Eliminating Fossil Fuel Subsidies Trumps Cap and Trade

This past Sunday morning, I spoke at a charity brunch in Virginia.

The brunch was actually part of a benefit to raise money for a local youth organization that’s working to build an organic garden and greenhouse for low-income families.

It wasn’t a big event… No local politicians or big media names. Mostly it was just concerned citizens, quite a few church-going folks, and a handful of local businesses.

As an advocate of local, organic agriculture, I was happy to help.

My presentation focused on the economic and security benefits of local, organic agriculture. And of course, I was essentially preaching to the choir.  However, during the Q&A I quickly found myself on the defensive after I was asked about my thoughts on the death of cap-and-trade.

I didn’t sugar coat it. I basically told the crowd that I’ve always seen cap-and-trade as nothing more than a very complex solution to a pretty simple problem. And I was happy to see it die on the vine.

That didn’t sit too well.

But I really got an earful when I suggested a few minutes later that we stop trying to force carbon capture and sequestration (CCS) on coal-fired power plant operators…

A tragic waste of taxpayer dollars

While coal is not going away anytime soon, there is no doubt that by the end of the century, it will not be an economically viable source of power generation.

One reason is simply due to the basic fundamentals of supply and demand.

In 2007, the National Academy of Sciences released a report indicating the United States probably only has enough coal to meet our needs for about 100 years.

And according to the Energy Watch Group, in terms of energy content, the U.S. actually passed its peak of coal production in 1998. As was referenced in our book, Investing in Renewable Energy:

The distinction is based on the fact that various types of coal contain different amounts of energy. Anthracite (also known as black coal) from Appalachia and Illinois has 30 megajoules of energy per kilogram, but it has long been a tiny fraction of our overall coal production, and has been in decline for over half a century.

Our supposedly vast reserves are mainly of lower-quality bituminous coal, delivering 18 to 29 megajoules of energy per kilogram, and subbituminous coal and lignite, delivering a mere 5 to 25 megajoules of energy per kilogram.

It’s also important that we don’t disregard the simple fact that new, more sophisticated energy technologies are being developed at light speed.

By the time we’re halfway through our coal budget, solar will be insanely cheap, storage technologies will be abundant and new transmission and infrastructure will be in place to move many, many megawatts of wind and geothermal power…

So why, when we know that coal’s reign cannot possibly last beyond this century, would we spend billions of dollars to make it “cleaner?”

Spending money on CCS is like buying an FM converter for a new car that’s already equipped with an AM/FM radio, CD player, Bluetooth, MP3 jack and satellite radio…

If you want to reduce carbon emissions, there are better ways to do it.

But what about climate change?

As the crowd turned on me yesterday afternoon, I heard those words uttered over and over again.

What about climate change?

Listen, if your goal is to reduce carbon emissions, the solution is not necessarily a forced cap-and-trade law — but instead, perhaps something that the International Energy Agency (IEA) recently wrote in its 2010 World Energy Outlook.

According to the IEA, phasing out fossil fuel subsidies by 2020 could cut carbon emissions by 6 percent. It could also cut global energy demand by up to 5 percent, enhance energy security, and bring economic benefits.

IEA Executive Director Nobuo Tanaka said, “Getting the prices right, by eliminating fossil fuel subsidies, is the single most effective measure to cut energy demand in countries where they persist, while bringing other immediate economic benefits.”

I couldn’t agree more.  The solution to our energy security problems, many of our energy-related economic burdens and climate change concerns starts with the eradication of fossil fuel subsidies.

It’s coming, my friends.  The cat’s out of the bag, and free market thinkers are circling.  The transition of our energy economy is coming.  We can either embrace it, or fall victim to it.

I am the co-founder and managing editor of Green Chip Stocks. We are an independent investment research service focused exclusively on "green" markets.

2 responses

  1. “…phasing out fossil fuel subsidies by 2020 could cut carbon emissions by 6 percent. It could also cut global energy demand by up to 5 percent, enhance energy security, and bring economic benefits.

    That’s nice, and should be done, but it hardly even begins to address the scale of the problem.

    Based on that projection, to stack up subsidy reduction versus a solid cap-and-trade scheme is like pretending you can beat an ace with a nine (in the same suit).

    Re-read “Collapse” by Jared Diamond. No human society has achieved a long-term sustainable relationship with its natural environment without some kind of solid regulatory framework to block accelerated exploitation.

    Real solutions to global warming mitigation will combine strong regulatory sideboards with market mechanisms for inspired entrepreneurial results within them.

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