Fueling a Revolution in Our Vehicle Fleet
Author
Yossie Hollander - Fuel Freedom Foundation
Fuel Freedom Foundation
Current Issue
March-April 2021
Issue
2
Parent Article
Oil and Toil, Double Trouble
Yossie Hollander

What if there were a solution that could reduce our oil consumption, eliminate our petroleum imports, stabilize price swings in the distribution chain, reduce the price at the pump, revitalize the American energy industry, prevent future oil-driven economic downturns, clean the air, and substantially reduce the country’s carbon footprint. Sounds too good to be true? Perhaps — but it is doable. Opening the transportation market to natural gas-based fuels (largely compressed natural gas and ethanol) will achieve all that.

The American shale industry has been hit hard by low oil prices. As a result, production is down, and capital investment is also significantly lower. Oil prices will have to be much higher (like $70 per barrel) for investment to resume, and then production increases will slowly follow. Since the world vehicle fleet keeps growing rapidly, the result of all this is that within a few years an oil price shock is highly likely. It will predictably drive the United States into a recession. Can it be avoided?

Most shale wells produce large amounts of natural gas and light liquids like ethane and propane in addition to crude oil. This has created a huge oversupply of natural gas, causing its price to decline, many times well below profitability. In many cases, there are not even pipelines to bring the gas to market and it is flared or pumped back into the ground.

As a result, shale producers largely rely on oil revenues to generate positive cash flow. When the price of oil declines, they start losing money. The key to financial stability in this industry is to find a way to monetize the natural gas coming out of our domestic shale wells drilled to access crude petroleum.

The industry has invested in liquefied natural gas exports, but as expected, that resulted in an oversupply in the world market. The LNG market is collapsing as a result. It will be many years before the world’s natural gas demand will outgrow supply, and even then it will not provide a market large enough to help shale producers.

There is, however, a domestic market for an additional 30 billion cubic feet of natural gas a year — the transportation sector.

Despite common impression, the United States still imports 6 million oil barrels a day for our transportation fleet. Replacing these imports with fuels made from American natural gas will open a huge new market for the shale industry and generate a new source of income that will financially stabilize the companies in the fuel space and assure our domestic energy security.

People are largely familiar with compressed natural gas, known as CNG. It is a practical solution to most diesel fuel usages, like trucks and buses. Its growth is largely blocked by regulation. Removing these roadblocks will allow the replacement of at least 50 percent of the diesel market by CNG — at a lower cost to the consumer, with cleaner air and lower GHGs.

However, the larger market is gasoline. Unknown to many, natural gas can be converted to liquid ethanol, which can compete with or supplement gasoline in the transportation market. All that is required is a simple administrative fix that will encourage the auto companies to produce more cars that are flex-fuel — cars that can run on either gasoline or ethanol. With enough such cars in the market, it will be easy to finance conversion facilities. The beauty of it is that we will not need any new long-distance pipelines. The conversion factories could be placed in the same regions as the wells, in western Pennsylvania, in the Bakkan of North Dakota, or the Permian Basin of Texas. It will eliminate flaring and leakage.

Ethanol reduces air pollution by at least 30 percent. The higher octane of ethanol will allow car manufacturers to increase fuel efficiency substantially, thereby significantly reducing the carbon footprint of the auto fleet. In fact, transitioning cars to natural-gas-based fuels could achieve the largest GHG reduction of all the plans currently on the table.

Fueling a Revolution in Our Vehicle Fleet.

Oil and Toil, Double Trouble
Author
James Barrett - Barrett Economics
Barrett Economics
Current Issue
March-April 2021
Issue
2
Oil and Toil, Double Trouble

Perhaps more than any other energy source, oil is an icon. While we use lights, heating, and cooling on a daily or hourly basis, for most people oil (in the form of gasoline) is probably the only fuel we actually ever handle directly. And the same applies for knowing the price of our energy sources. We confront gas prices every time we fill up our cars, or drive by a filling station, and for those of us old enough, there are memories of the shortages and long lines at gas stations in the 1970s. Our connection to oil is so strong that rising prices can influence presidential elections. Not coincidentally, politicians at almost all levels have some position on where, how, and whether we should drill for more in an effort to lower costs and boost job growth.

The reason that oil plays such a central role in our energy system is its dominance in moving goods and people. It is better than most alternatives in being easily portable in large enough quantities to get to a destination, and service stations dot the roadside, providing quick and easy refilling. The transportation sector accounts for over 70 percent of all the oil consumed in the United States, and oil provides over 95 percent of the energy used in transportation. There is no other fuel or energy source that dominates such a large swath of our economy. And not only is oil the lifeblood of our transportation sector, oil markets can have deep and wide-reaching impacts on the society as a whole. Swings in oil prices affect the national economy at multiple levels, from job growth to air travel and family trips to household budgets and the cost of shipping from online vendors.

