A Bridge to the Renewable Energy Future
Renewables are coming fast. In the meantime, here's a largely overlooked but potent way to minimize fossil fuel use and the damage it causes.
Historically, Americans have been strong on big ideas, but not always so strong on the devil in the detail. So, for example, public officials looking for alternatives to imported oil have widely embraced corn ethanol, even though a range of studies assessed by the Natural Resources Defense Council and others show that corn ethanol has a nearly zero net gain in energy output, while taking a heavy toll on human food-producing capacity. Or, many of those looking for "energy independence" still embrace the John McCain mantra to "drill, baby, drill," perhaps because the notion of increased domestic oil output comes across as a manly defiance of the Middle-Eastern chokehold on our gas pumps. More domestic oil might be an attractive concept, except that the numbers say it would add nothing to our energy supply in the next 10 years and would never come close to replacing imports. (The U.S. Department of Energy estimates that U.S. territories, including coastal waters, have 3 percent of the known remaining global oil reserves.) That latter fact has provided Al Gore and others an opening for their claim that renewables, in contrast to more oil drilling, could bring America to full energy independence in a decade. But that claim, too, betrays an embrace of broad concept that isn't completely realistic about numbers.
What can renewables in the United States really do in 10 years? The Gore vision has been facilitated by the observation that renewables are growing spectacularly fast, much faster than any fossil fuel. But of course, that's percentage-wise, not in gigawatts or barrels of oil-equivalent. The hard truth is that renewables have started from such a tiny base that even with exponential growth it will take a long time for them to take over a large share of the work now done by coal, oil, and natural gas. The picture is also skewed by the fact that at present, the lion's share of renewable energy is provided by hydroelectric power, which cannot significantly expand. Virtually all of the U.S. rivers that have significant hydro potential are already dammed. The percentages of U.S. energy provided by the other renewable sources, as of 2006, were as follows: biofuels 1.4, windpower 0.8, solar photovoltaic (PV) 0.4, and geothermal 0.1. Of these, only the three zero-something resources are carbon-free (biofuels may add to supply, but also add to emissions).
Of course, emissions-free renewables have continued to grow fast since then, and the expansion will likely continue. President Obama has called for a doubling of solar power in three years. But even assuming that could be kept up for the next decade, it would still bring solar power to only about 13 percent of U.S. energy supply. Moreover, achieving the clean-energy future is not just a matter of expanding clean-energy production; it also requires massive rebuilding of infrastructure-the electric power grid, recharging stations for electric cars, retooling of car manufacturing, the factories to build next-generation batteries and fuel cells, expansion of public transit systems, and so on. Not all of this will happen as fast as the growth in solar PV capacity has been. The production of tellurium, an essential component of the most advanced thin-film PV panels, could become a major bottleneck, for example. Tellurium is very scarce, much scarcer even than platinum, and any limitation in the supply could put a drag on expansion of PV capacity.
However you figure it, the U.S. economy will still be heavily dependent on coal and oil 10 years from now, and for many years after that. Yet, in the meantime, the internal combustion engine-powered auto industry is plagued with overcapacity, coal is ravaging the climate, and global oil production is likely to peak and begin its terminal decline even as demand for it is expanding hugely in China and worldwide. So as demand begins to dwarf supply, fossil-fuel prices will rise inexorably during a period when renewables will not yet have the capacity to take over. What will happen in the meantime?
Recapturing Lost Energy
One answer to that question can be seen in one of the dirtiest corners of the industrial past. A few years ago, behind the gates of a large, rust-belt factory in East Chicago, Indiana, the world's largest steel company, Mittal Steel (now Arcelor Mittal), began using a facility that captured waste heat from one of its fossil fuel-burning processes and converted that heat to emissions-free electricity. The facility, called Cokenergy, heated coal to extremely high temperatures to make industrial coke, a key input to the steel-making process. But instead of blowing the residual heat into the air, as is done in conventional coke-making, the Cokenergy facility intercepted the heat to run a steam turbine to generate power, which in turn was used to provide power to the big steel plant next door.
