LEAPFROGGING TOWARD CLIMATE STABILIZATION THROUGH ENERGY RECYCLING AND LOCAL GENERATION

By John C. Topping, Jr.
President, Climate Institute

Mid-November 2007 news reports focused on a sputtering US stock market shaken by waning consumer confidence, a constantly shrinking dollar and large write-downs by huge financial institutions of sub- prime housing loans. Amidst all this gloomy economic news was a little noticed story- a breakthrough that might do more to reduce US and global greenhouse emissions than anything else in the next decade while at the same time spurring the economic innovation that might enable the US economy to revitalize itself.

Tom Casten
Sean CastenOn November 15 Recycled Energy Development (RED), a firm formed recently by the father-son team of Tom and Sean Casten, announced that it had formed a strategic partnership with private equity firm Denham Capital Management to develop a $1.5 billion portfolio of waste energy recycling projects. Tom Casten has founded three major energy recycling companies: Tri-Gen, Primary Energy Ventures LLC, and his most recent venture, Recycled Energy Development. Over the years he and his son, Sean, have between them deployed more than $2 billion in capital on 250 power projects generating 11,000 megawatts of heat and power.

Seven and a half years ago the Climate Institute and some partner groups in the Pacific Northwest organized a Seattle Summit on Protecting the World's Climate. The Seattle Summit had two primary purposes. The first that was achieved with relative success soon after was to establish the US Pacific Northwest and British Columbia as world leaders in emerging clean energy technologies and systems. The second goal was even more ambitious and until recently seemingly elusive- to draw upon the information revolution as a possible model for a rapid global clean energy transformation. The Summit drew a host of environmental policy, energy and finance heavyweights but the sole nationally known participant who bridged both the information and energy revolutions was Dallasite Sam Wyly, founder of University Computing, a pioneer in computer software and data transmission, and a spearhead of the leading green power marketing firm, Green Mountain Energy. Although the Summit was held in Microsoft's backyard, heard from the feisty mayor of Redmond and enjoyed participation of several mid-level Microsoft employees, none of the legendary big guns of the Pacific Northwest information revolution stepped into the arena. Still the Summit resulted in a video - Clean Energy: The Next High Tech Revolution posted about six years ago that in just over 16 minutes sought to convey the core theme of the Summit—Clean Energy: The Next High Tech Revolution? Video: 56K Version | High-Speed Version.

Until recently, however, Sam Wyly was one of the few information industry pioneers to have given a full- throated endorsement to clean energy investment. More recently Vinod Khosla, a Silicon Valley venture capitalist who backed such firms as Sun Microsystems and Juniper Networks, has become a major investor in clean energy, especially efforts to develop cellulosic ethanol.

With the consummation of the strategic partnership with Denham, the Castens may have enlisted the biggest player of all in the information industry into their effort. According to Bloomberg.com, major participants in Denham are Cascade Investment LLC, a Bill Gates investment vehicle and Harvard University.

At a time when a cascade of scientific findings— perhaps the most ominous the studies released a few weeks ago by a team at University of East Anglia indicating that ocean absorption of carbon dioxide has been halved over the last decade— suggests climate change may be accelerating rapidly, it is heartening to see this emerging alliance. If the trend revealed in the East Anglia studies persists, the consequences for the climate are grave—roughly the equivalent of adding the energy emissions of another China and India together. With humanity dancing so close to the precipice it is encouraging to have folks as sure footed as the Castens, Gates and the Harvard Endowment gurus in the battle.

URGENCY OF ACTION

Much of the focus of last September's Washington Summit on Climate Stabilization
centered on the possibility that we may soon be approaching a tipping point at which climate change feeds on itself and develops a momentum that overwhelms the capacity of ecosystems and of much of humanity to adapt. Some very sobering and cogent scientific presentations indicated that we are skirting remarkably close to some crucial tipping points. Even the tipping point notion is somewhat of a misnomer. There is not a single magic number of parts per million of CO2 equivalent to which we can safely go. In fact we may already be past the tipping point for the survival of some vital ecosystems such as corals and species such as the polar bear, the ways of life of life of some Arctic indigenous peoples, and the continued habitability of some small island states in the Pacific and Indian Ocean. The hurricanes that ravaged the Caribbean in 2004, 2005 and 2007 remind us that some regions that may be able to withstand intermediate levels of sea level rise may find their economic viability threatened if increased sea surface temperatures increase the intensity of hurricanes. A presentation by Dr. Neville Trotz of the Caribbean Community Climate Change Centre to an assemblage in Washington June 21, 2007 of Caribbean Prime Ministers, Members of the US Congress and their staffs underscored this point. Hurricane Ivan that hammered Grenada in 2004 managed in one hour to destroy property with a value twice Grenada's GDP. An increase in wind speed of each hurricane in the region by 5 mph could produce an increase of about 34% in property damage, for 10 mph 70% and 15 mph 134%.

