Tackling Global Warming in a More Sensible Manner?

Making rational decisions on global warming has become incredibly difficult. The discussion taking place has been warped by politics and complicated by a polarizing debate between those who believe the problem is real and those who believe it is not. That famous New York Yankee, Yogi Berra, once said, "you can observe a lot by watching." What I am observing is that attempts to cut carbon emissions by the international community as a solution to global warming simply are not working and most likely will not work. Promises in Rio de Janeiro in 1992 to cut carbon emissions went unfulfilled. In Kyoto in 1997, world leaders promised to cut greenhouse gas emissions by 5.2% below 1990 levels by 2010. This target was missed by almost 25%. Many policymakers this past December in Copenhagen were calling for 80% cuts over current levels by 2050. As we all know, this was dropped and Copenhagen ultimately was a dismal failure. Clearly, little progress is being made by the international community in trying to cut carbon emissions to resolve the global warming problem!

It has been estimated by economists at the Economic and Social Research Institute in Ireland that using carbon cuts to limit the increase in global temperature could reduce world GDP by almost 12.9% in 2100 and cost as much as $40 trillion annually. At the same time, the majority of economic models suggest that unconstrained global warming could cost rich nations approximately 2% of GDP and poor countries about 5% by 2100. It is not difficult to see that the equation is not balanced! Even if all industrialized nations could somehow succeed in meeting the drastic carbon emission cuts, it would come at a hugh sacrifice to prosperity. It would seem the solution appears to be far more costly than the problem. Or put in another way, perhaps the cure could actually be more painful than the illness!

The question that needs to be asked is whether there may be another, more sensible way to respond to climate change. Dr. Bjorn Lomborg, Director of the Copenhagen Consensus Center in Denmark, believes there is and what he is saying deserves consideration in my view. First, let me say that Dr. Lomborg believes global warming is a serious, man-made problem. However, before staggering sums are spent that will in his view do little to address the problem, he believes we should consider alternatives that could cost far less and achieve far more. Perhaps at the risk of over-simplification, I will attempt to paraphrase in more detail what Dr. Lomborg believes. It is my understanding he believes: (1) it is not necessary to drastically and at significant cost cut carbon emissions to achieve no more than a 2 degrees Celsius global temperature increase by 2100 - moreover, he does not even believe it is possible; (2) we should continue doing what can reasonably be done using much less expensive policies to reduce carbon emissions such as improving energy efficiency and switching to renewable energy sources; (3) we should directly address today the potential problems that may in the future be created by global warming; and (4) we need to dramatically increase funding for non-carbon energy R&D through international agreement and eventually the results of this research will allow us to shift away from carbon-heavy energy much faster.

One of the points I find most interesting is (3) above - addressing the potential impacts of global warming today as opposed to trying to prevent it in the future! Dr. Lomborg, for example, points to the possible extinction of the polar bear due to melting of the ice caps. His studies suggest that implementation of the Kyoto Protocol could save a few bears a year in the future; however, if the global community decides to stop hunting the bears (or limit the hunting), nearly 300 could be saved now. Furthermore, models suggest that global warming could put 3% more of the earth's population, principally in third world countries, at risk of catching malaria, for example, by the end of the century. When Dr. Lomborg looks at how much money would need to be spent by developed countries to save these lives in the distant future, he believes it will be much more effective and make much more economic sense to combat malaria, malnutrician, or communicable diseases today. For $3 billion today - 2% of the annual cost of the Kyoto Protocol - we could invest in mosquito nets and medicine and cut malaria by half within one decade. Dr. Lomborg also believes that tackling hunger through climate change policy is amazingly inefficient. On one hand, for $180 billion each year, Kyoto Protocol carbon emission cuts could reduce the number of hungry people globally by 2 million by the end of the century. However, according to Dr. Lomborg, $10 billion spent today on direct malnutrician-reduction could save 200 million people now! He uses the example that it is amoral to build a dam to avoid flooding in 100 years when people living there are starving today! Certainly, by helping communities become stronger today, they will be better able to prepare for global warming tomorrow. One interesting last point worth noting is that in Dr. Lomborg's view, the benefits of moderate fossil fuel use at this time vastly outweigh the costs. Fossil fuels provide low cost light, heat, food, communication and travel. For example, carbon has powered substantial growth in China and India, allowing millions to escape poverty.

