Freeman Spogli Institute for International Studies Program on Energy and Sustainable Development Stanford University


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August 27, 2007 - In the News

Mike Jackson suggests carbon policies to guide energy projects towards cleaner technologies at times of high oil prices

The new dirty energy

Appeared in Boston Globe, August 19, 2007

By Drake Bennett

FOR THOSE WHO dream that high oil prices will help drive America toward a brave new world of clean energy, the MacKay River project in Alberta, Canada, offers a glimpse of the future.

The complex is a showpiece of cutting-edge engineering, wresting energy from beneath a swath of boreal forest. Under an unobtrusive spread of buildings, holes drilled at oblique angles free unprocessed fuel from the earth with jets of steam.

Thanks to government and private investment, the complex is providing more energy every year, and by 2020, Alberta as a whole is predicted to generate enough to replace a quarter of the United States's current daily oil usage. And as oil prices rise, projects like MacKay River become more and more cost-effective, and more popular.

The only problem: The thick, tarry petroleum that the Alberta project pulls from beneath that forest is far dirtier than oil.

Alternative energy wasn't supposed to look like this. For years, leading environmental thinkers have argued that high fossil fuel prices are good for the planet, driving investors and customers toward biofuels, solar power, and a host of new energy sources that will quickly become cost-effective.

But as oil prices stay high, the real beneficiary often turns out to be a very different alternative-energy industry, one focused on dirty fuel sources such as oil sands, oil shale, and coal. Environmentally speaking, the oil-sand plants of Alberta are no better than petroleum drilling, and in some ways decidedly worse. In North America, in terms of energy output, this so-called "unconventional oil" sector already dwarfs clean and renewable-energy technologies, and is poised to grow even faster in the next decade.

"To assume that high energy prices mean we'll switch to wind or solar or other renewables is simply unrealistic," says Amy Myers Jaffe, an energy expert at the James A. Baker III Institute for Public Policy at Rice University. "It only means that if we make that a concerted policy."

For the past two years, oil prices have been fluctuating around historic highs. Although $3-per-galllon gasoline may be frustrating to drivers, it has been welcomed by environmentalists and many economists, who see expensive oil as a crucial spur to the clean-energy business. In announcing last fall that he was dedicating $3 billion to fight global warming, the British billionaire entrepreneur Richard Branson said of high oil prices, "Thank God it's happened. . . .A high oil price is what we needed to actually wake up the world" to deal with climate change.

When oil is expensive, biofuels start to look more affordable by comparison, and investors start seeking ways to make them more affordable still. When natural gas -- used primarily for generating electricity -- is expensive, it adds to the appeal of wind and solar-generated electricity. The best-selling author and New York Times columnist Thomas Friedman, among others, has gone so far as to advocate an oil price floor to ensure that oil never gets cheap enough to undercut alternative energy sources.

In part, the expectations of Branson, Friedman, and others are starting to come true. Investments in renewable energy by governments, corporations, and venture capitalists have surged in recent years, driven in part by the cost of oil. A United Nations Environment Programme study released in June reported that, worldwide, $70.9 billion was invested last year in clean energy generation, about a third of that in the United States.

But these renewable sources still supply just a fraction of the world's energy needs, and many of them remain high-tech speculations. The best-known, like wind and solar, are for electricity generation, not vehicle fuel, the role oil currently plays. And according to Department of Energy figures, ethanol, the only widely available biofuel, currently meets only 1.6 percent of American vehicle fuel needs.

Meanwhile, the high price of oil has given a dramatic boost to a very different set of energy sources -- one of which is now generating fuel on a huge scale. These "unconventional oil" sources pull carbon out of the ground in forms that were once too expensive, or too technically difficult, to compete with cheap oil.

By far the most developed of these are the oil sands of Canada. A thick slurry of sand, water, and a hydrocarbon tar called bitumen, oil sands -- also called tar sands -- can, with enough processing, be refined into something very similar to the petroleum pumped out of the Saudi Arabian desert.