It should be no surprise then that turmoil in oil markets can cause turmoil in the larger economy. Since 1972, almost every major spike in unemployment has been preceded by a major spike in oil prices. While correlation is not the same as causation, and it can be difficult to tease out how much of a role these spikes in oil prices have played in causing unemployment, there is no doubt that they have at the very least helped cause, contributed to, and exacerbated periods of high unemployment over the last five decades. Even for the financial crisis of 2008 and the recession that followed, which have their clear roots in financial and real estate markets, there is credible evidence that points to a link between spiking oil prices and the beginnings of the housing crisis.

What consumers likely remember most from these episodes are high prices at the gas pump, but what is important to recognize about the impact of oil prices in terms of the economy as a whole is the fact that the issue is not the level of prices themselves. Between January 1974 (the earliest date for which monthly oil prices are available) and December 2019, before the pandemic hit, the unemployment rate averaged 6.3 percent. Over those 46 years, the unemployment rate either hit or passed through that average eight times, at least once each decade. In those months of average unemployment, the average price of oil (as measured by composite acquisition costs at U.S. refiners) was about $56 per barrel in 2019 dollars, which is not far from the average oil price over the entire 46 years of about $54.

However, the range of oil prices during months of average unemployment is anything but average. We need to take a short ride through the data to demonstrate that. As you will see, even over short periods of time, the relationship between oil prices (all prices in this article are inflation-adjusted to 2019) and the contemporaneous unemployment rate has varied substantially. Unemployment was 6.3 percent in February 1978 and again in January 1980, falling as low as 5.6 percent in between. But the price of oil in February 1978 was $39, where it stayed for a year before rising by January 1980 to $68, a huge increase. Oil prices then hit a peak in early 1981, and unemployment rose steadily, peaking at 10.8 percent at the end of 1982, but by then oil prices were back down to $70 and falling. The next time oil prices reached as high as $70 was mid 2005, when unemployment was a lowly 5 percent.

What’s clear from this pattern, or lack of one, is that oil prices and unemployment don’t actually have a clear relationship. The economy can perform well both when oil prices are high and when they are low. This is an important point: While no one particularly enjoys paying more for energy, policies and politicians focused on bringing oil prices down are missing the point.

The real problem with oil, from an economic standpoint, is not price, but price volatility. We make decisions and investments based on current oil prices and our best guess about what we think they are likely to be in the future. When oil prices shoot up over a short period of time, many of those decisions can become uneconomical almost overnight. Since 1970, there have been five distinct periods during which the unemployment rate spiked. In each of these cases, the jobless rate increased by 50 percent or more over a period of two years or less. Each of these spikes was preceded by an increase in oil prices of 100 percent or more within that two-year window. This has occurred when prices jumped from low to moderate levels, as when they peaked at $39 per barrel in mid 1974, and when they went from moderate to high levels, as when they rose from $61 to $150 per barrel in 2007 and 2008.

The focus on policies to lower oil prices is largely an understandable desire to control our own energy and economic fate. However, policies aimed at increasing oil production as a way to control oil process prices are doomed to fail. The ability of oil price volatility to whipsaw our economy combined with the fact that we import so much of it has given some people the idea that the solution is to increase domestic oil production. “Drill, Baby, Drill” can be heard in most every election cycle. However, policies based on that rationale have been around even long before the 2000s. In particular the notion that increasing domestic oil production will ease the pain of oil prices has been used to support a wide array of policy proposals, often against the wishes of the local communities, including increased offshore drilling and the use of fracking, and opening the Arctic National Wildlife Refuge to exploration and exploitation.

The political arguments in favor of increasing domestic oil production is typically couched in terms of “energy independence.” This is a catch-all phrase that isn’t terribly well defined, most likely because it’s not particularly meaningful, at least in this context. That is because energy prices are determined on a world market, as supply and demand work their wonders. Promoters of energy independence seem to be concerned with either economic self-determination, national security, or both. The economic argument tends to be couched in terms of oil prices. It suggests if we only produce enough of our own, we will not be subject to high prices imposed on us by other countries. As discussed above, the absolute actual level of oil prices is far less important to the economy than their volatility. Regardless, if producing more oil domestically would reduce our economy’s exposure to oil price spikes, then the economic stability it provides might help justify more drilling. Unfortunately, the dynamics of oil markets mean that increasing oil production will have little or no impact either on the price we pay or price volatility.

