Transition to low-carbon future will unfold slowly, execs say

The U.S. is on the cusp of an energy transformation driven by policy and environmental goals, but it will take a long time for that transition to unfold, business leaders and analysts said Friday.

Major obstacles — including a “clunky” regulatory regime and the challenge in harnessing new, land-hungry sources of power — stand in the way, the experts said at IHS CERAWeek.

“The world is really in uncharted territory,” observed Samantha Gross, director of integrated research at IHS. “There’s never before been an energy transition where policy . . . was the primary driver.”

New and proposed environmental regulations in the U.S. and around the globe that aim to combat climate change will force energy companies to trim heat-trapping carbon dioxide emissions produced when fossil fuels are burned.

Unlike some past energy transformations that happened organically, new power sources driven by environmental mandates may not be cost-competitive, Gross said. And the capital-intensive nature of the energy industry ensures the transition to a smaller carbon footprint will be slower than for other industries.

Richard Newell, the former director of the government’s Energy Information Administration, noted that major oil companies now are envisioning a power mix with lower-carbon intensity, but the challenge in scaling new technologies and making them cost-competitive ensures a long timeline.

“Energy innovation must scale. It must make economic sense in the market. And it will take significant time to unfold and have impact,” said Newell, now director of the Duke University Energy Initiative. “It won’t be easy, and it won’t be quick.”

In the United States, a web of environmental regulation — rather than a single, clear-cut climate change program established by Congress — also could slow progress. Efforts to develop a broad, economy-wide carbon cost and a cap-and-trade system for exchanging CO2 emissions credits have collapsed in Congress, and they aren’t expected to be revived anytime soon.

[poll id=”47″]

James Connaughton, the executive vice president of Exelon Corp., called the current regulatory approach to climate change in the U.S. “clunky and expensive.”

Some nine environmental mandates set by the federal government and an assortment of states translate into carbon costs of about $50 per ton of carbon dioxide emissions, Connaughton noted, compared to a potential $15 price tag that might have been set as part of Congress’ failed cap-and-trade bill.

The current regulatory approach ensures higher costs, since limits on federal agencies’ authority don’t aim carbon constraints at the easiest, cheapest sources of emissions, Gross said.

“We’re regulating piecemeal through the regulatory process in places where statutory authority exists, (but) this is not necessarily the most efficient way to go about it,” Gross said. “The implied carbon prices behind these policies differ greatly, and we’re not going for the low-hanging fruit in terms of cutting emissions.”

A congressionally driven approach to constraining greenhouse gas emissions — particularly an economy-wide carbon tax — could do more to unlock some promising technologies, Newell said. One casualty, Newell said, is the development of commercial carbon capture and storage technology, which could be used to bring down emissions at coal-fired power plants.

“The key to innovation is that there is actually demand for the innovation. That is one of the things that has really slowed down CCS,” Newell said. “There isn’t a sufficiently stringent carbon policy that would make CCS deployment particularly profitable.”

Related story: Power company puts carbon capture project on hold

But with a CO2 fee dead on arrival in Washington, D.C., Connaughton said, “every minute you spend talking about a carbon tax is a minute wasted you could spend talking about something that could actually move forward.”

Another major challenge in transitioning to cleaner energy centers around the land-hogging nature of many low-carbon power sources, be it biofuels, wind farms or solar installations.

It takes about two orders more land area to produce a megawatt than fossil fuels, Gross said. That’s a real problem when utilities are trying to supply power to cities with concentrated, high demand.

The future challenge is “trying to supply very high-energy-dense centers with low-energy-dense energy,” se said. “There’s a fundamental challenge between the density of these energies and the density of demand we’re seeing in cities.”

Newell likened the dynamic to “a million nickels scattered everywhere.” “It’s not a pot of gold concentrated in one place,” he said.