The Environmental Defense Fund calls it a bridge fuel in the transition to renewables. The American Gas Association says that it's driving our country's economic recovery. Civil Beat has been covering it extensively and even NPR and Time Magazine have jumped on the media bandwagon. While a lot remains to be answered, one thing is clear: Liquefied Natural Gas (LNG) is coming to O'ahu. And with proponents saying it's cheap and clean, KIUC is currently doing its due diligence in looking at whether it is economically feasible for Kaua'i:
According to a 2012 report commissioned by the Hawai'i Natural Energy Institute, bulk LNG yields fuel savings of 40-50% compared to oil on Oahu, and 22-44% on the neighbor islands. LNG also has a lower carbon footprint on a smokestack basis, with roughly half as much Co2 emissions as coal and 25% that of oil… Besides potentially delivering substantial cost savings to the State, LNG is clean and flexible. It complements the growing share of intermittent renewable energy since gas turbines can be quickly ramped up and down.
Like all things too good to be true, there has been a lot of contention over the high infrastructure costs, the price and sourcing issues, and the environmental effects of fracking and emissions from LNG. Part of the problem, acknowledged by the media, the university researchers, and the utilities is that so much is undecided. It's not clear where the LNG will come from (Jones Act makes it difficult to find domestic sources), how it's going to get here, or what the actual emissions are (its extraction process is notorious for leaking unknowable amounts of methane). Because the figures are so debateable and have been covered so extensively in the media, for the purpose of this blog I'll take the State and industry's word* that it's cheap and clean.**
So, let's step away from that contentious debate and look instead at our energy objectives. Is there an economic or moral imperative to reduce our dependence on overseas fossil fuels? Is it our responsibility to minimize our contribution to climate change? Are we looking at what's best for the next generation? If those answers are "yes," then is LNG good for the future of Kaua'i?
The answer lies in amortized power plants and the economics of climate change. With that buried, wonky, and off-putting lede, I urge you to bear with me. Because what follows is vitally important for the long-term future of Kaua'i.
So, let's step away from that contentious debate and look instead at our energy objectives. Is there an economic or moral imperative to reduce our dependence on overseas fossil fuels? Is it our responsibility to minimize our contribution to climate change? Are we looking at what's best for the next generation? If those answers are "yes," then is LNG good for the future of Kaua'i?
The answer lies in amortized power plants and the economics of climate change. With that buried, wonky, and off-putting lede, I urge you to bear with me. Because what follows is vitally important for the long-term future of Kaua'i.
When a power plant gets built it's amortized over its life span and the customers (us) pay for that power plant with every unit of electricity that we consume. When we pay an electric bill, we're paying for not only the direct cost of fuel, but also all of KIUC's overhead. The extremely high cost of retrofitting for LNG (gasification plants, holding tanks, pipelines, new generators, etc) means that the per unit cost of that electricity is somewhere around 80% amortized overhead and 20% direct fuel cost. Because the infrastructure already exists for oil derivatives, the cost structure is reversed: 20% for infrastructure overhead (including amortized debt) and 80% for direct fuel cost. LNG is so cheap, that even with the extremely high cost for new infrastructure the total cost (overhead + fuel cost) still works out cheaper than oil and on par with renewable energy. Sounds good, so what's the problem?
You might remember from my post on climate change that if we want to keep climate change on the "safe" range of 2 degrees celsius, then we have a planetary budget of 565 gigatons of Co2, yet if the current reserves held by the major fossil fuel companies are burned, we will release 2,795 gigatons of carbon. What does that mean? That, at some point, we need to say "no" to new fossil fuel infrastructure. According to the best available climate models, that means that emissions need to peak in 2020 and decline by 10% per year until 2045. The longer we wait, the faster emissions have to fall. And, as you will see, retrofitting our island for the costly infrastructure of LNG will ensure that we will fail to make the timely transition to renewables.
The life-span for LNG generators are 35 years. Their high infrastructure cost gets amortized over the entire 35 years, regardless of whether we're using it. Remember, carbon emissions should start declining by 10% per year in 2020 and we need to reach full decarbonization by 2045. Yet, we will be paying for the LNG infrastructure well past 2050. Assuming that LNG stays cheap, it ensures that renewable energy won't compete because every unit of renewable energy will be bundled with the debt burden of the natural gas infrastructure. Because that is the crux of this entire piece let me say that again in different words: as we displace 10% of our fossil fuel infrastructure per year after 2020, the overhead for that infrastructure will fall on the new renewable energy products.
