U.S. Energy Policy

Worldwatch Live Online Discussion

Amory Lovins: Chief Executive Officer (Research) of Rocky Mountain Institute

April 26, 2002 - 12:00pm EDT

We are very happy this week to bring together two of the world's leading authorities on sustainable energy, Worldwatch President Christopher Flavin and Amory Lovins, a founder and currently Chief Executive Officer(Research) for the Rocky Mountain Institute. They will be online live on Friday, April 26 from 12:00-13:00 EDT (17:00-18:00 GMT). They will be taking your questions about U.S. energy policy, and a new "National Energy Policy Initiative" growing out of a bipartisan study convened by RMI. This study found that that the U.S. would be both more secure and more prosperous if energy policy focused more on energy efficiency, diverse energy sources, and investment in lower-pollution autos and electrical generation.

Christopher Flavin, Worldwatch Institute: I want to welcome Amory Lovins to today's Worldwatch web chat on the National Energy Policy Initiative. Amory, can you please explain the Initiative and its origin to our audience?

Amory Lovins: Nearly a year ago, my colleagues and I were concerned that the partisan polarization in the Senate would probably leave many important energy needs and constituencies unsatisfied. Rocky Mountain Institute therefore teamed up with another nonpartisan nonprofit organization, the Consensus Building Institute, to probe beneath the debate for lurking consensus. Our "policy wildcatters" found a gusher of hidden consensus.

The National Energy Policy Initiative (www.nepinitiative.org) reached a broad consensus on an energy vision, goals, and strategies that can meet America's needs without compromise or conflict.

The NEP Initiative's process was inclusive and transparent, run by two nonpartisan nonprofit organizations and funded at arm's length by seven foundations. Interviews with 75 diverse constituency leaders revealed broad common ground. On this, a distinguished bipartisan group of private- and public-sector energy policy experts built an integrated policy framework emphasizing what most Americans agree about-efficiency, competition, innovation, fairness. That synthesis was released to Congress on March 14 by Sen. Bingaman (D-NM) and Rep. Bartlett (R-MD). Offering practical, innovative ways to create "an energy system that will not run out, cannot be cut off, supports a vibrant economy, and safeguards our health and environment," its widely shared ends and win-win means can command wide support.

Already, 33 senior energy experts have endorsed the NEP Initiativ'policy framework. Half are or were senior energy-industry executives. Other'ackgrounds include two Presidential advisors, two Deputy Secretaries of Energy, five Subcabinet officials (Energy, State, Defense, Commerce, EPA), a CIA Director, two senior staff economists from the Presiden's Council of Economic Advisors, chairmen or members of two Federal and three State energy regulatory commissions, and a House energy leader. Their wide political spectrum makes their message especially timely for a fractured Senate.

Christopher Flavin, Worldwatch Institute: Amory, Can you describe the group of paticipants in the initiative and their key recommendations?

Amory Lovins: There were 22 participants in the Expert Group. (Another half-dozen were unable to come at the last minute due to flu or other emergencies.) They represented a wide range of political opinions and had a strongly private-sector flavor. We sought people who were deep students of energy policy and had spent the past 20-30 years learning what works. Deliberately, we didn't include serving public officials or employees of advocacy organizations, although many of both had previously been interviewed.
The key recommendations are all in the concise 17-page Expert Group report at www.nepinitiative.org. They're in four highly integrated areas -- Transportation and Mobility, Electrical Services, Energy Security, and Climate. There are strong synergies between these. I'm reluctant to try to summarize the goals, strategies, and suggested policy initiatives because I'd have to leave out so much substance as well as flavor, but it's an easy read.

Avon, CT: Please comment on the good and bad aspects of the recently passed Senate Energy bill. What are the prospects for a join energy bill this session?

Amory Lovins: This is a very complex question. There are plenty of both good and bad aspects, although the Senate legislation is in my view much more sensible than the House version. It's hard to see how a conference committee -- probably after quite a while, perhaps this autumn -- will be able to reconcile them. The more the result looks like a trainwreck, the more important it will be to start rebuilding around the kinds of common ground identified by the NEP Initiative. The more the nation focuses on what most people agree about, the less necessary and important will be the things they don't agree about.

Christopher Flavin, Worldwatch Institute: Amory, How do you explain the fact that the Senate energy bill that was just passed is at variance with many of the policies outlined in your initiative?