The bottom line is that with limited resources, perhaps we need to ask ourselves whether carbon cuts should be our top priority. Perhaps we might want to re-think the best approach to dealing with global warming and try to use more common sense. Perhaps we should not rush to solve the problem, particularly since the solution comes at extraordinary cost and risk and significant impact on world prosperity. Let us not forget too that there are still many reputable scientists who do not believe that reducing man-made greenhouse gases will really have any impact as the real culprit is mother nature. Perhaps it does make sense to address today the potential future impacts of global warming, while more effective approaches are supported or developed which should ultimately resolve the issue anyway. Let us not forget what Yogi Berra also said, "you've got to be very careful if you don't know where you're going, because you might not get there."

Energy Solution Gains More Credibility

The proposed energy solution discussed in my January 13, 2010 blog is gaining more credibility. Witness the course Progress Energy (formed in 2000 by Carolina Power & Light and Florida Progress) is taking. Late last year, the company announced it would close 11 coal-fired plants by 2017, representing 30% of its coal-powered electrical generation in North Carolina. The company also announced plans to spend $900 million to build a natural gas-fueled generation facility rather than spend $330 million cleaning up emissions from a 397 MW coal generating plant. In the next two years, Progress Energy is also looking to spend somewhere in the range of $1.4 - 2.1 billion for initial work to build two nuclear generating units in North Carolina and another two in Florida, enabling it to shut down even more coal-fired units. The company is clearly focusing now on shifting to nuclear and natural gas-fired plants.

'

AEP, one of the largest electric utilities in the country which generates about 75% of its electricity from coal, is also making changes to reduce its dependency on coal. AEP owns 5,000 MW of coal plants that are 40 years old and older, plants that would be too costly to retrofit to meet carbon capture requirements. By approximately 2013, AEP expects to add 4,790 MW of natural gas generation and 2,200 MW of wind capacity. AEP management has indicated that they will not propose another coal-fired plant until a commercially viable answer exists for carbon capturing and storage.

'

In the near-term, the energy solution staring us in the face to reduce greenhouse gas emissions is moving heavily into natural gas for power generation, while at the same time aggressively promoting energy conservation and efficiency and the use of renewable forms of energy such as wind and solar. In this same period to further reduce greenhouse gas emissions and our dependency on foreign oil, motor vehicles need to become much more energy efficient and a significant shift to alternative vehicle power systems such as hybrid electric or natural gas must take place. It all seems so obvious!

Is an energy solution for the country staring us right in the face?

This past year, based upon the latest estimation on the amount of recoverable natural gas in shale formations, natural gas reserves have jumped significantly to more than 2,000 trillion cubic feet. To put this in perspective, this amount of natural gas would be able to fuel five hundred 1,000 MW power plants for their entire 50 year lifetime! The advantages associated with natural gas fuel usage in power plants are many. First, the cost of these power plants is less than half that of coal-fired plants. Second, they can be built much quicker. Third, and most important in this time of concern about greenhouse gases and climate change, they would emit almost half the greenhouse gases for the same amount of power generation.
'

In my opinion, the energy solution is staring us right in the face. Clearly, U.S. energy policy first and foremost should seek to maximize energy conservation and efficiency efforts wherever it makes economic sense to do so. Americans clearly waste far too much energy and this must cease. Second, the U.S. must reduce its reliance on foreign oil imports, particularly from countries that have the capability to hold the country hostage. The U.S. today imports about 10 million barrels per day, of which approximately 30% comes from the Persian Gulf region and Venezuela. Much of this oil is used to fuel the nation's 250 million cars, trucks and buses. Third, greenhouse gas emissions need to be reduced to the maximum extent reasonably possible. As part of the global community, the U.S. has a responsibility to take a leadership role in responding to climate change and the international efforts directed at reducing carbon emissions.

'