As a quick aside, let me clarify that the big problem with renewable energy is its inconsistency, so one unit of solar power is not the equivalent of one unit of fossil fuel generated base line power because clouds and nighttime stop the flow of electrons. So, when I put "renewable energy" in direct comparison with LNG I am talking specifically about hydroelectricity (including pumped storage) and biomass, which can provide power 24/7. If you're not thoroughly confused yet, then back to the argument.
Even if additional renewable energy is cheaper per kilowatt than LNG (when amortized over its lifespan), if it results in decommissioning our LNG infrastructure (as we start converting 10% per year in 2020) the renewable energy source will have somewhere around 80% tacked onto the price from the LNG infrastructure debt. And, because this is so important, let me give an example:
Imagine that you buy a car for $35,000 and plan to pay it off over 35 years with a 0% interest rate (your friend must be the bank manager). The only catch with this fantastic deal is that you can't ever sell the car. So, you're paying $1,000 per year for the car and every year, without fail, you drive 1,250 miles. Which works out to an overhead of $.80 per mile driven. Let's assume that Costco gas averages $3.50 per gallon over the next 35 years and your car gets 17.5 MPG-- so your fuel costs are $.20 per mile and total cost per mile cost = $1, which works out to $1,250 per year. Still with me? In ten years a solar powered car comes out. This car costs nothing to drive, but it's $43,500. Your friend at the bank again offers you 0% interest over 35 years, which works out to an annual payment of $1,243. So, you do the quick math and the new car will cost you a total of $.99 per mile driven-- one cent cheaper than your gas guzzler.
Cheaper and better for the environment, it's a no brainer, right? Except, remember the devil's bargain? You can't sell the original gas guzzler-- even if it sits idle in your garage you still have to pay it off. So, even though you would be paying nothing for fuel, the new solar powered car would cost you $1.79 per mile because you're sitting on the overhead for both cars. No matter how attractive renewable energy looks or how much you want to preserve a habitable planet for future generations, the outrageous overhead of owning both cars ensures that you stick with the gas guzzler. From an economic perspective, the solar powered car can only displace the fossil fuel car if it's less than 1/4 the price ($8,750 for the solar powered car-- or $.20 per mile driven). Whereas, if you avoid investing in the fossil fuel car to begin with, renewable energy can compete on even terms.
Replace the gas guzzler with LNG and the solar powered car with renewables and you get the point. If we adopt LNG, then conversion to renewable energy becomes economically untenable and we're stuck burning fossil fuels for the foreseeable future. As the most fossil fuel dependent state in the country, it would inextricably link us to unstable world markets and increase our contribution to climate change. The renewable industry, which has provided such an economic boom (and helped bring down electricity prices) to Kaua'i would stagnate as soon as it began to infringe on our LNG infrastructure. With high overhead and low fuel costs, homeowners with excess PV generation (in other words, lots of solar panels) will likely see their per KWH credit rates decrease (as the credit is based off the avoided cost of fuel). Decarbonization by 2045 would become virtually impossible.
But, since I'm just a blogger, please don't take my word for it. A report in the journal Climate Change reiterates the basic idea that a natural gas "bridge" to a stable climate would be very short:
* While it worked for the purpose of this blog, blindly listening to industry funded university reports is generally a very bad idea. For a relevant example, please read this article on how the "University of Oklahoma and its oil industry funders were putting pressure on OGS scientists to downplay the connection between earthquakes and the injection of fracking wastewater underground." Remember, fracking is the source of a lot of US natural gas.
** On a similar note, it's important to highlight the mis-direction of the HNEI info cited at the top: "LNG also has a lower carbon footprint on a smokestack basis, with roughly half as much Co2 emissions as coal and 25% that of oil." In UHERO's official report (cited just above), they clarify that "if considering only out-of-stack emissions (as required by the State of Hawaii's GHG emission reduction rules for the electric sector), then introducing natural gas lowers electric sector emissions in all cases. The State's law requiring emissions reduction (Act 234), however urges the minimization of 'leakage' or the export of emissions from Hawaii elsewhere…" And, when you look at total life-time emissions (from extraction to burning) natural gas has as much as twice the emissions of oil, (though, that is also debatable depending on the emissions time scale, as methane doesn't last as long in the atmosphere). This all goes to show that attempting to directly quantify emissions between LNG and oil is extremely difficult and the information is very easily misconstrued. However, UHERO ultimately concludes that "we find that introducing natural gas increases overall GHG emissions."