Amory Lovins: Our findings were published only on 14 March. We hope they will help to inform the debate in both Houses, but their primary aim was to help rebuild a sensible energy policy once all the titanic lobbies have battled each other to a draw (or to incoherence).
We have been very pleased with the bipartisan response to our work. We believe that response will grow further as more Members, and more members of the general public and of particular constituencies, get a chance to find out about and read our work. (So far it has received little press attention: perhaps consensus isn't considered as newsworthy as conflict.)

Bingham Farms, MI: How do you feel about the RPS included in the Senate Energy Bill? It is technology neutral and would strongly support renewables, but does so via a government mandate.

Amory Lovins: I'm not as expert on RPS as many of my colleagues, but can argue this one both ways. There are strong reasons -- national security, diversification, development of next-generation supply industries, etc. -- to use this form of policy instrument. One worry is that it will be endlessly diluted by bizarre legislative or administrative decisions (as under PURPA, when the Reagan administration, as I recall, ultimately defined waste coal as waste rather than as coal, hence treatable like a renewable source). It's also noteworthy that a least-cost-and-risk portfolio of supply options should include some renewables, even if they cost more, for exactly the same reason that to get the best risk/reward performance, a financial portfolio should include some riskless but lower-yield Treasury debt. Many private-sector actors, being unschooled in financial economics, don't yet grasp this point.

Moraga, CA: Given the disconnect between the current energy bills passed by the House and Senate and the policy you outline, how can your ideas be accomplished?

Amory Lovins: If the disconnect leads to a legislative logjam or at least a clearly unsatisfactory result -- one that doesn't squarely address problems that are bad and getting worse -- then the broad center of common sense, in the Congress and in the public, may find it noteworthy that such a diverse and distinguished group of energy policy experts has already laid the groundwork for a consensus-based, practical, and visionary energy policy. The more you all spread the word, the more likely this is is to happen timely.

Fayetteville, Arkansas: I'm a physics professor at the University of Arkansas. Do you think that we science educators are currently doing enough, at either the public school level or the university level, to further America's understanding of energy problems? What should science teachers be going toward that goal?

Amory Lovins: You may personally be doing a lot, but I agree there's a lot of missing pedagogy. Much of the teaching at all levels in this field serves special interests or is badly out of date. I'd suggest looking at Hunter Lovins's and my articles "Mobilizing Energy Solutions" and "Energy Forever" in the 28 Jan and 11 Feb 2002 *American Prospect*. Annotated versions are free at www.rmi.org. They're our current best synthesis of what's going on and what should happen next.
A good pedagogic exercise is to trace back from the lamp to the coalfield, from the car to the oilfield, from the stove to the gasfield, etc. -- i.e. structure field trips (if it makes sense where you are) to help students understand by direct observation where our energy comes from and where its side-effects go. It's also fruitful to do the same for water, wastewater, etc. Follow the pipes and wires: the resulting insights are often surprising.

Ontario, Canada: Does solar-generated hydrogen power for vehicles figure in the consensus you see building? Solar-generated hydrocarbons would seem to require fewer technical breakthroughs.

Amory Lovins: Yes, strongly. The Administration's FreedomCAR initiative could indeed be a strong step in this direction if (and only if) it builds on what PNGV, and the proprietary programs it stimulated among automakers, learned about making very lightweight and low-drag cars. FreedomCAR will be a bust if instead it simply drops fuel cells into heavy, high-drag cars. I'm told that's not the intention. We shall see. In fact, the sort of direct-hydrogen-fuel-cell uncompromised midsized SUV at a competitive price that FreedomCAR aims to develop over the next 10-20 years was already designed by Hypercar, Inc. in eight months of 2000 for a few million dollars; see www.hypercar.com.

"A Strategy for the Hydrogen Transition" is posted at www.rmi.org. This 4/99 National Hydrogen Association paper shows how to get from here to a hydrogen economy, profitably at each step, starting now. It's already starting to be rapidly adopted by major energy and car companies. The convergence on this approach is very gratifying. It has two keys: make the car ready for the hydrogen, by making the car ~3x more efficient, so the fuel-cell stack is 3x smaller (hence affordable) and the H2 tanks are 3x smaller (hence packageable). That's what Hypercar, Inc.'s "Revolution" concept SUV did. Second, integrate deployment of fuel cells in mobile and stationary uses so each helps the other happen faster.