These three goals could be achieved using a rather obvious three-pronged strategy. First, and most important, would be for government regulators to vigorously promote energy conservation and energy efficiency. Fortunately, this is already underway. The second prong would involve the aggressive transition to a nuclear energy-based economy for base-load power generation using advanced technology that would minimize the amount of nuclear waste generated. Unfortunately, this would take considerable time, estimated at upwards of 40 to 50 years. Therefore, we would need to do something in the transition. This is where the third prong comes into play. In the transition, it would make sense to require all new and replacement power plants to be combined-cycle natural gas-fired plants. Some utilities have already committed to this path. Florida Power and Light (FPL), for example, has already converted its older oil-fired power plants, such as the Fort Meyers and Sanford plants, to more efficient natural gas combined-cycle technology. Three new power plants, West County Units 1, 2 and 3 in Palm Beach County will also use this technology. In the transition to nuclear, we would also want to expand at coal-fired power plants the role of peaking units, most of which are fired by natural gas. It has been estimated that these units could meet as much as 40% of the country's electricity need if they were used to replace coal-fired baseload capacity. It also would make sense in the transition to encourage and expand the use of natural gas and electric powered vehicles. Already, a number of states and government agencies are promoting their use, as are a number of utilities such as AT&T, which actually has the largest fleet in the country running on compressed natural gas. Finally, the use of renewable energy sources such as wind and solar should also be promoted and encouraged in the transition (as they currently are today); however, these are not expected to be significant contributors to the energy solution, and their economic viability without government incentives is already being questioned. The advantage of this three-pronged strategy is that the by-product would be greatly reduced greenhouse gas emissions.

'

Alas, and unfortunately there are a number of forces working against this rather obvious energy solution. There is the political influence generated by coal-producing states and the unions representing coal miners, who would most certainly fight aggressively against any reduction in the use of coal. Their argument usually focuses on the hugh amount of coal we have in this country (more than 500 billion tons of proven reserves, with only about 1.1 billion tons extracted annually, most of which goes to produce electricity) and the fact that technology is being developed that can significantly reduce greenhouse gas emissions at coal-fired power plants (albeit, at the expense of plant efficiency). Moreover, the technology would be much more difficult to use at natural gas-fired power plants (because of the much lower carbon dioxide concentration in the flue gas) and it is therefore unlikely the technology would ever be used there. Hence, the argument can be made that in the long run coal-fired power plants with carbon dioxide emission control systems would actually produce less carbon dioxide than the uncontrolled natural gas-fired power plants.

'

Then there are the environmental activists who have long fought against the use of nuclear energy, and who are now fighting the development of natural gas shale-producing formations, expressing concerns about possible groundwater contamination from the chemicals used to hydraulically fracture the shale. Extracting natural gas from shale formations involves blasting water (more than 98%) mixed with chemicals (less than 2%) into rock at high pressure, which causes the gas to flow out. In my view, the concern about groundwater contamination is difficult to understand. Shale gas formations typically are deeper than coal bed methane formations and have not traditionally been identified as sources for supplying drinking water, and are often geologically isolated from drinking water aquifers by several thousand feet of other strata including other shale formations that act as aquitards. Shale is a natural barrier to the vertical migration of fluids and is documented as confining layers to vertical migration of oil and gas. As such, the natural barriers between productive shale formations and groundwater zones should be able to ensure that groundwater resources are protected. Also, not much is being said by these environmentalists about the pollution associated with extracting gas from shale formations compared to mining coal. There can be little doubt that extracting gas from shale formations would be considerably more environmentally friendly than mining coal.

'

Notwithstanding, it is unlikely that the present financial, political and economic climate will be conducive to development of a coordinated and integrated national energy strategy. Policymakers and regulators will certainly face many challenging decisions as our economy is realigned to meet whatever energy and environmental goals are ultimately put into place. But as is so often the case with government legislation and politics, things will likely be done in a piecemeal fashion resulting in a considerable amount of waste in time and money. It reminds me of the words Winston Churchill once said, "you can always count on Americans to do the right thing, but only after they have exhausted all the possibilities." But then again, as that famous New York Yankee Yogi Berra once said, "if the world was perfect, it wouldn't be."

Growing State Budget Deficit Results In Raid On Energy Conservation Program Funds

Ten Northeast and Mid-Atlantic states participate in the Regional Greenhouse Gas Initiative (RGGI) which implemented the first market-based, mandatory cap-and-trade program in the country. Carbon dioxide emission allowance auctions began in September 2008. Since this first auction, more than 140 million allowances have been auctioned off raising almost a half a billion dollars in proceeds for the ten participating states, proceeds that are suppose to support state clean energy agendas. Under the Memorandum of Understanding signed by the 10 RGGI states, the states agreed to use auction proceeds for energy conservation and clean energy programs. New York State, for example, developed a plan to use its share of the proceeds to fund energy efficiency and renewable energy programs to help families, businesses and local governments reduce their energy bills while investing in clean energy technologies that will create jobs and reduce the state's carbon footprint. A number of initiatives to help reduce the disproportionate energy cost burdens on low income families were also included in the program.