*** 450ppm is increasingly thought of as too high of a target to avoid the worst effects of climate change.
You might remember from my post on climate change that if we want to keep climate change on the "safe" range of 2 degrees celsius, then we have a planetary budget of 565 gigatons of Co2, yet if the current reserves held by the major fossil fuel companies are burned, we will release 2,795 gigatons of carbon. What does that mean? That, at some point, we need to say "no" to new fossil fuel infrastructure. According to the best available climate models, that means that emissions need to peak in 2020 and decline by 10% per year until 2045. The longer we wait, the faster emissions have to fall. And, as you will see, retrofitting our island for the costly infrastructure of LNG will ensure that we will fail to make the timely transition to renewables.
As a quick aside, let me clarify that the big problem with renewable energy is its inconsistency, so one unit of solar power is not the equivalent of one unit of fossil fuel generated base line power because clouds and nighttime stop the flow of electrons. So, when I put "renewable energy" in direct comparison with LNG I am talking specifically about hydroelectricity (including pumped storage) and biomass, which can provide power 24/7. If you're not thoroughly confused yet, then back to the argument.
Even if additional renewable energy is cheaper per kilowatt than LNG (when amortized over its lifespan), if it results in decommissioning our LNG infrastructure (as we start converting 10% per year in 2020) the renewable energy source will have somewhere around 80% tacked onto the price from the LNG infrastructure debt. And, because this is so important, let me give an example:
Imagine that you buy a car for $35,000 and plan to pay it off over 35 years with a 0% interest rate (your friend must be the bank manager). The only catch with this fantastic deal is that you can't ever sell the car. So, you're paying $1,000 per year for the car and every year, without fail, you drive 1,250 miles. Which works out to an overhead of $.80 per mile driven. Let's assume that Costco gas averages $3.50 per gallon over the next 35 years and your car gets 17.5 MPG-- so your fuel costs are $.20 per mile and total cost per mile cost = $1, which works out to $1,250 per year. Still with me? In ten years a solar powered car comes out. This car costs nothing to drive, but it's $43,500. Your friend at the bank again offers you 0% interest over 35 years, which works out to an annual payment of $1,243. So, you do the quick math and the new car will cost you a total of $.99 per mile driven-- one cent cheaper than your gas guzzler.
Cheaper and better for the environment, it's a no brainer, right? Except, remember the devil's bargain? You can't sell the original gas guzzler-- even if it sits idle in your garage you still have to pay it off. So, even though you would be paying nothing for fuel, the new solar powered car would cost you $1.79 per mile because you're sitting on the overhead for both cars. No matter how attractive renewable energy looks or how much you want to preserve a habitable planet for future generations, the outrageous overhead of owning both cars ensures that you stick with the gas guzzler. From an economic perspective, the solar powered car can only displace the fossil fuel car if it's less than 1/4 the price ($8,750 for the solar powered car-- or $.20 per mile driven). Whereas, if you avoid investing in the fossil fuel car to begin with, renewable energy can compete on even terms.
Replace the gas guzzler with LNG and the solar powered car with renewables and you get the point. If we adopt LNG, then conversion to renewable energy becomes economically untenable and we're stuck burning fossil fuels for the foreseeable future. As the most fossil fuel dependent state in the country, it would inextricably link us to unstable world markets and increase our contribution to climate change. The renewable industry, which has provided such an economic boom (and helped bring down electricity prices) to Kaua'i would stagnate as soon as it began to infringe on our LNG infrastructure. With high overhead and low fuel costs, homeowners with excess PV generation (in other words, lots of solar panels) will likely see their per KWH credit rates decrease (as the credit is based off the avoided cost of fuel). Decarbonization by 2045 would become virtually impossible.
