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Is T. Boone Pickens Tight?


Los Angeles Times
August 19, 2008


V. John White says the oil giant has done us a service by sparking a
conversation on renewable energy. Jerry Taylor says Pickens is only trying to
rig the energy market in his favor.

Today's question: Oil giant T. Boone Pickens wants to turn much of the Great
Plains into a wind-power farm. How practical is his plan? Should we do it?
Previously, White and Taylor discussed offshore drilling.

Half right is a good place to start

Legendary oil man T. Boone Pickens is an unlikely green-energy hero. But his
plan to radically expand wind energy production and shift natural gas from
electricity production to fueling cars and trucks has caught the public's
imagination.

Pickens is planning to build the world's largest wind farm in Texas, and he has
taken options on wind turbines without waiting for Congress to extend federal
tax credits. He has launched a multimillion-dollar media blitz and has appeared
on television news shows touting the domestic energy potential of large-scale
wind farms and natural-gas vehicles. Pickens has created a buzz because he has a
plan at a time when our nation's leaders are paralyzed with indecision and
inaction.

The wind power part of Pickens' plan makes a lot of sense. There is enormous
potential for wind energy throughout the U.S., with tens of thousands of
megawatts of power that can be generated in the Upper Midwest, Great Plains, the
Rocky Mountain West and Texas. In California, the Tehachapi region of Kern
County has the potential to add two or three nuclear plants' worth of wind
energy to the California grid. The U.S. Department of Energy recently endorsed a
plan to make the nation's electricity portfolio 20% wind by 2020.

The kind of large scale expansion of wind energy that Pickens is talking about
would yield billions of dollars' worth of economic development, create thousands
of jobs and bring more income to farmers who lease their land to their new wind
energy partners.

Getting this wind power to urban load centers will require significant
investment in new and expanded electric transmission lines. Building such
infrastructure is often controversial, and transmission lines take years to get
approved and built. Texas, Minnesota and Colorado have recently approved large
scale expansion of their transmission grid to bring wind power to the urban
centers, and the Western Governors' Assn. has just begun a renewable power and
transmission planning effort to support 30,000 megawatts of wind, solar and
geothermal power. Pickens has urged us to think big about wind and to get to
work doing it, and he's right.

The second part of the Pickens plan, to shift natural gas from electric power
production to transportation fuel, makes less sense. He touts natural gas as an
abundant domestic fuel and says using it in cars and trucks could displace large
amounts of imported oil. But the price of natural gas has tripled in the last
five years, and domestic production has been flat until high prices recently
spurred expanded production. Many experts believe that U.S. natural gas
production could peak soon, and in the future, the U.S. will import large
amounts of liquefied natural gas from Russia, Indonesia and the Middle East.

Using natural gas in high efficiency combined-cycle power plants is a very good
use of this precious energy resource. Because we can't be sure current levels of
domestic natural gas production can be sustained, efficiency matters a lot.
Competition from natural gas vehicles has helped make diesel engines far cleaner
than we imagined they could be. But natural gas vehicles require expensive
investments in infrastructure, and the emissions advantages over diesel have
narrowed.

Rapidly accelerating the mass development of plug-in hybrid vehicles and other
uses of electricity for transportation makes more sense in the long run. Plug-in
hybrids can be charged at night, when using electricity is less expensive.
Charging plug-ins and, some day, making hydrogen for fuel cells from wind energy
that blows at night is a good way to make efficient use of our electricity
system -- and makes more sense than building a whole new infrastructure for
natural gas vehicles.

But Pickens deserves credit for being half right and getting us all to think big
about wind energy.

V. John White is executive director of the Sacramento-based Center for Energy
Efficiency and Renewable Technologies.

John, the Pickens plan is nothing more than a call to rig the market to direct
private dollars toward the fuels that Pickens has invested in and away from the
fuels that Mr. Pickens has not invested in. Gee, what a visionary.

The market needs to be rigged because the fuels that Pickens champions -- wind
power and compressed natural gas (CNG) -- would otherwise get little attention
from energy producers. Doubt me, John? Ask the trade association representing
wind energy or CNG what happens to their market share were the corporate welfare
directed at their industries to disappear.

John, your claim that Pickens' wind energy ideas "make a lot of sense" is
correct only if your last name happens to be Pickens. Wind energy is a dubious
investment for a number of reasons. First, absent subsidies, it's nearly twice
as expensive to produce as coal-fired electricity, and the subsidies on the
books, although lavish, have not managed to close that cost gap. Second, wind
turbines produce most of their electricity during off-peak hours, when wholesale
electricity prices are lowest, and very little electricity during hot summer
days, when wholesale electricity prices are highest. Third, because wind speed
is variable, wind energy production is variable, and undependable dispatch
usually forces wind producers to operate or contract for back-up fossil fuel
electricity generation to meet commitments to the grid when their wind
facilities cannot. Fourth and finally, because wind energy can only be
profitably sited in places where consumers generally are not, the cost of
getting that electricity to ratepayers is far higher than it is for conventional
power plants, which likewise adds substantially to cost. All of that largely
explains why wind energy today only supplies two-thirds of 1% of the electricity
market.

Compressed natural gas is relatively more attractive, yet employing it in large
quantities in the transportation sector requires all-new vehicles or costly
retrofits of existing vehicles and an entirely new fuel delivery infrastructure.
Hence, the transition costs aren't cheap. While natural gas is currently cheaper
than conventional gasoline, how long this might be true is unclear, particularly
if we assume a massive increase in natural gas demand for motor fuels use.
Energy economist A.F. Alhajji calculates that even if all natural gas
consumption today were dedicated toward automotive transportation, only 65% of
our motor needs would be met.

If either wind or CNG has economic merit, then no market rigging would be
necessary; the promise of future profit would be enough to provide all the money
necessary to jump-start those industries. If neither wind nor CNG has economic
merit, then no amount of market rigging will bestow it. All it will do is take
money from relatively more worthy investments.

Economists of virtually all stripes would concede that, as a general matter,
leaving the decisions about what to produce to producers and what to consume to
consumers will produce more efficient economic outcomes than leaving those
decisions to government planners or would-be central planners like Pickens. And
that's doubly true because market actors make decisions (however flawed) based
on economic merit, whereas governmental agents invariably make decisions based
on political merit. Only by the sheerest of chance will politically attractive
ideas also prove to be economically attractive ideas.

That's the main reason why even Carl Pope, the executive director of the Sierra
Club, agrees with me that the best energy plan is to remove everyone's subsidies
and regulatory preferences and let the best fuel win. Unfortunately, the Pickens
plan goes in the opposite direction.

If the idea is to promote more environmentally friendly energy or energy from
domestic sources, then the most direct and least costly means of doing so is to
impose a tax on pollution equal to the damages caused by that pollution, or a
tax on foreign oil equal to the alleged social costs of the same and let markets
sort out what to do. While I don't support such taxes because I'm not convinced
that there are significant costs associated with either electricity generation
or energy imports, those who are so convinced have better places to shop than
Pickens' website for good public policy.

Jerry Taylor is a senior fellow at the Cato Institute.

 

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