One of the fundamental features of oil markets is their global nature. Some types of oil produced in some regions are better suited for refining into different types of products (gasoline vs. diesel, for example), and demand for those different products differs from country to country so that certain countries are more dependent on oil from specific regions of the world. Despite this, the price of crude in basically all of its forms is set globally. Different types of crude sell for different prices, but they move up and down together depending on worldwide market forces. As a result, there is no direct benefit to U.S. oil purchasers from having more domestic oil in the market. American producers do not give American buyers a discount: Between early 2016 and mid 2018, the United States increased its crude oil output by nearly 25 percent, becoming the largest oil-producing country in the world. Over that same time period, the average price paid by American oil refiners went up by over 130 percent, following the same trend as global benchmark Brent crude, which went up by 121 percent.

The reason for this is that in this world of globally set prices, American producers act as what economists call “price takers,” which means more or less what it sounds like, i.e. that American producers look at what oil is selling for (or predicted to be selling for) and decide how much oil to produce accordingly. This is not true for other major players in the oil market. Russia and OPEC, with Saudi Arabia as their lead actor, look at where oil prices are, where they would like them to be, and calculate how they might change their production to push prices in the direction they prefer. They can do this because they are large producers (Russia, Saudi Arabia, and the United States are the top three in the world, accounting for over 40 percent of production) and because the Russian and OPEC governments can essentially control how much oil their countries produce. American oil production, on the other hand, is determined by how much oil all the individual drillers decide to produce. So while Russian and OPEC production levels are set with a mix of economic and geopolitical targets in mind, American oil production is just the sum of how much each individual company chooses to produce based on what they think is their individual interest.

To see why this matters, we only need to take a look at some recent history: March and April of last year. Before the COVID-19 pandemic really took hold of the global economy, oil prices were falling, and Russia and Saudi Arabia had failed to agree on production limits to prop them back up. Challenging the Saudis’ leadership, Russia decided to increase rather than decrease production, and the price slide continued. In response, Saudi Arabia and OPEC decided that they too would increase production and push prices even lower in an attempt to punish Russia economically and force Moscow back to the bargaining table.

Prices were on their way further down when the pandemic began impacting countries around the world, slowing global economic activity and cutting oil demand sharply just as supplies were rising. This combination of surging supply and shrinking demand sent prices plunging even further, with oil futures briefly turning negative. The situation was clearly untenable, and Russia and Saudi Arabia got back together over Easter weekend and agreed to steep production cuts, of about 10 million barrels per day, almost a quarter of the combined OPEC and Russian output. Coincidentally, this amount is almost the equivalent of all U.S. oil production in 2018.

Perhaps the most interesting part of this remarkable turn of events is the character player that was largely absent from it, the largest oil-producing country in the world. Though the Trump administration worked through diplomatic channels to try to help make this deal happen, it didn’t actually agree to reduce oil production for the simple reason that it can’t. The U.S. government has no control and little direct influence over the production decisions of the 10 or so major oil companies and the literally thousands of smaller ones that together produce the vast majority of American oil.

This reveals the central problem with increasing oil production to control oil prices or advance our strategic interests: No matter how much oil American companies produce they can’t move prices to suit their own economic interests, far less national geopolitical strategies. In the best of times, this leaves our economy vulnerable to volatile swings in global oil prices that are often unpredictable and always uncontrollable. In the worst of times, it leaves us vulnerable to deliberate manipulation by other global powers who do control their domestic producers, using their oil pumping as a strategic geopolitical tool.

Improving national security through increased oil production is an equally problematic idea. The notion that we should not support unfriendly regimes by buying their oil makes some intuitive sense. Of course, the reason why we import oil (and refined oil products) is that we use more than we produce. In 2018, when the U.S. became the world’s leading producer of oil, we pumped nearly 11 million barrels of crude oil per day. That same year, the United States consumed just over 20 million barrels per day. Clearly, at these levels of production and consumption, we need to supplement our supplies with significant levels of imports. Increasing production would seem to be one way of avoiding that. However, increasing production can have little or no impact on our level of imports: Between 2016 and 2018, as domestic production rose by over 2.1 million barrels per day (a 24 percent increase), our imports of crude oil fell by just over 1 percent.

Part of the reason for this seeming contradiction is the fact that consumption of petroleum products continues to increase. Unfortunately, apples to apples comparisons between consumption and production are difficult because we refine crude into other products of varying densities, so looking at the number of barrels of finished products we consumed for transportation as compared to the number of barrels of crude we produced or imported for all purposes is not as straightforward as we would like.