Meanwhile, a few kilometers down the road, a rival company, U.S. Steel, was using a similar strategy to generate emissions-free power from waste blast-furnace gas. In 2005, between them, the two rust-belt rivals generated 190 megawatts of carbon-free energy from their waste-more than the entire U.S. production of solar photovoltaic electricity that year. That was just the waste from two fossil fuel-burning plants in one corner of one state. Those two steel plants were-and are-using a strategy that, if more widely exploited, could hugely increase U.S. clean-energy output without any increase in fossil fuel consumption. It's a strategy that one of its pioneers, electric power engineer Tom Casten, calls "energy recycling." It was Casten whose company developed the facilities that now turn waste to clean energy for both Mittal and U.S. Steel.
Environmentalists, guided by the principle that we live on a planet of finite size, have vigorously promoted recycling for the past three decades, and recycling materials-paper, metals, plastic, water, yard waste, engine oil, even municipal sewage-is now well established. Yet, curiously, recycling of energy, which is essential to the processing and use of all materials, has been largely overlooked. That may be in part because we all know that energy can't actually be "used up." But Tom Casten shrugs that off; his phrase gets your attention, and what he's really talking about is the harnessing of energy that in conventional industrial processes is not used but thrown out. A factory blows its waste streams of energy-rich, high-temperature heat or steam into the air or a river, or gets rid of its flare gas by flaming it into the sky. If you've driven along certain stretches of the New Jersey Turnpike or the Cancer Alley region of Louisiana at night, you've seen flare gas. Intercepting those nightmarish waste streams can add a huge boost to the U.S. production of affordable, carbon-free, energy. Waste-energy streams aren't a substitute for renewables, of course; the point is, we're going to need both. And energy recycling from fossil fuel-burning plants can help us make the transition to renewables much sooner.
Those waste-energy streams are a kind of Roman Empire artifact of American economic history. For Americans, energy has always been cheap, The first main source was wood, so energy literally grew on trees. With the Industrial Revolution, coal and oil also proved abundant, and as the machine economy scaled up, the cost of energy progressively declined. Ever since, Americans have taken it for granted that the energy needed to drive our ingenious technologies would always be either free or cheap. So unquestioned was this assumption that when the chairman of the Atomic Energy Commission, Lewis Strauss, famously promised in 1954 that "our children will enjoy in their homes electrical energy too cheap to meter," hardly anyone doubted him.
So the waste that poured from coal-burning trains or factories wasn't cause for alarm (and in fact was often seen as a sign of industrial muscle and progress), at least until the 1970s. Perhaps the oil embargo of 1973, when oil prices skyrocketed and economic output fell, should have been a warning that one of the key assumptions of mainstream economists-that economic growth would continue indefinitely, regardless of the price of energy-might be mistaken. But the alarm was quickly forgotten when the price of oil fell again. Energy waste (as distinguished from the energy efficiency of particular products or processes) never became an issue. In any case, the United States today operates at about 13-percent overall useful-energy efficiency. (Japan gets about 20 percent.)
That 13-percent figure may seem surprising to many, because we're used to hearing figures like "85 percent" efficiency for hot water heaters, or "10 times as efficient" for compact fluorescent light bulbs vs. incandescents, or "twice as fuel efficient" for hybrid cars vs. gas-burners. But the real numbers, as seen by a physicist or engineer, are more sobering. Again, economic history has played a role in our perceptions.
Back in 1973, when the U.S. Congress Joint Committee on Atomic Energy was holding hearings on energy, the committee requested that a report be prepared to summarize the situation for the legislators and the public. The resulting report, "Understanding the National Energy Dilemma," was impressive in its graphics but curiously lacking in scientific understanding. According to the report's author, Jack Bridges, the dilemma was that energy efficiency was already so high that most options for improvement had been exhausted-so demand for electricity was out-running supply, and hundreds of new nuclear power stations were going to be needed.
Ironically, the immediate problem was solved by the energy crisis of that year and the next (much as the 2008 spike in gasoline prices was knocked down by the worsening recession), which resulted in a sharp drop in the rate of growth of anticipated electricity demand. Most of those new nuclear power plants were never needed or built. But the most interesting part of Bridges' argument was his calculation of energy efficiency. Without any cogent explanation, Bridges claimed that the United States was utilizing energy with an overall efficiency of nearly 50 percent. This number seemed so implausible that one of us (RUA) undertook a comprehensive calculation based on physical principles, and found that the real efficiency of energy use in the U.S. economy in those years was actually about 10 percent. The disparity between that and Jack Bridges' figure is so large that we need to digress for a moment to explain it.
