My friends at UC Berkeley were kind enough to give me there course notes. They approach the topic from an industrial organization perspective (think of OPEC as a cartel or the California electricity crisis in 2000 being caused by strategic behavior of individual power plants ) while I want to approach this topic from an environmental perspective.
I'm toying with trying to take my lecture notes and turn them into a short book but we will see about that. Now that my first lecture is approaching, I'm wondering why I agreed to do something new. I always respected that Robert Lucas would offer new courses at Chicago but most guys don't bother to do this.
Could energy economics become big? My friend Gib Metcalf is hard at work on this subject. The policy relevance of this topic is obvious. The NBER has remained its environmental group the environmental and energy group. Energy embodies several key issues such as innovation, environmental externalities, national security, uncertainty, huge upfront investments, insecure property rights. In short, this is serious stuff!
I'm always searching for more good material and I found this today at Starbucks.
Promoting low-carbon fuels for California's energy future
Mike Wirth
Monday, August 13, 2007
The University of California report on implementing the governor's Low-Carbon Fuel Standard (LCFS) is an important signpost to California's energy future. The architects of the LCFS acknowledge we need major technology breakthroughs to meet its goals. What California also needs is policymaking that unleashes - not shackles - the power of the market.
By reducing the carbon intensity of transportation fuels 10 percent by 2020, the LCFS is designed to accelerate the development of efficient, low-carbon fuels in California's energy portfolio. This has never been tried anywhere in the world.
Meeting the LCFS goals will require the development of entirely new fuels - whether they be new low-carbon ethanol, biodiesel or other fuels. The California Air Resources Board recently made a change that enables an increase of ethanol in gasoline from 6 percent to 10 percent. That's a start, but to achieve the ultimate goals of the LCFS, we need to move beyond corn-based ethanol. The real promise - and the real challenge - of the LCFS is in developing new technology that will allow nonfood sources, such as wood pulp or agricultural waste, to be used for renewable fuels. This will liberate us from the no-win scenario of our fuel sources competing with our food for land use.
The search for this new fuel technology will require the kind of pioneering approach for which California has become renowned. Public-private research partnerships are vital if we are to realize the vision and businesses need to come together to collaborate on emerging technology, as Chevron and Weyerhaeuser Co. are doing to conduct advanced R & D in commercial-scale biofuels production using plant fiber and other cellulose-based materials.
But new technology is just one part of the equation. Economics is another. How can California policymakers develop a program that has the greatest likelihood of success? By using the power of the market to encourage investors to develop commercially viable low-carbon fuels - and here's how:
-- Focus the program on liquid fuels for cars and SUVs, rather than non-liquid fuels or diesel for heavy duty vehicles. Liquid fuels for cars and SUVs are the largest sector of petroleum products and offer the biggest market for any potential new fuels, so let's get this right first.
-- Encourage innovation and investment certainty with a milestone-based approach. The first milestone could be a requirement for 200 million gallons a year of truly breakthrough low-carbon California transportation fuel by 2012. Setting interim milestones through 2020 provides a stronger incentive for new technologies to develop and allows the state to assess the progress being made. If we meet the early milestones and the emerging technology proves to be commercially viable, there will be more certainty and an incentive to invest the billions of dollars needed to produce the fuel in meaningful quantities.
-- Reduce the economic burden of compliance and impact to markets by enabling California's fuel providers to trade credits. A flexible credit trading program amongst providers would help achieve the goal of the LCFS in the most cost-effective manner. Lower costs are good news for everyone, especially for consumers.
While we work to develop the new technologies that can make this program successful, it's important to remember that the Low-Carbon Fuel Standard remains an experiment, and California is the testing ground. The policy decisions made today will determine whether the consumers of the future are well served in terms of supply, affordability and quality.
It is a huge challenge to re-engineer an energy supply system and marketplace that have been a hundred years in the making. California has placed a stake in the ground, and it falls to us all to meet that challenge.
Mike Wirth is executive vice president, downstream, for the Chevron Corp.
http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/08/13/ED9ARC5ME.DTL
This article appeared on page D - 9 of the San Francisco Chronicle