If increased production had little impact on imports and was not justified by large increases in consumption, it must be explained by the other piece of the puzzle: Oil exports. Over this same time period, as U.S. crude production increased by 2.1 million barrels per day, our exports increased by almost 1.5 million barrels per day.

As with crude prices and volatility, increasing oil production does little to enhance energy independence from a security standpoint. As U.S. crude production increased dramatically in 2016-18, we shipped most of that extra abroad and continued importing more or less as we had before, leaving the main impact on our oil trade an increase in crude exports. With minimal change to import levels, this left us just as dependent on foreign oil suppliers as before. Oil imports from OPEC and Russia did fall over this period, by roughly 625,000 barrels per day (out of total imports of 7.8 million barrels per day), but if the objective of increased oil production is to deprive our geopolitical rivals of oil revenue, it was a failure. Our reduced purchases from OPEC and Russia account for less than 1.5 percent of their total sales, and together they were able to hold their production steady at roughly 48 million barrels a day as global prices more than doubled.

The underlying issue, once again, is that U.S. oil production comes from thousands of individual producers each setting their production levels according to what suits them best economically. OPEC and Russia, on the other hand, set production levels nationally based on a combination of factors, including both economics and geopolitics. Our production levels have little influence on OPEC and Russia’s decisions in the normal economic sense that if we produce more, we will capture more of our domestic or the global oil markets, leaving them to produce less. In fact, the opposite may actually be true: If OPEC and Russia see that increased U.S. production poses a threat to their influence on oil markets, they may actually increase production themselves in an attempt to force us out of the market by lowering prices to levels that are too low for U.S. producers to withstand.

This is exactly the kind of brinkmanship that helped set up the market turmoil this past spring, and while the main combatants in that confrontation were OPEC and Russia, the impacts on U.S. oil producers have been profound. Shale oil companies have cut output dramatically and many are filing for bankruptcy as they can’t continue operations, let alone turn a profit, at current oil prices.

Looking at national security issues more broadly to include our involvement in the Middle East, there is no question that maintaining secure oil supply lines is an important contributor to U.S. strategic interests in the region. Once again, however, the dependence of those interests on our consumption of Middle Eastern oil is unclear. It’s further unlikely that either our support for Israel or the difficulty of its relationships with its neighbors would change significantly if we reduced our oil imports. And as described above, even if it did, increased oil production may have little or no influence on imports.

Even if the United States produced enough oil to meet all of its demand and only bought oil from domestic producers, exposure to price volatility and geopolitical influence would remain as a result of global oil pricing. Even if OPEC could not maintain discipline within itself or forge agreements with Russia to move prices strategically, volatile Middle Eastern politics would still create volatile oil markets that would impact our economy. Increasing oil production could only insulate us from global markets if we banned both imports and exports of oil and refined products. Only a complete severing of our economy from global oil markets, making a separate domestic-only market, would create this effect.

Short of such drastic, and highly unlikely policy, the only way to reduce our dependence on global oil markets is to reduce our dependence on oil, regardless of its source. Given the deep intertwined relationship between oil and our transportation sector, this is a tall order. The list of alternative options is not new or free of complications of their own. An obvious first step is to increase the efficiency of our transportation system. Though far from perfect, Corporate Average Fuel Economy standards have helped slow the growth of oil consumption dramatically. CAFE standards were first implemented in 1978. Between 1950 and 1978, gasoline consumption per dollar of GDP was fairly constant, fluctuating no more than 8 percent above or below its mean of 425,000 barrels per billion dollars of GDP. Since the introduction of CAFE standards, that has fallen steadily to 177,000 in 2019. Of course there are a number of factors that contributed to this large reduction in gasoline intensity of our economy, but there is no doubt that CAFE standards are a major contributor. As far as helping reduce the influence of oil markets on the U.S. economy and promoting energy independence, it is likely that no government policy has contributed more than CAFE standards. Trump’s rollback of CAFE improvements is almost certain to increase our exposure to oil price volatility and the economic swings that come with it.

One way or another, all efforts to reduce our exposure to global oil markets are rooted in reducing our consumption of oil. In addition to increasing efficiency, introducing competitive alternatives to petroleum as a transportation fuel is critical. Oil-based products have the advantage of being energy-dense and a well-established part of our energy infrastructure. Electric cars are an obvious and rapidly growing alternative. They carry with them challenges related to battery range, charging infrastructure, as well as battery manufacture and disposal. Hydrogen produced by renewable electricity can help avoid many of the environmental issues associated with oil, and without the relatively long charge times now associated with electric vehicles, but they face challenges too, including range, infrastructure, and cost as well as how to store hydrogen fuel both at stations and onboard vehicles. Alternative liquid fuels like ethanol, biofuels, and synthetic fuels all require some form of energy feedstock, and face challenges relating to production costs and compatibility with our current energy infrastructure, including engine technology.

