Statewide Recycling Passes the Senate

After more than two hours of debate, the Senate yesterday passed Senate Bill 234 by a convincing margin of 17 to 3. SB 234 would institute statewide recycling for Delaware and replace the current five cent bottle deposit with a four cent fee.
DNREC Secretary Collin O'Mara was quick to reassure senators that the bill would not create any "trash police," and would not provide for any fines or sanctions for households or businesses that didn't participate. Ease of use will drive participation, without any need for coercion.
As for the economics, O'Mara pointed out that even when the DSWA has to pay someone to take a ton of recyclables off its hands (due to low commodity prices), it is still less than the cost of landfilling.
As the News Journal reports, opponents of the measure call it a tax instead of a fee. Much of the two hours of debate was given to the matter. David Swayze, representing the out of state Glass Bottling Institute, offered the "if it quacks like a duck" argument for calling it a tax. But the Senate attorney, who was called to the floor several times, pointed out that the fee was limited to a specific purpose and didn't meet the definition of tax, which is why the bill could originate in the Senate, and not the House.
Next up will be the House Natural Resources Committee. Stay tuned.

SB 234: Economic Efficiency of Single Stream Recycling

Yesterday, I highlighted my updated present value analysis of the benefits of reducing landfill accumulation. In my second excerpt from my comments on SB 234, I focus on the economic efficiencies of a single stream system:

Single stream collection and handling is far more efficient than older methods that require household sorting and separate handling every step of the way.
These efficiencies are clearly illustrated by comparing the curbside programs run by the City of Wilmington and the Delaware Solid Waste Authority (DSWA). The DSWA runs a voluntary program that reaches about one out of every seven Delaware households, and until recently required sorting and separate handling. The DSWA charges $72 a year, and loses money on the program even though it has switched to single stream recycling.
The City of Wilmington serves all households, does not require sorting or separate handling, and uses its existing trash collection crews and trucks. The net cost to the City, even in a depressed commodity market, is less than $8 per household per year. If commodity prices were to recover, the net cost would be less than $3 per household per year.

Despite these economic benefits, it is worth noting that environmentalists are not entirely happy about having to give up a long cherished victory: the bottle bill passed nearly three decades ago.

Cape Wind Gets Go Ahead from Interior Department

The New York Times has the news:

BOSTON — After nine years of regulatory review, the federal government gave the green light Wednesday to the nation’s first offshore wind farm, a highly contested project off the coast of Cape Cod.

Cape Wind has endured far more than Bluewater Wind ever did in Delaware. As much as I would like Delaware to build first, Cape Wind has earned its place in history by sheer doggedness.
But this is about more than just pride of place. In order for any of these projects to succeed, all of them have to move forward in order to make the supply chain economically feasible. With more than 2 gigawatts in the pipeline, and the federal government clearing regulatory obstacles from the path, suppliers are more likely to find the millions in financing needed to build these wind projects.

SB 234: Reducing Landfill Accumulation

In this post, I present the first of two excerpts from my written comments on SB 234, which would make universal recycling a reality for every Delaware household. In this excerpt, I look at the economic value of reducing landfill accumulation, using methods I first wrote about four years ago:

SB 234 finds “it is in the interest of all Delawareans to minimize the need for future landfill capacity and the associated costs by reducing the flow of waste to landfills.”
I have created a simple model of the relative costs of postponing the siting and construction of a new landfill to replace Cherry Island Landfill (CIL)—if the land could be found at any price. This simplified calculation assumes that the CIL would reach its capacity in 2035 under current trends, and that a zero waste strategy would extend its useful life a further 25 years to 2060.
Five years ago, the replacement cost for the CIL was estimated to be $106 million—a figure that is almost certainly low given any reasonable projection for land costs over the next 25 to 50 years. Thus I have included the figure of $250 million as a comparison, though the cost 25 years from now could go even higher.
I calculated the present value of postponing CIL replacement from 2035 to 2060 using a discount rate of 4.66%, the current AAA municipal bond rate. I found that postponing CIL replacement by 25 years would yield present value (PV) savings—savings in today’s dollars—of between $9.75 million and $23 million:
As a rough rule of thumb, postponing CIL replacement through a zero waste strategy would create roughly $9-10 million in present value savings for each $100 million of future costs postponed.
Of course, we may not be able to find the required 500 to 800 acres at any cost. The footprints of DSWA’s major landfills range from 513 acres (CIL) to 835 acres (Sandtown), which comes to roughly 12 to 20 40-acre farms. If a site for a new landfill cannot be found, we would be looking at higher costs for waste disposal, including transportation costs to a downstate or out of state landfill.
If Cherry Island closes and a replacement can’t be found in New Castle County, we could see a daily parade of trash trucks—one every minute for nine hours day, seven days a week—running down Route 1 to downstate Delaware.