Efficiency is a slippery concept. On the surface it is a simple ratio between an output and an input. That is perfectly satisfactory as long as the inputs and outputs are measuring the same thing in the same way. In the case of energy, however, it is tricky because, as explained by the First Law of Thermodynamics, "energy" is actually conserved. That means that the energy exiting from any process or transformation is always equal to the energy going into the process. There is no gain or loss, so the efficiency must be 100 percent by definition. So, the first problem with the Bridges document (and almost all public discussions of energy) is that these discussions are not really about energy, but about the useful component, which they do not define. However there is a technical definition of useful energy, which is energy that can do useful work. The technical term is exergy.
The distinction between the simplistic "simple-ratio" measure of energy efficiency and the technical measure of real output (exergy) is typically ignored, for instance, by companies advertising the energy efficiency of gas hot water heaters or other equipment. They may claim that the heater is 85 percent efficient because 85 percent of the heat from the burner goes into the water and therefore only 15 percent is lost "up the stack." The arithmetic might be correct, but it is seriously misleading because it incorrectly implies that heat at a low temperature is just as useful (in the sense of being able to do work) as heat at a high temperature. The temperature of the gas flame in the heater is very high, around 1,800 degrees (Kelvin) above absolute zero, while the temperature of the hot water that emerges is only a few degrees above room temperature (around 300 degrees above absolute zero).
The correct way to measure efficiency is to treat both the input and output in exergy terms. The input (say natural gas) has a high exergy content because it burns at a high temperature, whereas the output (hot water) has a very low exergy content because it is only a little above room temperature (as compared to the flame heat). So, the real exergy efficiency of a hot water heater must be very low, in the sense that the same amount of heat produced by the flame could have done a lot more work than it actually ends up doing when you wash dishes or take a shower. In effect, the heater wastes most of the temperature difference between the gas flame and the water. In exergy terms, the efficiency of most water and space-heating systems was (and still is) only around 5 percent. In exergy terms, much the same problem applies to all of those early-and most subsequent-calculations.
The resulting misconception has persisted not just in equipment advertising but throughout the economy, and may be one of the reasons that the Bush/Cheney administration-and media-were so disinclined to see further efficiency gains as having anything more than marginal potential. They thought the country was already doing pretty well on that front. Ironically, that sanguine view was perpetuated not only by promotional literature for water heaters and other products, but by the modifications made by hundreds of businesses in the 1970s and '80s to reduce pollution to meet the Clean Air and Clean Water Acts-modifications which also had the benefit of reducing fuel use and thereby improving energy efficiency. Since then, thousands of industrial processes and products have been made less polluting and (slightly) more efficient. Yet, all along, the bulk of the nation's energy has continued to go up in smoke.
The view that America is becoming ever more energy efficient has been further reinforced, recently, by well-meaning and well-justified promotion of compact fluorescent bulbs, hybrid cars, and the like. However, a more disconcerting view is revealed by tracking the efficiency not just of the water heater or lightbulb or hybrid power train, but of the sequence of processes from the burning of primary energy materials to the final "energy service." The economy is becoming increasingly electrified (newspapers giving way to telecommunications, offices to telecommuting, and, soon, gasoline cars to more hybrids and then plug-ins), so the place to begin this tracking is with the electric power plants. A barrel of oil-equivalent (the natural-gas or coal equivalent to a barrel of oil) going into the power plant becomes, on average, one-third of a barrel of oil-equivalent (as electrical energy) arriving at the electric meter box. But then, to get the overall efficiency of the actual energy service, you have to multiply that 33-percent efficiency by the efficiency with which the consumer uses that delivered power, whether it's to turn on a light, drive a car, or run a manufacturing plant.
Everyone knows now that an incandescent lightbulb has very poor end-use efficiency in terms of lumens per watt, and that compact fluorescents are far better. But while fluorescent lighting gets about three times the efficiency of incandescent (about 15 percent vs. the incandescent bulb's 5 percent), when multiplied by the 33 percent of the power delivered to it (.33 x .15), the total efficiency of the compact fluorescent light is just 5 percent.
