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Tuesday, April 19, 2011

Smarter Energy Policy Made Easy (2)

In the last post, we began to explore the concept of improving energy policy by relating it to energy density and market potential. We've already discussed this idea with respect to power; let's talk about heating solutions today.

The heat demand map would resemble the electricity demand we visualized in the last post, but the demand would increase as we moved more to the north in the photo. This presents interesting opportunities. For instance, much of the heat production in the northeastern part of the continent, which is the highest demand density portion of the continent, is currently met by burning oil and coal. That makes sense where the white dots are...alternative fuels into those areas are extremely expensive for a multitude of reasons. But between the dots, wood in particular is plentiful and available at competitive prices.
This graph shows us an interesting story. Consistently, over the years, the demand for oil for use in industrial (purple) and residential/commercial (yellow) heating applications is about one-third of our total demand for oil, or almost one-half of the amount consumed in all transportation fuels. What if we could significantly reduce this segment of oil usage? It would mean lower gasoline prices through the reduced demand for oil, a longer horizon for our oil resources, and perhaps, more security from foreign oil troubles.

This is where it makes sense to develop policy at encouraging biomass heating. Let's introduce another concept at this point. If we are going to encourage alternative energy solutions in some way, we need to make sure that energy efficiency and environmental impact are involved in those decisions.

Energy efficiency is higher in district heating solutions than it is in individual homes, but it incurs additional cost that must be shared by the district members. It makes sense, then, to encourage these district-type solutions, where they can be effectively and efficiently applied.

But perhaps we will have to approach development of these systems in a little different way than was done across the pond.

The Europeans used their socialist economic models to subsidize the start-up costs of these district-heating solutions. That meant that the general public financed local solutions, whether they benefited from a district-heating solution or not. They typically paid for these projects through the continent-wide taxation of fossil fuels, meaning that everyone in Europe pays a lot more for their gasoline, diesel, oil, coal, and natural gas, than everyone else in the world. It seemed to work for a while, until their economies started to wobble under the burden.

In our budget-tight economies, it doesn't seem appropriate to defend general public subsidies to local projects. What does make more sense, though, and better-matched to a market-focused economy, is to allow people to receive tax benefits for investments in alternative energy participation. So, whether one buys in to a district heating project, purchases a biomass boiler or stove for their home, drills a geothermal system on their property, or installs solar panels, that investment could be rewarded with a tax benefit. And this tax benefit could be pro-rated as a function of the energy-efficiency and environmental benefit of the project. This approach is already in place for some home appliances; home solar, wind, and geothermal systems; and hybrid and electric vehicle purchases (notice a common denominator there?) Our new energy policy would expand this program beyond electronic devices to all energy-efficient alternative energy heating solutions. And the lost revenues from these tax credits could be replaced by eliminating the current tax advantages that the big corporations get for all their Big Power lobbying efforts.

Government's role in this effort would be in the standards arena. Similar to current Energy Star program administered by the EPA, or even building codes administered by the states, the agencies could provide comparative data on all the various energy technologies, and projects over a certain size could be evaluated on a case-by-case basis. This would even encourage the rise of consulting engineering firms that specialize in designing and certifying alternative heating projects.

We could envision then, the tax agencies crediting energy investments through formulas that calculated the overall benefit of the project. For instance, a well-designed, appropriately implemented biomass district heating project would score high in both energy efficiency and environmental impact, resulting in a high tax-benefit factor to the individuals that commit to invest in the system. These might be public utility investment trusts, venture capitalists, or the local community members themselves.

As further inducement, communities that conceive and design a highly-rated project, and demonstrate a high-level of community buy-in with pre-project subscriptions, might receive low-interest, long-term public loans for project financing. The resulting debt would be paid off by the heating system members through heating rates that are set enough above the cost of operating the system to pay off the system in the alloted time frame. In other words, the beneficiaries would pay for the benefits.

Individual home or company projects would also be evaluated by the same program. A wood stove installation would score somewhat lower on both metrics; geothermal and solar projects might score higher on one or the other, depending on how the agencies developed their equations.

The result would be that the more expensive district-heating solutions would receive more favorable tax-treatment, and preference with public financing, while the least efficient alternatives, such as socially-troublesome low-efficiency outdoor wood boilers, would receive little or no tax benefit at all. Thus, we reward the projects and investments on an objective energy-efficiency and environmental-impact basis, not on a basis of political advantage or expediency. Precious oil stocks would be conserved as we cut our oil demand by as much as a third across the nation. And public incentives would be awarded directly to those investing in the technology, not re-distributed from the general public to a non-investing subset of the population.

We'll apply this type of thinking to transportation fuels policy in our next post in the series, next week. Going to briefly change topics, though, in the next post, to match the spirit of the season.

1 comment:

Anonymous said...

An enclosed log burner/ wood stove with wet back, retrofitted with an emissions reducing cowl that targets atmospheric back-pressure is smarter than pellet burners that require electricity and a manufactured fuel to run. Go domestic energy conservation, central heating efficiency, wet backs, cooking - self sufficiency. Stop. Re-evaluate - stick to traditional wood heating. Cold, heavy, thick air suffocating chimney exhaust on wood stoves is and always has been the major pollution cause. Look up. Its bugger all use trying to fix the appliance without fixing the chimney first.