SB 234 is scheduled to come up for a vote in the Senate on Thursday.

Coal Power on the Way Out in Delaware

The announcement last week that Pepco Holdings is selling Conectiv to Texas based Calpine included some good news for those who care about clean air. The News Journal reported that Calpine plans to stop burning coal at the Edge Moor/Hay Road power plants:

The cessation of coal-burning at Edgemoor is good environmental news, said former Delaware natural resources secretary Nicholas DiPasquale. Natural gas doesn't have nearly the same level of pollution, including carbon emissions, he said.

According to the 2008 Toxic Release Inventory, the Edge Moor/Hay Road Power Plants ranked second in air emissions, behind Indian River. Indian River and Edge Moor/Hay Road together accounted for 75 percent of air emissions in 2008.
NRG plans to close down three of its four coal burning units at Indian River in the next three years and install new controls on Unit 4 next year. Under plans negotiated with the department of Natural Resources & Environmental Control, Units 1 and 2 will be shut down next year, and Unit 3 will be closed by 2013. NRG will spend $360 million to install the new controls on Unit 4.
So emissions from the two largest coal burning power plants in Delaware will be drastically curtailed over the next three years.
The 150 jobs that will be eliminated by Calpine have nothing to do with the decision to stop burning coal. The jobs are mostly energy trader positions; Calpine has a sizable energy trading operation back in Texas.
The decisions by two large energy companies to burn far less coal in Delaware will mean much cleaner air for us to breathe.

The Prospects for Financial Reform

The Guardian opinion site, Comment is free, has posted my latest commentary on financial reform. The good news is that, instead of being watered down along the way, reform efforts are getting stronger:

Democratic Senator Blanche Lincoln of Arkansas, who until recently was considered weak on the subject, passed a tough bill out of her agriculture committee that would impose transparency requirements on the murky world of derivatives trading.
Ted Kaufman of Delaware thinks that banks have simply gotten too big and is pushing a bill to cut them down to size, a proposal that would have seemed outlandish not long ago. With an MBA from Wharton, Kaufman is an unlikely crusader for reining in the financial sector, but he has been pushing for stronger reform in a remarkable series of speeches on the Senate floor.

And for those with short memories, let us not forget why reform is necessary:

Wall Street made billions churning the accounts of its clients with fiendishly complicated derivatives that poisoned the entire financial system and crippled the world economy when overheated real estate prices fell. A modern economy requires a modern and complex financial sector, but it's hard to see how these machinations served any social or economic purpose other than to make bundles of money for the firms that sold them.

MMS Sets Path for Approval for Offshore Wind

Aaron Nathans reports in the News Journal that the Minerals Management Service of the Interior Department has established a regulatory path forward for NRG Bluewater Wind and other offshore wind power developers:

"This is the final piece of the puzzle that allows NRG Bluewater Wind to proceed: to obtain permits, finance and construct this project," Mandelstam said. "All of the other pieces of the puzzle are in place."

There is little more difficult than seeking approval from a regulatory agency for a project that has never been proposed or reviewed before. (I know, I've worked on such a project for the City of Wilmington.) The agency knows it has to do something, but what?

The MMS procedure sets a path for offshore wind power projects to gain approval on an expedited basis:

"If responses indicate there is no competitive interest in this area, the agency may proceed with the noncompetitive lease process. Whether the leasing process is competitive or noncompetitive, it will include public participation as well as a thorough environmental review conforming with all applicable laws."

Oil companies compete for offshore leases, but the companies racing to build offshore wind are not competing for the same locations. Bluewater, Deepwater and Fisherman's Energy are all busy enough developing their separate sites, so they won't be slowing things down by fighting for particular locations. The MMS process gives offshore wind developers a clear and predictable path forward that allows them to plan the engineering, permitting and financing, and maintain a leading position in the race to build offshore wind power in the U.S.