Similarly, we may be encouraged by the advent of plug-in electric cars, but while the average mechanical efficiency of an electric motor is around 80 percent (depending on size, speed, etc.), the charge-discharge cycle for the battery itself probably loses 20 percent each way, so a car using plug-in electricity from a 33-percent-efficiency central power plant might have an overall efficiency around 16 to 18 percent. That is a lot more efficient than a conventional gasoline-powered vehicle operating in city traffic, but still ends up letting five of every six barrels of oil-equivalent go to waste.
Then consider the payload efficiency you get when you drive a car. Set aside the question of whether it makes sense, in a country where energy is no longer cheap, to move over a thousand kilograms of steel in order to transport your 100 kilograms, or whatever you and your luggage or shopping bags weigh. The exergy efficiency of moving the car itself is about 10 percent, so the payload efficiency of what's being transported (assuming it's one-tenth the weight of the car) is about 1 percent. If you carry a second person, or have a lot of stuff in the back, the payload efficiency might be 2 or 3 percent. If the car is electric, you might get 4 percent. Some day, historians will shake their heads in wonder. Buses and trucks do a lot better on payload, but if you add up all the different kinds of energy use in the United States, the overall efficiency of producing useful work is just that 13 percent.
Barriers and Breakthroughs
For many years, the assumption of most industries that they were already operating at close to optimal efficiency, combined with the low cost of fuel for most of the past century, meant that as a public policy issue, energy efficiency was of only marginal interest except to environmentalists. Few people grasped that the country's energy efficiency was so poor and that there was so much potential for increasing actual energy service (lighting, heating, mobility, communications) without consuming more fossil fuel.
Tom Casten, however, saw this disparity between prevailing ideology and the physical reality as a business opportunity. About a decade ago, he formed an energy service company, Primary Energy. His idea was to approach industries that used coal, oil, or natural gas to fire their plants, and offer to capture their waste energy and turn it into electricity that was not only cheaper than what the plant was currently buying, but also produced no carbon emissions. If his company could produce 10 megawatts (MW) of clean electricity from the plant's waste, at a nicely discounted price (since the coal or oil had already been purchased for the plant's core business), that was also 10 MW that the local utility wouldn't have to produce by burning coal or natural gas.
One of Casten's first attempts to sell the idea was to a carbon-black plant in Louisiana. Carbon black is a petroleum-based product used mainly in making tires. In the late 1990s, the Massachusetts-based Cabot Corporation was the largest U.S. producer of carbon black. But the company was being hobbled by a worrisome pattern, which was to become increasingly familiar to U.S. industry during the following decade: While its foreign operations were thriving, its domestic production was barely profitable. In 1999, the situation significantly worsened as crude oil prices rose and the company's sales were undercut by rising imports of cheap foreign tires. Cabot needed a way to reduce costs. It was also under some pressure to reduce its air pollution, as making carbon black is an exceptionally dirty process that basically involves spraying oil particles into a flame. At its two Louisiana plants, Canal and Ville Platte, Cabot was emitting about 23 million kilograms of pollutants per year from its smokestacks.
Primary Energy proposed building a facility that would intercept Cabot's hot flue gas and convert it to clean electric power. An agreement was drawn up whereby the energy recycling facility would be built next to the carbon-black plant, which was emitting enough hot gas to generate 30 MW of electricity. The Cabot plant was using 10 MW, and it was currently purchasing that 10 MW from the local electric utility, CLECO, at a price of US$55 per megawatthour (MWh). In the proposed deal with the energy-recycling company, it was agreed that the needed 10 MW would now be provided by the recycling facility for $45 per MWh. By using its own waste to power its plant (waste out one door, power back in the other), Cabot would gain a double dividend: It would cut the cost of its Louisiana operation, improving the marginal profitability of its domestic production; and it would greatly reduce its embarrassing pollution output.
The only other principal condition was that since the recycling facility had a 30-MW capacity and would be selling just 10 MW back to Cabot, it would need another buyer for the remaining 20 MW. Because it would not have to purchase fuel to make power the way the utility did, it could sell power at a discount (as it would be doing for Cabot), and since every buyer likes a discount, the deal seemed pretty close to a slam dunk. As it happened, there was another carbon-black plant, Columbian Chemicals (a subsidiary of Phelps-Dodge), just across the road that, like Cabot, was currently buying its power from the utility for $55 per MWh and would be more than happy to buy it from the recycling facility for less.