Energy independence is a vague and ill-defined notion that has perhaps inevitably yielded ill-conceived policies aimed at achieving it. By focusing on oil prices, rather than oil price volatility and our exposure to it, policies aimed at energy independence are guaranteed to miss their target. By naively targeting domestic oil production as a method to reduce global oil prices, such policies have not only chosen the wrong target but also the wrong tool. In the face of all of this, the fact that U.S. policy is largely ineffective at moving global oil prices is likely to be more of a blessing than a curse. If we could, through increased production, push global oil prices downward, we would likely increase our consumption of oil, making our economy that much more vulnerable to the inevitable price swings like those that have damaged Americans repeatedly over the past half century.

To be free of the vagaries of global oil markets, our economy must be free from oil. Policies that focus on increasing supply at best can only distract us from that central truth. This in turn can only be achieved by continuing to advance alternatives that can meet the demands and particular needs of our transportation system. Until we develop economic and technological competitors to oil, the fundamental dynamics of global petroleum markets will remain — as will the futility of the intuitive but wrong-headed notion of drilling our way to freedom. TEF

CENTERPIECE The data show U.S. employment and the overall economy can perform well when the price of crude is high as well as when it is low. What upsets policymakers and producers is price volatility, and there are not many ways to insulate the United States from global oil shocks.

To “Build Back Better,” Biden Must Undo Trump’s Obstruction Legacy
Author
David P. Clarke
Current Issue
March-April 2021
Issue
2
David P. Clarke

Given his stated commitment to an aggressive climate agenda as a top priority, it came as no surprise that on his first day in office President Joe Biden signed an executive order to rejoin the Paris Agreement on climate change.

But now the hard work begins of rebuilding credibility and crafting what experts at a Columbia University webinar said must be a realistic plan to decarbonize the U.S. economy by 2050 to avert dangerous atmospheric warming.

During the January 19 online event, Tufts University professor Kelly Sims Gallagher said the Biden administration’s first step in preparing to participate in the upcoming November meeting of the climate convention parties in Glasgow must be the adoption of a robust domestic climate policy. Under Trump, the United States failed to double its investment in clean energy research and development, didn’t meet its pledge to the Green Climate Fund, and isn’t on track to achieve its 2025 climate targets, she said.

The new administration will also have to review the legacy of Trump’s regulatory rollbacks that included weakening more than 125 environmental rules and erecting barriers to further actions. Biden’s administration must advance its environmental agenda while undoing much if not all of Trump’s deregulatory broadside.

Jump starting the process, Biden chief of staff Ronald Klain in a January 20 memorandum to heads of federal agencies called for a “regulatory freeze pending review.” Biden’s appointees must have an opportunity to review and approve new and pending rules to determine whether they raise “substantial questions of fact, law, or policy.” The outcome of that review should be well worth watching.

If agencies want it, there’s no shortage of advice. The Wilderness Society highlighted Trump’s auctioning off the Arctic National Wildlife to drillers, though lease sales drew only three bidders. But in Trump’s closing months oil companies also applied for over 3,000 drilling permits on western public lands, according to the Bureau of Land Management.

Two environmental groups in a “First Things to Fix” report listed five immediate priorities, including rejoining Paris, stricter automobile emissions standards, far-reaching limitations on National Environmental Policy Act environmental impact assessments — the list goes on and on.

Although every administration adopts 11th hour rules to cement its agenda, Trump has “ushered in an unusually large number of energy and environmental policies,” according to a Washington Post analysis, including more than two dozen since losing the election in November.

Among Trump’s closing actions, EPA’s January 6 Strengthening Transparency in Regulatory Science Rule qualifies as particularly egregious, an official with an environmental group said privately. It applies to “the majority of what EPA does” — water, climate change, toxic chemicals, and other protections,

Small wonder that the Environmental Defense Fund and other plaintiffs on January 11 filed a lawsuit asking the court to declare EPA’s rule unlawful and enjoin its enforcement until at least 30 days after Federal Register publication. Describing the regulation as an internal “housekeeping rule,” EPA leaders made it effective immediately.

But, the rule’s “entire purpose” is directed at constraining EPA’s “discretion to consider scientific research” when underlying data are not publicly available. Data underlying human studies that are critical for developing health standards are barred for legal and ethical reasons from public disclosure. The rule is a “substantive restriction,” not mere “housekeeping,” the plaintiffs argue.