Broad Support for Recycling in Delaware

The Senate Natural Resources & Environmental Control Committee hearing on SB 234 lasted nearly two hours. The committee heard from 16 witnesses representing the business and environmental communities.
SB 234 would establish universal curbside recycling, eliminate the current five cent bottle deposit and replace it with a four cent fee that would go away in four years.
A crowded hearing room is often a sign that a bill is in trouble, but not this time. Most of the witnesses from both sides support the bill.
The retailers who don't like the bottle bill support SB 234, as do the grocery stores, restaurant association and beer distributors. The independent waste haulers like the bill, except for two words out of 14 pages. A couple of narrow business interests argue for keeping a multiple stream system instead of moving to single stream. I and others argued the single stream recycling is far more efficient and encourages greater participation.
The Delaware Nature Society, Clean Air Council, Zero Waste Working Group, Recycling Public Advisory Committee and League of Women Voters all support the bill. The Surfrider Foundation voiced its support while asking to keep the bottle deposit, as did a woman representing a group called Recycle First State.
Committee chairman Dave McBride said he will hold the record open for written comments through next Wednesday and then move the bill to the Senate floor for a vote Thursday, April 29. Stay tuned.

Statewide Recycling Bill To Be Introduced Today

Back in January, Jack Markell proposed a plan for statewide curbside recycling. Today the Senate Natural Resources & Environmental Control Committee will meet to discuss SB 234, which will make curbside recycling a reality for every household in Delaware.
The renewed push for statewide recycling began in earnest last year when Markell vetoed the "Unbottle Bill." In his veto message, he said "we need to review this issue in a larger context that takes into consideration the environment, the industry and Delaware taxpayers."
The Senate Natural Resources & Environmental Control Committee meets today at 2:00 in the Senate Hearing Room in Legislative Hall.

The GOP's Last Ditch Stand against Bank Reform

The moment I read that Mitch McConnell was complaining about politicizing financial reform, I knew a bill would pass. The New York Times has the story:

In a televised appearance on Sunday, Mr. McConnell asserted that Mr. Obama was “trying to politicize this issue,” and stoutly defended his argument in recent days that the Democratic bill would institutionalize taxpayer bailouts of big banks.

Never mind that McConnell persuaded 41 Republican senators to sign a letter opposing the current bill. Several of those senators are ready to break ranks:

Senator Scott Brown, the Republican from Massachusetts who has made a point of showcasing his independence, said on Sunday that he would be willing to work with Democrats on a compromise version. “We absolutely need to fix certain areas in financial reform,” Mr. Brown said on “Face the Nation” on CBS.
And on Monday, Mr. Geithner will meet with Senator Susan Collins of Maine, who was the last of the Senate Republicans to agree to sign Mr. McConnell’s letter opposing the Democratic bill.
Several Republicans on the Senate Banking Committee have worked with Democrats on the committee for the last year on bipartisan legislation, despite Mr. McConnell’s intervention at times against their talks.

This is going to get done, despite McConnell's efforts to spin GOP opposition as an improbably populist stand against bank bailouts.

Report Finds No Misconduct in "Climategate"

The Guardian reports that a review of the methods of the Climatic Research Unit (CRU) at the University of East Anglia found no professional misconduct:

The climate scientists at the centre of a media storm over emails released on the internet were disorganised but did not fudge their results, an independent inquiry into the affair reported today.

Here's the key finding from the seven professors who reviewed the CRU's methods:

We saw no evidence of any deliberate scientific malpractice in any of the work of the Climatic Research Unit and had it been there we believe that it is likely that we would have detected it. Rather we found a small group of dedicated if slightly disorganised researchers who were ill-prepared for being the focus of public attention. As with many small research groups their internal procedures were rather informal.

Given the initial furor over the research group's e-mails, one might think that this finding might gain significant media attention. Sadly, no. The New York Times devoted a single paragraph on page A15 to the report. So much for Climategate.