There was, however, one problem. The law in Louisiana, and almost everywhere else in the country, does not permit anyone other than the utility monopoly to sell power. It was made clear that the only way the deal could work would be for the utility to serve as a middleman-for the recycling facility to send its extra 20 MW to the utility, which would then sell it to the buyer. Since the power would essentially go in one door of the utility and out the other, with no intermediate processing, the utility would incur only an administrative cost, which would be negligible. Ideally, the recycling facility could sell to the utility at $45 and the utility could sell to the buyer at $50 and still be passing along part of the discount the buyer would have had if the law hadn't prohibited a direct transmission across the road. You might think that CLECO would accept a windfall profit of around $5 per MWh for itself while helping to perform the public service of substantially reducing carbon emissions and other pollutants.
However, CLECO saw it differently. To them it was a loss of retail sales to both Cabot and Columbia Chemicals. Worse, it undermined their pending case to the public utility commission for building a new $50 million transmission line to serve the Canal and Ville Platte area, the cost of which could then be added to their rate base for the whole state. But the real problem with approving a recycling deal was that by reducing demand for power in that area of the state, the recycling facility would also undermine the utility's case for building future "central" power plants, the cost of which would also be included in its rate base. Why go along with a project that would reduce the state's fuel use, when it could hold out for an arrangement that would let it profit from increasing fuel use?
So, rather than agreeing to the opportunity for a win-win solution for the community, the utility said it would only pay $20 per MWh for the remaining 20 MW-a deal killer, since the recycling facility could not operate profitably at that rate and clearly couldn't undertake construction if that was all it would get. CLECO stuck to that price for a year, before raising its offer to $28-still far too low for the plan to work. After two more years, the utility raised its offer to $38, which was close but still tauntingly short of what would have worked. By this time, however, both Cabot and Primary Energy had reached the end of their rope and the project was abandoned.
Soon afterward, CLECO applied for-and quickly received-permission to build its hoped-for new central power plant, at least in part to provide the capacity that would have been provided by the energy recycling plant. The difference was that now that capacity would have to be provided by an additional supply of fuel burned at 33-percent efficiency, along with its commensurate power plant emissions. In the years since then, the Cabot facility has had to continue pouring its emissions into the sky instead of having them intercepted and turned into clean power.
The Cabot project failed-and hundreds of other projects that could have cut U.S. fossil fuel combustion and carbon emissions have similarly been scotched-because of institutional barriers, outdated laws, and pervasive misconceptions that have been kept out of public discussion. Among them:
- A fundamental weakness of the Public Utilities Regulatory Policy Act (PURPA), which was intended to encourage local competition in electric power production and distribution (including solar and wind), but which has failed to do so in part because the Act leaves it to individual states to enforce. Some states, including Louisiana (the number-one producer of petroleum products) have ignored it. The Act has no teeth.
- Regulated pricing that allows no credit to local producers of wind or solar power for eliminating the transmission costs of central power plants, or for producing electricity without generating carbon emissions. Even if you generate enough solar PV electricity to sell some back to the utility, there is no economic incentive to do so.
- The laws that in effect prevent electricity producers (such as Primary Energy, but also such as individuals or small businesses generating solar or wind power) from selling to willing buyers across the street. Utilities (and the public utility commissions that largely do their bidding) own unchallenged monopoly power over anyone (other than fellow utilities) who tries to compete with them. Small solar or wind entrepreneurs are priced out by law.
While Casten's Louisiana venture was effectively killed off, his initiatives in Indiana have succeeded because the power produced by the Mittal coking facility isn't being transmitted across any public streets; it's being sold to the adjoining Mittal Steel property. At U.S. Steel, similarly, the waste-stream energy isn't being sold to another company across town, but is only being used for in-house power. At a giant Kodak plant in Rochester, New York, waste process steam is used to make power for the company's own use.
There are roughly a thousand other U.S. plants already doing waste-energy recycling. In addition to the two aforementioned Indiana steel plants, they include 12 other steel plants. An Illinois-based company, Turbosteam, has built waste-heat recycling facilities for plants in the chemical, petroleum, pulp and paper, food-processing, textiles, and automotive industries, as well as well as for college campuses, military bases, prisons, and hospitals. At a huge complex in Rochester, New York, the Kodak Corporation generates its own electricity from waste process steam. At a West Virginia silicon-processing plant, West Virginia Alloys, a unit of Globe Specialty Metals, recently invested about $50 million to install a facility that will capture waste heat from its electric arc furnaces. The operation will provide over 40 MW of emissions-free electricity, offsetting about a third of the company's electric consumption. West Virginia Alloys president Arden Sims points out that this will give his company a competitive advantage over other silicon producers that typically vent their waste heat.