But EPA’s Science Advisory Board in its final comment letter recognized the rule’s importance and said in some cases the rule could “reduce scientific integrity,” and on February 1 a U.S. District Court accepted a Biden administration request to vacate the regulation.

And it’s not just 11th-hour rules Biden’s team will have to review. In January 2020 Trump’s DOE published a “process rule” that Biden “will have to unwind” because it hampers upgrading energy efficiency standards for dishwashers, refrigerators, and other domestic and commercial appliances and building equipment, says Joanna Mauer, a senior researcher with the American Council for an Energy-Efficient Economy. As a result of the Trump DOE’s failure to meet more than 20 deadlines for updating efficiency standards, years of carbon emission reductions have been foregone, and economically justifying upgrades are now more complex and slower.

As Trump left the White House to the sound of the military band he had demanded, it was clear at least to some degree the new president will be deflected from building his future-facing agenda by having to undo much of Trump’s backward-moving deregulatory measures.

To “Build Back Better,” Biden Must Undo Trump’s Obstruction Legacy.

Carbon Bombing the Future: The World's Largest Offshore Project
Author
Bruce Rich - Environmental Law Institute
Environmental Law Institute
Current Issue
January-February 2021
Issue
1
Bruce Rich

The world’s largest new oil-and-gas project is taking place 120 miles offshore from the coast of Guyana. ExxonMobil (45 percent share) together with Hess (30 percent), and the Chinese company CNOOC (25 percent) are developing offshore wells that will produce 13.6 billion barrels of oil and 32 trillion cubic feet of natural gas. The burning of these fossil fuels will discharge over two gigatons of CO2 (for comparison 2019 total world emissions were 43 gigatons).

Guyana is 85 percent covered by tropical forests and is currently a carbon sink. The oil development will, according to the German environmental organization Urgewald, transform it into a planetary “carbon bomb.”

Superficially, Guyana’s becoming a petrostate might appear to be alluring, since with a per capita income of $5,470 a year and only 786,000 inhabitants, it is one of the poorest nations in the Western Hemisphere. By 2030 it could become the world’s largest per capita oil producer. Guyana’s designation by the world’s largest tourism trade fair as the planet’s number one future ecotourism destination can’t compete.

Despite pledges supporting the 2015 Paris climate agreement, the World Bank and the Inter-American Development Bank approved over $66 million in loans to Guyana in 2018 and 2019 to manage the oil sector and avoid the “resource curse,” whereby huge influxes of income lead to massive corruption, increased inequality, and political instability. The justification for the multilateral banks is always the same: the fossil fuel revenue could provide unprecedented funds for development needs like health and education.

But the World Bank has had disastrous experiences attempting the same before. In 2000 it lent $350 million for the Chad-Cameroon oil development and pipeline project — another huge Exxon scheme. Chad sunk into unprecedented corruption, violence, and civil war. Oil revenues benefitted Exxon and its partners, and Chad’s dictator, who increased the military budget 23-fold to secure his governing clique. Child and maternal mortality actually rose. In 2008 the bank cancelled the project and asked Chad to repay the remaining loans.

What the world needs least right now is new fossil fuel development, let alone facilitating oil extraction through public finance of the World Bank and IDB. The London think tank Carbon Tracker estimates that major oil companies need to cut the emissions from the burning of oil and gas they produce more than a third by 2040 for the world to have a 50 percent chance of meeting Paris accord goals. Major companies like Shell and BP have changed their business plans to gradually phase out of new extraction, diversifying into power production and renewables. Exxon, on the other hand, has doubled down on investing more in petroleum, and the Guyana project is currently its single biggest priority.

Will Guyana truly benefit over the long term? The threats of climate change are huge, since ninety percent of the national population lives on a narrow coastal plain, large parts of which are already below sea level. Most of the country’s agricultural production also occurs near the coast. Large floating, production, storage, and offloading vessels have already started the drilling at depths of 17,000 to 21,160, feet in 5,100 to 8,973 feet of water — each one of them a potential Deepwater Horizon. The contract between Exxon and the government puts the full cost of damages for any oil spill or accident on Guyana.

The contract requires the Guyanese government to pay the Exxon consortium all of the development costs, which will probably amount to over $50 billion. Seventy-five percent of all oil income has to be paid to the consortium until the full $50 billion plus is compensated. The remaining 25 percent is split 50-50, meaning that Guyana for many years to come will only benefit from 12.5 percent of the revenues, plus a royalty of 2 percent. The contract gives the consortium a total tax holiday. The nongovernmental organization Global Witness condemns the deal as grossly unfair, depriving the government of $55 billion in revenue over the next decades, as compared with typical international practice.