'

Then came the worst recession since the Great Depression, and even the best laid plans can go astray! New York State found itself with a budget deficit estimated to be close to $3.9 billion. On October 15, 2009, New York State Governor David Patterson proposed using $90 million of the RGGI proceeds (of which New York's total share to-date is $180.7 million) to help close this budget deficit, rather than for energy conservation and clean energy programs as originally planned. Nearly all of the remaining RGGI funds have been committed to other initiatives, effectively zeroing out this pioneering program's budget. The Governor's proposal still needed approval by the State Legislature and many did not expect much support for the proposal, but on December 2, 2009, the State Assembly and Senate passed a deficit reduction program worth $2.7 billion that, unfortunately, included provisions to transfer $90 million in RGGI proceeds to the General Fund. So much for the best laid plans of state politicians!

'

It was not long ago when I can remember politicians and environmentalists wanting to get New York State into the RGGI program proclaiming and promising that RGGI proceeds would only be used for energy conservation and clean energy measures. And to anyone who thought that the RGGI cap-and-trade program would increase energy costs, they argued strongly that it would not, and even went so far as to suggest consumers would see a reduction in energy costs because RGGI proceeds would have the net effect of saving money. What a bill of goods we were sold! But there is a lesson to be learned, and that is "what politicians givith, they can just as easily taketh away!" This lesson should not be forgotten by anyone, including those in our industry, who are planning to rely on government incentives and grants to justify their return on investment.

'

As the year comes to a close, this will be my last blog of 2009. As such, I want to take this opportunity to thank all of you who routinely emailed me your comments and provided me with suggestions for new blog material. I wish each and every one of you a very happy holiday and a happy and healthy New Year.

Should Commercial Real Estate Energy Consumption Benchmarking Be Re-focused?

The difficulties and complexities associated with benchmarking the energy consumption of commercial buildings are well known. It would appear that until such time as a truly representative (for each property class, type property within each class, and geographically distributed) and statistically supportable building energy consumption database is developed, building energy consumption benchmarking should either not be done or be relegated to comparisons against other similar buildings in an owner's portfolio. Who better than the building owner will know what properties are truly comparable? For example, an experienced owner of a portfolio of hotel properties would easily be able to compare the energy consumption of a candidate hotel to be acquired with the energy consumption of similar hotels in the portfolio. Considerations for this comparison might include the presence on-site of restaurant facilities, retail establishments, conference facilities, a pool, an atrium, the shape of the building envelope (e.g., tall and box-like, short and spreadout, etc.), the age of the building and when the last major renovation occurred.

'

For states such as California or cities such as New York to pass legislation that includes labeling the energy consumption of buildings and disclosure to prospective purchasers, tenants or lenders makes sense to facilitate improved energy efficiency; however, these results should not at this time be compared with other buildings, unless of course it can be guaranteed these "other" buildings truly are similar. Unfortunately, today the odds of these "other" buildings truly being similar are very low. Moreover, there is too much at stake in the highly competitive commercial real estate market for seriously deficient analyses to be passed off as "acceptable." This must be resisted at every level. It is only natural that prospective purchasers, tenants and lenders want to know how a building compares with other buildings, and undoubtedly there will be considerable pressure to do benchmarking. However, if you cave into this pressure, there is a very strong possibility that your benchmarking conclusions will be inaccurate and misleading. The importance of true building similarity can not be overstated.

'

As indicated in previous blogs, U.S. DOE's Commercial Buildings Energy Consumption Survey (CBECS) database of less than 5,000 buildings is used by Energy Star and many others for benchmarking, despite the fact that it is wholly inadequate in addressing the many significant differences between buildings in the same property class. It clearly is too small a sample to represent the more than 5 million existing buildings in the country today. Interestingly, there is an effort underway in Washington to get DOE to expand the number of buildings included in the survey to at least 15,000-20,000. Even if this was possible to accomplish in 2011, it would still be at least 2013 before the data would become publicly available. The fact is that at this time we simply do not have an adequate database for benchmarking

'

So what is the bottom line? The bottom line is that if any benchmarking is done at all today, it should be done by the property owners themselves who are in a much better position to compare the energy consumption in a building being considered for acquisition with truly similar buildings in their portfolio. These individuals typically are experienced in commercial real estate and intimately familiar with the nuances between buildings in the same property class. At the same time, we as an industry must demand a better building energy consumption benchmarking database that truly is statistically representative of the myriad of buildings out there in the commercial real estate market, and vocally reject anything short of this!