But, since I'm just a blogger, please don't take my word for it. A report in the journal Climate Change reiterates the basic idea that a natural gas "bridge" to a stable climate would be very short:
Many have recently speculated that natural gas might become a "bridge fuel", smoothing a transition of the global energy system from fossil fuels to zero carbon energy by temporarily offsetting the decline in coal use… Yet global climate stabilization scenarios where natural gas provides a substantial bridge are generally absent from the literature, making study of gas as a bridge fuel difficult. Here we construct a family of such scenarios and study some of their properties. In the context of the most ambitious stabilizations objectives (450 ppm Co2), and absent carbon capture and sequestration, a natural gas bridge is of limited direct emissions-reducing value, since the bridge must be short…***And, a recent report on pathways to deep decarbonization in the United States highlights the danger of short-term thinking:
…to achieve emissions goals and avoid the costs of early retirement, it is critical to account for economic and operating lifetimes in investment decisions… For some important kinds of long-lived infrastructure-- for instance, power plants-- there is likely only one opportunity for replacement in this time period. Adding new high carbon generation creates infrastructure inertia that either makes the 2050 target more difficult to reach, requires expensive retrofits, or puts investments at risk.And, more directly related to Hawai'i, a report by the Economic Research Organization at the University of Hawai'i (UHERO) clearly states that:
...we estimate that importing LNG can reduce the amount of renewable energy adopted within the market. Particularly when natural gas prices are low, it crowds out solar PV… This suggests that LNG is unlikely to serve as a 'bridge fuel' unless policies protecting renewable energy adoption are enacted and/or enforced.David Roberts of Grist.com sums it up perfectly:
There's an argument to be made that a temporary shift to natural gas would positively affect the political prospects for clean energy; there's an argument to be made that it would offer an economic boost; there's an argument to be made that it would reduce non Co2 pollutants like soot and mercury… But there is no credible argument that a temporary switch to natural gas is a direct means to reach a safe level of carbon in the atmosphere. It is not. It's a hedge-the-bets strategy, a way to soften the coming blows. If we're serious about the welfare of future generations, we won't keep casting about for bridges. We'll screw up our courage and make the leap.Because oil prices are higher here than the rest of the nation, Hawai'i is at the forefront of renewable energy integration. So, our experiences (successes and failures) have a disproportionately large impact on the world. As other utilities across the world reach the same crossroads that we are at, they will look to Hawai'i for answers on how we are dealing with the renewable energy transformation. Which is why the decision on whether or not to double-down on fossil fuels is so important. LNG is the wrong answer for Kaua'i. Future investments, even if they cost more upfront, need to go towards renewable base-line energy sources such as pumped storage and hydro. If we can accept the basic science of climate change, then natural gas is a bridge to nowhere. But, as I've written before, we don't have the luxury of just saying no without viable alternatives. What are our options for decarbonization by 2045? Can renewable integration increase while prices continue to decrease? Both are questions for next time.
* While it worked for the purpose of this blog, blindly listening to industry funded university reports is generally a very bad idea. For a relevant example, please read this article on how the "University of Oklahoma and its oil industry funders were putting pressure on OGS scientists to downplay the connection between earthquakes and the injection of fracking wastewater underground." Remember, fracking is the source of a lot of US natural gas.
** On a similar note, it's important to highlight the mis-direction of the HNEI info cited at the top: "LNG also has a lower carbon footprint on a smokestack basis, with roughly half as much Co2 emissions as coal and 25% that of oil." In UHERO's official report (cited just above), they clarify that "if considering only out-of-stack emissions (as required by the State of Hawaii's GHG emission reduction rules for the electric sector), then introducing natural gas lowers electric sector emissions in all cases. The State's law requiring emissions reduction (Act 234), however urges the minimization of 'leakage' or the export of emissions from Hawaii elsewhere…" And, when you look at total life-time emissions (from extraction to burning) natural gas has as much as twice the emissions of oil, (though, that is also debatable depending on the emissions time scale, as methane doesn't last as long in the atmosphere). This all goes to show that attempting to directly quantify emissions between LNG and oil is extremely difficult and the information is very easily misconstrued. However, UHERO ultimately concludes that "we find that introducing natural gas increases overall GHG emissions."
*** 450ppm is increasingly thought of as too high of a target to avoid the worst effects of climate change.
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