perversely, the latest headlines trumpeting the revival of gas and the death of coal may serve to discourage this very outcome.

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