All told, U.S. waste-energy recycling is contributing about 10,000 megawatts of electric power to the national total each year, according to the latest available data. Yet, according to a recent study for the U.S. Environmental Protection Agency, more than 10 times that amount could be generated in 19 different U.S. industries just by recycling wasted heat. Most of it would be electricity replacing electric power currently purchased from coal- or natural gas-burning utilities. To put that potential in a broader perspective, we should note that waste-energy recycling of the kind we have been describing is a form of combined heat and power (CHP), which includes the even larger potential to be achieved by exploiting the waste heat emitted by electric power plants (see page 37). The heat from power plants can't be used to generate electricity because it is too low in temperature, but if the generation is moved to local production in the places where low-temperature heat could be used for heating homes and buildings, the largest single drain on U.S. primary energy could be largely eliminated. Data for CHP don't always separate out local-production CHP from high-temperature waste-stream recycling, but it is noteworthy that while the United States uses relatively little of either, both forms are now widely used in some other countries. One reason Arcelor Mittal was receptive to energy recycling in Indiana was that this technology is now widely used in northern Europe and Japan, where Mittal has other operations. Denmark now generates over 50 percent of its electricity by waste-energy recycling or CHP; Finland gets 40 percent, and Russia gets over 30 percent. U.S. industries have barely scratched the surface. The 14 steel plants recycling waste heat or flare gas, for example, constitute only 2 percent of the plants in the U.S. steel industry.
That brings us back to Tom Casten and his son Sean, who are entrepreneurs of the kind economists have in mind when they speak of "technological progress"-but who are acutely aware of the importance both of energy productivity and of the abundance of business opportunity in that realm. Businesses like theirs may benefit from government boosts, but as public awareness of the new energy paradigm grows, they'll also get stronger support from private investment. In 2006, the Castens set up a new company, Recycled Energy Development (RED). And in November 2007, RED announced that it had been approved to receive up to $1.5 billion in private investment from the Boston-based private-equity fund Denham Capital Management. Major investors included Harvard University and Bill Gates. Energy recycling had come a long way from its Louisiana fiasco.
The Recycled Energy Development announcement was not an anomaly. As atmospheric levels of carbon dioxide continue to rise-and as public concerns about the global energy dilemma also rise-private investment in the energy transition bridge may shift from tentative to robust. The key, as we have shown, is that in many cases, such investments can bring the double dividends of both corporate and social benefits, often with a rapid return on investment. That discovery "is allowing much bigger capital deployments than we've seen," said John Balbach, a managing partner at Cleantech Group LLC of Brighton, Michigan, at the time of the RED announcement. And as Riaz Siddiqui, a senior managing director at Denham, put it, "The exciting feature is reducing the carbon footprint of U.S. industry profitably."
If the energy content of all U.S. smokestack waste were recycled, it could replace about 30 percent of the electricity now produced by burning fossil fuels. Even so, energy recycling is just one of several high-potential strategies we know of that can reduce both fossil-fuel use and carbon emissions during the long transitional period ahead. Yet most of them have received little or no attention from mainstream media and policymakers. In a book to be published next January by Prentice Hall, Crossing the Energy Divide, we emphasize that none of these strategies depends on new or yet-to-be-developed technologies; all are well proven. Most are (quietly) being used profitably. Public discussion of them has been discouraged by utility lobbyists, oil-company advertising, talk-radio campaigns by oil-funded politicians such as Oklahoma Senator James Inhofe (the one who famously said "Global warming is a liberal hoax"), and by the historically entrenched inclination to expect that energy will always be cheap. Once these barriers have been cleared, the U.S. and global energy economies can establish a solid bridge to the day when renewables will substantially replace fossil fuels.
Robert U. Ayres is emeritus professor of technology and economics at the European business school INSEAD, in Fountainbleau, France. Ed Ayres is a former editor of World Watch. The brothers' forthcoming book will be published under the Whatrton School imprint of Prentice Hall.