Actually, while "solar-generated hydrocarbons" -- by which I presume you mean sustainably grown biofuels -- are attractive and will play an important part, especially to run efficient Otto and Diesel engine hybrids, no breakthroughs are required for a direct-renewable-hydrogen economy. Hydrogen is already a large and mature industry, using 5% of U.S. natural gas. Sandy Thomas at h2gen.com has shown lately that a H2 refueling infrastructure based on miniature natural-gas reformers is less capital-intensive than just sustaining the existing gasoline fueling infrastructure. Our NHA paper also describes a number of climate-safe but profitable routes to a H2 economy. The BP/Princeton project on carbon management is also finding some very encouraging indications that in the long run, it may even be cheaper to make H2 from coal than from natural gas, with carbon sequestration in both cases. In general, one can already show that for fluid hydrocarbons (natural gas and oil), and typically for carbohydrates too, the hydrogen is worth more without the carbon than with the carbon!

Port Hope, Ontario, Canada: What is your opinion on Fusion for clean energy, especially the International Thermonuclear Experimental Reactor (ITER) proposed by Russia, Japan, France and Canada?

Amory Lovins: Bad idea. No known approach to fusion shows promise of being much cheaper than fission, which is grossly uneconomic on the margin. Moreover, any seemingly feasible fusion cycle is likely to emit copious 14-MeV neutrons that pose both activation (hence waste) and proliferation concerns. For the simpler cycles, tritium and lithium safety are also issues. I'd treat fusion as experimental physics to help understand plasmas, not as a potentially practical and competitive energy source. We already have lots of those. Yet another costly, complex, centralized way to make large blocks of electricity is not a sensible solution to the energy problems we have.

We already have a magnificently engineered, free, safe fusion reactor. It's appropriately sited -- 150 million km away. One is enough.

Christopher Flavin, Worldwatch Institute: Amory, Your initiative highlights the central importance of improved automotive fuel economy in improving the country's energy situation. Do you think CAFE standards are the best way to achieve this goal, and since Detroit has done a pretty good job of killing them off for now, do have other policies that might have a dramatic effect--and be more politically feasible?

Amory Lovins: For 20 years, car companies have called for higher gasoline taxes and oil companies for stiffer CAFE standards. Both are sufficiently powerful that nothing happened.

The NEP Initiative suggested a workaround that could be a win-win: accelerated-scrappage feebates. When you buy a new car, if it's inefficient, you pay a fee, but if it's efficient, you get a rebate, both on a sliding scale. It's revenue-neutral: you tune it up each year so the fees pay for the rebates. Then, preferably, your rebate for buying an efficient new car is based on the DIFFERENCE in efficiency between the new car you buy and the old car you scrap...so Detroit can sell more cars into the market niche newly vacated by premature scrappage of the least efficient cars. (If you scrap an inefficient car and don't replace it, you should also get a bounty.)

Another potential workaround is simply to engineer cars so superior that people buy them because they're BETTER, not because they're clean and efficient -- i.e., as people buy digital media instead of vinyl phonograph records. Current policy assumes, from economic theory, that efficiency must be traded off for other attributes, so a car that's very efficient must supposedly also be costly, squinchy, sluggish, or unsafe, so policy intervention is needed to induce people to buy such an unattractive product. Hypercar, Inc. (www.hypercar.com) has clearly shown that this assumption needn't be true. The sooner automakers adopt this engineering-based approach, the sooner we can all abandon the CAFE-vs-fuel-taxes debate and get on with rebuilding a vibrantly competitive auto industry.

Neskowin, OR: What tax incentives are you recommending for small scale, privately owned renewable energy production? What is the likely policy to come out of the joint resolution energy bill?

Amory Lovins: The NEP Initiative did not get into details of legislative drafting; it dealt with the next level of up of objectives, principles, and broad content. It suggested a level playing field -- full and fair competition, neutral as to technology, scale, or ownership. It suggested internalization. (Today's windpower production tax credits are meant to help compensate for the large subsidies currently given to competing electricity generators and fuels.) I think the group would prefer to have no subsidies and honest prices.

I'll be personally surprised if a conference committee gets very far, since the House and Senate bills are almost from different planets. But we'll see. To the extent the Houses of Congress can agree, they'll still leave much of the work undone, and the consensus-based core of the NEP Initiative findings more promising than ever.

Houghton, Mi: I am a student on Michigan Tech University and we are currently discussing the debate in the Senate about oil drilling in the ANWR. What do you feel should be done about this situation and does this fit into your iniative in any way.