More on Building Energy Consumption Benchmarking Limitations

If you are following the myriad of problems associated with benchmarking energy consumption in buildings, you might be interested in reviewing the recently released U.S. Green Building Council - Chicago Chapter's report titled Regional Green Building Case Study Project: A Post-occupancy Study of LEED Projects in Illinois. The report analyzes the post-occupancy performance and costs and benefits of 25 LEED projects in Illinois. One of the report's conclusions and recommendations hits the nail on the head about the limitations associated with building benchmarking today. The report concluded that a "building's best benchmark is its own performance ... since every building is unique in its use, occupancy, operations, maintenance and systems ... other benchmarks, such as comparisons to other buildings (LEED and non-LEED, including CBECS and Energy Star) or any modeled predictions are temporal or limited in use ... more research is needed in the following areas to support building performance initiatives: standardized metrics, data collection protocols ... appropriate benchmarks."

'

We must as an industry demand that benchmarking data be statistically relevant and accurate. To rely on data with significant deficiencies just because "it is the best available today" will do more harm than good. To "force" buildings into a specific use category may be tempting, but it will likely only result in questionable conclusions and certainly add to the confusion that already exists in the market today. There is too much at stake to demand any less.

'

FYI: A standardized data collection protocol for building energy consumption information is currently being developed by ASTM. If you are interested in participating in this effort, contact me at ajb@bepinfo.com or 800-238-1841.

The Challenge of Building Energy Consumption Benchmarking

For a long time now I have been advocating that building energy consumption benchmarking is not realistic without a statistically representative database. The fundamental problem with existing databases used for benchmarking (such as DOE's CBECS database) is that building use categorization is much too general and in each building use category there are an insufficient number of buildings to provide statistically meaningful comparisons. Most researchers understand the need for statistically representative data. Unfortunately, the typical response today for relying of any benchmarking database with known shortcomings is "but it's the best we have." I have always believed that it is better not to benchmark than to benchmark against a database that has not been statistically proven to be representative.

'

Let's look at some of the variables that certainly must be factored into any building energy consumption benchmarking analysis. Of course, the more variables there are, the larger the database that must be built to provide meaningful benchmarking data at a reasonable confidence level, and it starts right with building use. To classify building use into the four major uses, i.e., office, retail, industrial and lodging, would be to grossly oversimplify the picture as there are literally dozens of major building use categories. Each one of these major building use categories can then be further subdivided to reflect buildings with common characteristics. For example, take the office building category which is probably the simplist of building use categories to characterize. Office buildings may be constructed tall or wide, with significant square footage or relatively small square footage. There are different classes (at least three). They may be attached to other buildings or stand-alone. Buildings may have been constructed a hundred years ago or more recently (perhaps under tighter energy efficiency building codes). The buildings may be located in a warm climate or a cold climate or anything in-between. Some office buildings include retail. Some office buildings have high energy consumption facilities such as data centers. There may or may not be standby emergency generators that must be tested periodically. And all this is to say nothing about how the building is operated! For example, what are the building's hours of operation? How does the building handle maintainence and repairs? What amount of space is occupied and what amount is vacant? I can go on and on, and this is just for the "simple" office building category. While lodging has just about as many variables as office buildings, these pale against the many more variables associated with retail and industrial use!

'

As I said, there literally are dozens of significantly different major building uses. The entire CBECS database (which identifies only 17 different "principal" building uses) includes slightly more than 5,200 buildings to represent the entire country. In view of the wide standard deviation around energy consumption data for each building use, the number of buildings that should be included in the benchmarking database to achieve a 90% or 95% confidence level for each building use category/sub-category is significantly more than currently in the CBECS database.

'

What should we as an industry do about this problem? I believe that two things are a must. First, every effort must be made to develop a single building energy consumption database that will include all the major building uses (properly categorized with common characteristics) and be statistically representative for benchmarking purposes. This should be a priority of both DOE (with its CBECS database) and EPA (with its Energy Star database). Second, we must refrain from using any benchmarking database, e.g., CBECS, just because "it is the best that we currently have." By using a benchmarking database that has significant deficiencies, the results can (and will) be questioned and may do more harm than good. We as an industry must come together now on this critically important problem and deal with it once and for all.