Sudden & Disruptive Climate ChangeEven before we get to the mega-issues of melting of Arctic sea ice that changes albedo and feeds warming or thawing of the permafrost that might result in huge releases of methane—all with large consequences for climate and sea levels around the world, we face the fact that many impacts, particularly on ecosystems, are nonlinear. Some of this will be evident in the forthcoming book produced by the Climate Institute, Sudden and Disruptive Climate Change: Exploring the Real Risks and How We Can Avoid Them, Edited by Michael C. MacCracken, Frances Moore, and John C. Topping, Jr., Earthscan Publications, London, scheduled to be published in a few weeks. Beside some gripping discussions of changes that may be underway in the polar and coastal regions, and in storm regimes, the book, based on presentations at the Summit, describes implications for human health and vulnerable species.

CUTTING THE GORDIAN KNOT: ACHIEVING HUGE EMISSIONS REDUCTIONS WHILE BOOSTING THE ECONOMY

Perhaps the most auspicious aspect of this book is the final Section suggesting that there is realistic hope of achieving stabilization of the global concentration of greenhouse gases within the lifetimes of many participating in the Washington Summit. The Panel on Intergenerational and International Equity produced some heartening signs of focus in the Roman Catholic, Protestant Evangelical, Presbyterian, Episcopalian, Mormon, Jewish and Islamic Communities on environmental stewardship responsibilities and of a similar ferment on campuses. Senior representatives of firms such as Goldman Sachs, Toyota and BP described what appeared to be a sea change in corporate and financial sector thinking on climate protection. More tellingly perhaps, President Olafur Ragnar Grimsson of Iceland describes in his Chapter how his nation, once heavily dependent on coal imports from the British Isles, leveraged a clean energy transformation to move from being the poorest nation in Northern Europe to today enjoying one of the world's highest per capita incomes.

From the standpoint of Americans eager to have their country act on climate change it is likely that the most heartening Chapter is one by Tom Casten entitled Recycling Energy to Reduce Costs and Mitigate Climate Change. Casten's message in this Chapter and in even more detail in wide ranging presentations, including a June 2006 briefing for the US Congress and a December 2006 exposition to the North Carolina Legislative Commission on Climate Change, transcends the normal left-right fault lines of American politics. To summarize, large-scale greenhouse emissions reductions are readily attainable, enough perhaps to enable the United States to achieve most of what it would need to realize its obligations under the Kyoto Protocol, had the US Senate ratified this treaty. Moreover, not only are these reductions achievable at little cost to the economy, they might in fact save US industry and consumers huge sums- perhaps as much as 70 billion dollars each year.

When one gets to know Tom Casten— he is a recent Climate Institute Board member and a remarkably well versed individual—it is clear he is no utopian academic. Tom Casten has built or financed about 250 plants and facilities around the world to recycle waste energy. These facilities have involved about two billion dollars in capital investment and have generated sizable profits while often functioning in a far from optimal regulatory setting.

What is perhaps most remarkable is that the thrust of Casten's argument is not built around some magic technological bullet or an exclusive franchise but instead on the possibility of achieving huge cost savings and simultaneous greenhouse reductions by creating a more economically rational electric power market. Most states have opted for some degree of deregulation but none has opened the way for a non-utility to ship excess electricity by private wires to another firm or to a group of homeowners. A steel company, for example, could harness waste heat to produce electricity for its own use, but if it were to ship any excess by private wires it would be committing a crime in nearly every US state. It would have the option of selling the excess to a utility but, given its minimal leverage as a captive market, it would have minimal bargaining power. The consequence of this anomaly is that many energy recycling investments that would make great sense for the environment and the US economy never get off the ground.

Harnessing Electricity from Waste Heat in Industrial Processes

In his Presentation to the North Carolina legislative commission Casten pointed to a host of possible industry recycling opportunities in North Carolina -in the steel industry from blast furnace gas, exhaust heat and pressure drop; from refineries and chemical factories; capturing exhaust from gas pumping stations and harnessing power from pressure drops; from exhaust gases from glass and fiberglass factories; from sewage gas, land fill gas, biomass, construction waste, recycled carpet, etc.; and from all processes of thermal users, housing complexes and all central chilling users. Casten has projected that by removing regulatory barriers the US as a whole could profitably recycle industrial waste streams to fuel 64 gigawatts of power (its current level is just under 10 gigawatts); he estimates this would be the equivalent of 64 new nuclear power plants and would generate 14% of the US's electricity. All this would be achieved with virtually no incremental greenhouse emissions as it would be realized by capturing waste heat that otherwise would be vented to the atmosphere.