Amory Lovins: My personal view is that the majority of the Senate was wise to reject drilling in the Refuge. The real show-stopper was national security -- the scary vulnerability of the Trans-Alaska Pipeline System (which caused former CIA Director Jim Woolsey, a normally oil-friendly Oklahoman, to speak out against it). The next big issue is that the oil would be so costly (per USGS) that on the State of Alaska's or almost anyone else's price forecasts, there's probably no economically recoverable oil there anyway -- which is why the oil majors aren't interested in investing their own money there. It's simply uncompetitive with the other prospects in their global portfolios. Next come environmental, human-rights, and international-treaty issues. These arguments are written up in our article "Fool's Gold in Alaska" (originally titled "The Alaskan Threat to National Energy Security"), *Foreign Affairs*, July/August 2001. The article and a thoroughly annotated version of it are both posted at www.rmi.org. So is our 1981 Pentagon study *Brittle Power: Energy Strategy for National Security* and related readings.

The NEP Initiative didn't specifically discuss Refuge drilling, but did make clear that such inherently disruptible and unreliable sources were imprudent, and that cheaper oil-saving technologies should be adopted first. Our *Foreign Affairs* article described ~54 Refuges' worth of identified oil-saving "reserves" at less than a sixth the cost using mid-1980s technologies; today's options are even bigger and cheaper.

The Expert Group also emphasized that domestic energy sources are no more inherently secure than imported oil: one must examine the security of the whole supply chain, from oilfield to final customer. And even if all our oil supply were domestic, we'd still be vulnerable to volatile world oil prices, because the US is a price-taker in a global market. The priority is therefore to use less oil. The US has already doubled its oil productivity since 1975, but only scratched the surface of how much oil efficiency is available and worth buying. During 1979-85, GDP grew 16%, oil use fell 15%, and Persian Gulf imports fell 87%. We can do that again, in spades, and at a profit.

Chris Flavin Worldwatch Institute: Amory, It has been a bit depressing to see the U.S. fall so far behind Europe in wind energy development in the last decade. Do you have recommendations for accelerating US renewables development? Fixed minimum prices seem to have been the key in Europe, which is the same approach followed in the Senate bill's provision for the Alaska/Canada gas pipeline. Does your initiative have some specific recommendations for renewables?

Amory Lovins: Much of the US wind problem is that Congress messes with the tax credit every year, generally slowly (e.g., it just expired from end 2001 to March 2002, when it was retroactively renewed), making project financing difficult or impossible. This has already bankrupted the main US wind companies. Longer-term policies are essential. The European buyback prices are one approach (though the German ones sound rather high to me). Recognizing wind's many "distributed benefits" would help even more: e.g., selling windpower not just as commodity kWh but as a *constant-price* resource that reduces financial risk. (To compare wind with e.g. combined-cycle gas, one must roughly double the present value of the gas cost stream to reflect proper risk-adjusted discount rates, because historic gas-price volatility corresponds to a ~5-6 percentage point risk premium.) RMI's mid-2002 book *Small Is Profitable: The Hidden Economic Benefits of Making Electrical Resources the Right Size* describes ~130 distributed benefits that collectively increase economic value by typically about 10x. Windpower has many of those attributes, and if they're properly recognized in the market and in policy, no subsidy should be required.
By the way, the latest windfarms, net of the ~1.7¢/kWh tax credit, are already edging under 3¢/kWh at the busbar -- a very attractive price, especially when you realize it'll never go up.

Chris Flavin, Worldwatch: Amory, I want to thank you for joining the Worldwatch web chat today, and ask you one final (hard) question. If the combination of 911, a new Israeli-Palestinian war, and the warmest winter ever recorded can't inject real political urgency into the special-interest dominated Senate energy debate, what will? Thanks Amory--and good luck with your important work!!

Amory Lovins: Ultimately we get the political leaders and the policies that we deserve. If we don't like the ones we're getting, we need to work and vote for different ones. Educating all those within our sphere of influence, and setting an example in our personal choices, is the best place to start.

Remember that however unresponsive government seems at times, it's only one of three major poles of power and action in the world. The other two are business and an Internet-empowered civil society. Those two -- increasingly in fruitful collaboration, and strongly linked by individuals' expressions of market preferences -- are often more effective and flexible than government. Let's work on all three poles, not just one!