The discovery of tar sands in what would become northeastern Alberta long predates the internal combustion engine: Native Americans found the tar seeping from the ground and used it to caulk their canoes. Efforts to mine the sands for oil go back to the 1960s, but were never economically competitive with oil drilling, and the early mines struggled. No longer.

"With higher prices there's a terrific interest up there," says David Pommer, a spokesman for Chevron Canada, co-owner of one of Alberta's largest oil-sands mines.

Geologists estimate that Alberta's oil sands contain 1.7 to 2.5 trillion barrels of oil -- more than Saudi Arabia -- a few hundred billion of which are recoverable using current technology. (A similarly vast oil-sands reserve lies beneath Venezuela, but remains mostly undeveloped.) Already today, Alberta's oil-sands industry produces a million barrels of oil a day, most of which comes to the United States.

Environmentalists see this as a growing disaster. The oil in oil sands is not easily separated out, and the immense amounts of heat required are usually generated with natural gas, giving the oil-sands industry a greenhouse gas footprint much larger than the traditional oil business -- estimates range from 40 percent more to five times the emissions. The process also uses enormous amounts of water: a study by the Pembina Insitute, a Canadian environmental watchdog organization, found that, depending on the method of extraction, every barrel of oil produced requires 2.5 to 4 barrels of water, all of which is then rendered too polluted to return to the water supply. And most oil-sands operations are mines, not steam wells like the MacKay project, making them very disruptive to surrounding ecosystems.

Behind oil sands, two other "unconventional oil" technologies, at this point far less developed, wait in the wings.

One of them is oil shale, a sedimentary rock impregnated with solid bitumen. Three-quarters of the world's known oil shale deposits lie in the western United States, concentrated in Colorado, Utah, and Wyoming, giving the country an immense hidden oil reserve of around 1.8 trillion barrels. To extract the bitumen and turn it into oil, however, requires a massive amount of heat. Either the rock is mined, then crushed and cooked in huge pressurized caldrons, or the bitumen is melted out by physically heating the earth that holds it to temperatures above 600 degrees Fahrenheit.

Energy and emissions estimates for oil shale are hard to come by, since there are no large-scale production facilities, but the energy expenditure to cook the oil shale is likely to be considerable. Terry O'Connor, a vice president of Shell Unconventional Resources, insists that the company is looking at ways to cut down on both energy and emissions. "That's the reason we're still years away from making a commercial decision," he says.

An even bigger wild card is liquid fuel made from coal. The United States and China, the countries with the world's largest energy appetites, also contain the world's largest deposits of coal. While the basic technology to turn coal into fuel is nearly 90 years old, in the past it was too expensive to be anything but a last resort for fuel-starved countries such as Nazi Germany and apartheid South Africa.

A few firms in the United States and China are trying to use new technology to make the process economically competitive with oil, but again, the environmental costs are high. The favored coal liquefaction method today requires first turning solid coal into a gas at very high temperatures; combined, the production and consumption of coal-derived diesel releases roughly twice as much carbon into the atmosphere as traditional oil -- though various research efforts are underway to capture these emissions. It also uses more than a dozen barrels of water per barrel of fuel produced, according to a recent Department of Energy study. And coal mining takes a toll on landscapes and animal habitats.

The lesson for policy makers is that economics alone won't help solve the world's greenhouse-gas problems. The markets care about money, not the environment, so the most important alternatives to oil will be the biggest and cheapest, not the greenest.

What's needed, say many clean energy advocates, isn't just high oil prices, but high carbon prices. If fuels were taxed on their carbon content, climate change would be priced into the economics of energy production.

"If you have a carbon tax, or some other concerted carbon policy," says Mike Jackson, an energy analyst with Stanford University's Freeman Spogli Institute for International Studies, "then high oil prices drive industry toward clean technologies."

Otherwise, he says, "you're just going to see more people building these wacky projects that are a disaster for the environment."




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