Building Combined Heat and Power Plants Near Thermal Users

Cogeneration plant.A much more comprehensive approach to energy recycling would involve generally larger scale plants built nearer end users to use waste heat from electricity generation to provide thermal energy for heating, and industrial processes. In 2003 Casten points out the US electric power industry used 33 quadrillion British Thermal Units (33 quads) of raw energy (in non-renewable plants) to deliver 11 quads of electricity. He projects that combined heat and power plants (CHP) sited near thermal users can achieve up to a 90% efficiency as opposed to the 33 % industry average, and can readily recycle half of the waste energy-double the conventional power-system efficiency. Moreover, electricity produced by such plants would have little transmission line loss, unlike that for most power generation. Casten projects that such CHP plants could produce 13 quads of fossil fuel energy recycling, an amount equal to 13 % of US fossil fuel energy use. This is in addition to the four quads of energy recycling achieved by harvesting electricity from industrial waste heat. Remarkably, the combination of energy recycling from capture of electricity and removal of regulatory barriers to CHP plants would go more than half way toward meeting the US shortfall in meeting the shortfall between US emission levels and those it would need to meet Kyoto Goals- at the same time consumers and industry would realize annual savings in the tens of billions of dollars.

Minimizing Transmission Line Loss and Need to Build Redundancy into Power System

Using data developed by a Massachusetts utility, Casten projects that the cost of transmission of distant plants within the power grid exceeds the cost of the plants themselves. Once one adds this to the cost of generation, local generation proves a much better buy with the reduced transmission line loss and reduced need to build in redundancy far more than offsetting advantages of scale realized by distant generation

Although Casten is focusing on Energy Recycling, the same local generation advantages would be true of local generation from renewable technologies such as tidal energy, some geothermal and local solar, and fuel cell- based micro-power systems. The advantages would be greatest where there would be a high degree of predictability, as with tidal or geothermal energy, as this would reduce need to build redundancy into the grid. Still, even less predictable systems such as locally generated solar would have advantages of minimal transmission loss.

Experience Abroad

About 8% of US electricity is now produced from waste energy recovery; this contrasts with about half in Denmark and over a third in both Finland and the Netherlands. Cogeneration worldwide can be viewed in a useful virtual library. The World Alliance for Decentralized Energy (WADE) has sought to meld cogeneration and locally generated renewable energy efforts into an effective international force.

Breaking the Impasse in the US

There is already a real base in the US for cogeneration centered on US campuses. In part this may be due to the ability of colleges and universities in many instances to be partially autonomous from the utility grid and to have greater leverage in bargaining with utilities. Even more so, it may also be related to proximity of power plants and end users who might be users of heating and cooling systems. With hundreds of campuses involved in greening efforts seeking especially to reduce emissions of greenhouse gases, it is likely that increased efforts will be made to promote energy recycling. Many of the campuses are developing a policy focus on their state legislatures where many of the crucial energy decisions are made. Success on campus with energy recycling programs may embolden students to press for elimination of perverse incentives in state law that inhibit local generation and energy recycling and also penalize utilities that encourage conservation.

As Anne Hampson notes in an analysis done for the Climate Institute, there is a wide regional disparity in the US in the use of Combined Heat and Power (see attached Chart). New York and California have made extensive use of CHP; some other states relatively little. Generally the Northeast and Pacific Coast regions have proved most favorable to CHP. From a greenhouse mitigation standpoint Hampson suggests the Southeast might be a particular target as much of its fuel supply is coal, hence energy recycling from this source would produce an even greater greenhouse emissions reduction than from less carbon intensive natural gas. It is also true that the Southeast has a strong environmental organization, the Southern Alliance for Clean Energy (SACE) committed to large-scale greenhouse emissions reductions through innovation. A driving force behind the Southern Alliance for Clean Energy is John H. Noel, long-time Climate Institute Board Member. Generally efforts in Congress to create a Renewable Portfolio Standard (RPS) have had tough sledding with Southern legislators, as the region is so fossil fuel dependent. Inclusion of an Efficiency Allowance within an RPS as House Energy Bill 7210 provides, may make this more acceptable to Southern legislators. Subpart E orders the Administrator of EPA to develop an inventory of the waste energy potential by site, provides financial incentives in the first three years for recycling efforts and strikes down some state barriers, Subtitle G of the legislation would allow efficiency defined to include power from recycled energy plants to meet 27% of the Renewable Portfolio Standard (RPS) requirement. The RPS requirement for investor owned utilities would move up quite gradually, reaching 2.75 % in 2010 and 15% in 2020. At the moment a key issue is whether there will be enough votes in the Senate to bring energy legislation to Conference. This would require 60 votes for cloture to end an anticipated filibuster by proponents of the energy status quo.