The project was conceived when oil averaged over $70 a barrel. Many experts foresee future prices staying under $50 a barrel. The Institute for Energy Economics and Financial Analysis concludes the contract “frontloads revenues to oil interests and backloads revenues to Guyana,” while as years pass “oil reserves will lose value and face obsolescence.” When Guyana finally receives more oil income, forced relocation of much of the population and agriculture caused by climate-induced rising sea levels may have already begun.

Carbon Bombing the Future: The World's Largest Offshore Project.

King Coal: The Two Faces of a Most Critical Mineral
Author
Oliver Houck - Tulane University
Tulane University
Current Issue
January-February 2021
Issue
1

No resource in history has carried the two faces of Janus more staunchly than coal. Among its credits, it literally powered western civilization. The industrial revolution lifted the lives of billions across the globe. On the other hand, it became a bane of human health wherever it was found, and those who mined it were crushed by roof collapses, wall failures, and explosions from mine gasses on a depressingly regular basis. Over 100,000 workers have been killed in coal mines, more than those lost in the Korean and Vietnam wars combined. Those who were spared have suffered from black lung disease, emphysema, and cancers leading to long illness and slow death. Janus is smiling, Janus is weeping, and we have yet to decide what to do about it.

Two recent volumes, Coal: A Human History by Barbara Freese and Jeff Goodell’s Big Coal: The Dirty Secret Behind America’s Energy Future, provide two bookends to this saga. Freese’s work describes the human side from the early discovery of the “black magic” to the technologies of today, including the elusive dream of carbon sequestration. Goodell focuses more on the political side, and the largely successful efforts of the coal industry to defeat regulation, including bringing SLAPP suits against its critics. Everything about coal is hardball.

Freese opens with a scene from England in 1306, when the “bishops, barons and knights” of the kingdom journeyed to London to participate in the “novel democratic experiment known as Parliament.” They were used to the familiar noxious odors of the time, but the artisans of the city had begun burning sulfur-laden coal, which the nobles responded to with laws that banned its use. When the ban was ignored they levied “great fines and ransoms,” and second offenders were to “have their furnaces smashed.” They were, of course, trying to halt the rising sea.

The English people learned to “tolerate what had been intolerable,” setting the stage for the rest of the world to follow. By the time of Charles Dickens coal was seen as a gift of God that would not only lift our circumstance, but our very souls. This faith was reinforced by noting that the coal resources of Europe lay in Anglo-Saxon hands, providing a “controlling influence on the affairs of the world.” Coal and God went together. Coal mining and coal furnaces roared their approval.

No one suffered the brutality of coal more than children, the younger the better. A mining family often went down into the dark shafts together, he with pick to claw lumps from the walls, the children to load them into the cart, and the wife who, harnessed “like dogs in a go-cart,” crouching under low and uncertain ceilings, who pushed or pulled the load to the surface. In later times this hauling would be done by horses and mules, who were first blinded to make them more docile in the environment below.

To the extent mines were aired in order to dissipate the toxic gasses, young girls were entrusted with opening and closing doors to accommodate the flow . . . alone, in the silence and the darkness. An eight year old described her day as follows: “I have to trap without a light, and I’s scared. I go at four and sometimes half-past three in the morning and come out at five and half-past. I never go to sleep. Sometimes I sing when I’ve light, but not in the dark: I dare not sing then.”

Miners and mining families were afflicted by yet another disease unheard of but ubiquitous at the time: rickets. Humans share the ability to photosynthesize sunlight into a critical nutrient, Vitamin D. Cut off from sunlight by coal smog or the deep mines themselves, we, like plants, begin to wilt. Our bones soften and bend. Adults and children, if they can stand at all, stand as if their legs were bowed around a barrel.

Young children raised in the new industrial darkness were particularly vulnerable to this disease. Undernourished to begin with, they had little time to be out of doors, and when they did go out the smoke-blocked sun was, in the words of Alexis de Tocqueville, “a disc without rays.” As recently as 1918 the government found that fully half of the British population in industrial areas suffered from rickets, seriously compromising the “efficiency of the race.”

Today these conditions, and with these consequences, would be treated as homicide. Murder two or manslaughter, depending on the jurisdiction. But we had become tolerant of the intolerable. Which is another way of saying selling out. What we would do about it is a subject of the second book in this review, Big Coal.

Jeff Goodall begins on a very different note. “In America,” he writes, “the story of coal’s emergence as the default fuel of choice is inextricably tied up with corruption, politics and war.” He spends the rest of the book proving it, and in its way it is fully as sobering as Barbara Freese’s description of life down in the mines.

Every Republican president since Nixon has appointed coal-friendly administrators of coal-related agencies. President George W. Bush owed his election to support from coal-driven West Virginia, and Vice President Cheney’s Coal Task Force called for 1,900 new power plants and the relaxation of enforcement against dirty facilities. Bush’s proposals to relax emission standards was called the “Clear Skies Program.” Truthspeak, straight from 1984.

Although Goodall’s book was written before the advent of Donald Trump, the game has only gone up another notch since. Trump campaigned on a platform of “beautiful coal,” which has since become “beautiful, non-polluting coal.” The current EPA administrator, Andrew Wheeler, represented the coal industry and lobbied against the Obama Clean Power Plan. There are no brakes.

Not for want of trying. Perhaps the most hard-fought regulatory action on coal has been a near-legendary fight between industry and EPA over mercury. In 1997, Goodall relates, a researcher at Dartmouth named Karen Wetterhahn spilled a single drop of concentrated mercury on her hand. Not to worry, she was wearing latex gloves. Some five months later she began “bumping into walls” and “slurring her words.” She was tested: mercury poisoning. In another few months she was dead.

Dr. Wetterhahn was not alone. In 2010 coal-fired power plants released over 66 tons of mercury, more than all other industrial sources combined, killing an estimated 32,000 people a year. Hauntingly similar to the children in coal mines, EPA scientists have found that the risks are greatest for women of child-bearing age, where the mercury “readily passes to the fetus and the fetal brain,” producing “abnormalities and developmental delays.” Perhaps the most dramatic example arose from mercury discharges in Minimata, Japan. Children playing in wastewater suffered muscle failure, loss of smell, sight, and hearing. In all, the “Minimata disease” touched 2,226 victims, nearly 80 percent of whom, after immense suffering, died. Others survived horribly as well. Japan was not ready for regulation. Neither was America.

Instead, America stalled for 20 years, and then stalled again. The Clean Air Act of 1970 intended to come to grips with major polluters, but its most important component, technology standards, was stymied in Congress by coal-state senators. The impasse led to a fatal compromise in which these standards would apply to new facilities, but existing ones, many of them old smokers, went free. The fly in the ointment is that there weren’t any new ones being built, and so total coal emissions remained the same.

Finally, in 1990 Congress bit the bullet and required maximum achievable tech standards to the old facilities as well, but Big Coal wangled its way to an exception. Here EPA was first to study whether coal needed to be regulated (which seemed rather obvious); then determine what regulations were necessary and warranted; and then promulgate them. It was a very obvious and logical process. EPA worked its way through the drill, found regulation necessary and warranted, issued proposed regs. They didn’t happen.

Instead, the Bush administration found that the regulations were not necessary and warranted because its Clear Skies program would provide more cost-effective relief. It took several years of litigation to kill this idea, at which point the incoming Obama administration went back to the drawing board, did its own new studies, found mercury regulation to be both necessary and warranted, and promulgated final regulations. The entire dance had taken 30 years but at last, something would happen to mercury,.

This was not to be, either. Big Coal petitioned for certiorari and ran into the welcoming arms of Justice Antonin Scalia and four Republican-appointed colleagues. Tweaking the statutory word “warranted,” they found the price tag of the regulations, $9.8 billion per year, unjustifiably steep. Justice Elana Kagan and colleagues, dissenting, pointed out that the annual benefits of the rule alone included between 4,200 and 11,000 fewer premature deaths, 3,100 fewer emergency room visits for asthmatic children, 4,700 fewer non-fatal heart attacks, and 540,000 fewer days of lost work. Had these losses been quantified, they would have dwarfed the Scalia price tag.

Nor was it now over. EPA went back, re-did the rule, and included these benefits, opening a new front on whether “indirect” benefits such as these were lawful.

That litigation is now pending.

Meanwhile, Big Coal faces a more existential threat. One is the availability of less expensive natural gas. The other is the availability of wind and solar energy whose market share is dramatically rising. The last chapter of this story, then, could be quite different. Big Coal, whose toxic emissions have yet to be corralled and whose carbon emissions have been beyond our political reach, may be resolved in another way. It would be the way the big dinosaurs were resolved. Conditions changed. They simply died out.

Oliver Houck is professor of law at Tulane University. www.oliverhouck.com.

King Coal: The Two Faces of a Most Critical Mineral.

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