As Casten points out, this status quo is hardly tenable. The last seven US Presidents have all called for US energy independence but in each Administration energy imports rose. Worse yet, the efficiency of the US electric power system has been on a plateau for the last 47 years -stuck at 33%. During this same time Denmark, the most successful energy recycler, has roughly doubled its energy efficiency (See Trend Slide above). This has not occurred because US engineers are inept or utility managers dunderheads. Instead it is due to a perverse financial incentive structure in the electric power industry. All 50 states regulate electricity in a way that magnifies the effect of changing electric sales on utility profits. The Regulatory Assistance Project found that a 5 % drop in sales of kilowatt- hours typically produced a drop of about 57 % in a utility's profits. Under such an incentive structure few utility CEOs can look out for shareholders' interests by giving more than lip service to conservation.

Casten has a number of policy prescriptions to topple barriers to energy recycling and to develop a more resilient electric power system:*

1. Allow local generators to build private wires to a limited number of retail customers, enough to transmit excess capacity. Alternatively, require commissions to set variable grid charges based on the distance the power will move and the relative tightness of the existing network. The rates employed in most jurisdictions charge all generators the average cost of moving power across the state, overlooking the locational value of generation, and inflicting unjustified costs on local generation.
2. Require grid operators to interconnect with backup generators, in return for the right to obtain power from those generators during extreme system peaks and emergencies. He points out that the U.S. standby generation fleet has a capacity equal to 12% of system peak, but very little of that generation is interconnected with the grid. When the grid is in severe crisis as happened in the Northeast and Midwest in August of 2003, several times in California, and more recently in France and Italy, interconnected standby generation could, he argues, help avoid brownouts and blackouts and save lives.
3. Require regulatory commissions to pay local generators for the benefits their plants provide to the grid, including saved capital costs, saved line losses, reduced pollution, and grid voltage support. Commissions rightfully expect local generators to pay for service provided by the grid, but rarely invert the analysis. A recent study conducted at the University of Massachusetts (Kosanovic et al., 2005) found that each kilowatt of new distributed generation installed in Boston would produce a net societal benefit of $351 per year, but a local generator is instead required to pay $114 per year for standby services. Casten claims that this represents a $465 penalty per year per kilowatt versus the net benefit to society created.
4. Make carbon savings from recycled energy eligible for 'green tags' and carbon trading credits. Many electric consumers voluntarily pay a premium for clean electricity but the choices are generally limited to renewable technologies; recycling of waste energy has the same net carbon consequences
5. Base pollution control regulations on how much power is produced rather than how much fuel is used. Such output-based (rather than input-based) standards would more better reward the efficient generators and force the wasteful to pay higher costs for their increased pollution.

Such movement to an incentive structure that rewards conservation and efficiency ought to appeal alike to ardent free market advocates and to the most fervent environmentalists. The status quo has persisted in part because some who profit from it have quietly lobbied to freeze out innovation and in part because the system is so arcane that few can fully grasp it. The US is fortunate in Tom Casten to have someone who has given us a Rosetta Stone to understand why we have been treading water in electricity efficiency for nearly half a century. Now with the financial backing of Gates, Harvard and other savvy investors and an awakening of legislators and environmentalists alike that we need to change our perverse power sector incentives, the Castens may cut the Gordian Knot.

* Casten's Recommendations are paraphrased from his Chapter in Sudden and Disruptive Climate Change: Exploring the Real Risks and How We Can Avoid Them, in press, Climate Institute: Earthscan, London

LINKS

Grist-Casten interview part 1

Grist-Casten interview part 4

Anne Hampson Paper for the Climate Institute: The Impact of CHP on CO2 Emissions in Heavy Coal-Burning Regions of the United States, November 2006.

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John Topping has been President and CEO of the Climate Institute since its founding in 1986. He is the editor of two volumes on climate change: Preparing for Climate Change (1988) and Coping with Climate Change (1989). From 1989-1990 he served as editor of the portions of the IPCC First Assessment Report concerning impacts of climate change on human settlement, industry, transport, energy, human health and air quality, and on impacts of climate and UV interactions and as Lead Author of the portions concerning impacts on human settlement, industry and transport.