Obama and the Markets

Former Saturday Night Live player Victoria Jackson may think "there's a communist living in the White House," but Business Week reports that financial markets are responding well to Obamanomics:

The Standard & Poor's 500-stock index is up more than 74% from its recessionary low in March 2009. Corporate bonds have been rallying for a year. Commodity prices have surged. International currency markets have been bullish on the dollar for months, raising it by almost 10% since Nov. 25 against a basket of six major currencies. Housing prices have stabilized. Mortgage rates are low. "We've had a phenomenal run in asset classes across the board," says Dan Greenhaus, chief economic strategist for Miller Tabak + Co., an institutional trading firm in New York. "If Obama was a Republican, we would hear a never-ending drumbeat of news stories about markets voting in favor of the President."

For all the talk about socialism, Obama's economic policies are shaped more by circumstances than by ideological differences with Rubinomics:

Martin Baily, who was a chairman of the Council of Economic Advisers during the Clinton Administration, says he suspects Rubin and the rest of the Clinton economic team would have made similar decisions—on bailouts, fiscal stimulus, and deficit spending—had they faced a crisis of similar magnitude. "I think we would have gone the same way," he says. The Obama team, he continues, navigated the financial crisis while never losing sight of the importance of private enterprise and private markets (a point Obama stressed in his Feb. 9 interview with Bloomberg BusinessWeek). "A lot of people on the left were urging them to nationalize banks. Instead they injected capital, and now they're pulling capital out. That looks more like Rubinomics than a set of socialist or left-wing economic policies.

What's more, it's working:

"When you take it all together, the response was massive, unprecedented, and ultimately successful," says Mark Zandi, chief economist at Moody's Economy.com (MCO).

Rising Currents at MoMA

What effect would rising sea levels have on New York City? The Museum of Modern Art has mounted an exhibit, Rising Currents: Projects for New York's Waterfront, that looks at adaptation strategies for New York.
MoMA and its sister institution P.S.1 created five teams to "re-envision the coastlines of New York and New Jersey around New York Harbor." The teams presented adaptation strategies that focus on “soft” infrastructures, instead of building hard sea walls. The resulting plans include creating new transition area zoning for land being lost to rising water levels, converting some streets in lower Manhattan to waterways, and creating soft barrier island of the current shoreline.
Looking at the drawings and models brings home the cost of responding to rising sea levels. For instance, if we don't act to reverse global warming, Ground Zero would be lost to the encroachment of tidal waters.
Rising Currents can be seen through October 11, 2010.

How Clean is the Marcellus Shale?

My friend Tom Konrad at Clean Energy Wonk, writes that natural gas from the Marcellus Shale may not be as cheap, clean and abundant as advertised. Yes, natural gas does burn cleaner than coal, once it has been extracted. But Cornell professor Robert Howarth has written a draft paper that concludes that, when it comes to greenhouse gas emissions, extracting natural gas from the Marcellus Shale could be as dirty as coal power:What is likely to make the Marcellus Shale so damaging in terms of greenhouse gas emissions is the leaking of methane from the gas fields through the many wells and coal mines that have perforated the shale formation over the years. Methane may burn cleanly, but is a potent greenhouse gas if it escapes into the atmosphere.

Krugman on the Green Economy

In a lengthy piece in the New York Times Magazine, Paul Krugman gets right down to it:

But is it possible to make drastic cuts in greenhouse-gas emissions without destroying our economy?

Krugman walks us through the basics of environmental economics, starting with negative externalities. He compares the classic regulatory approach to limiting pollution with market based systems, which leads us to cap and trade. Krugman describes how using market forces drove industry to find the most cost efficient methods to reduce sulfur dioxide.
Krugman compares the costs of acting (one CBO estimate: 0.09 percent of GDP) with the cost of inaction. The entire piece is too long and too comprehensive for me to sum it up. Just go read it.

A Transmission Backbone Would Make Offshore Wind More Efficient

Governor Jack Markell has floated the idea of a transmission backbone to link offshore wind power projects along the east coast. As the News Journal reports, Professor Willett Kempton and his colleagues have published a paper in support of the idea.
The paper (available here) concludes that such a backbone would be a cost effective way to smooth out the expected fluctuations in wind power:

Is transmission an economically practical way to level wind? As an approximate cost comparison, a total of 2,500MW of offshore wind generation has been approved or requested by states from Delaware to Massachusetts (all those shown in Fig. 1, plus the 700MW New York request for proposals). Connecting them by a 3 gigawatt (GW) HVDC submarine cable would require 350 miles of cable. At early European offshore wind capital costs of $4,200/kW and submarine cable capital costs of $4,000,000/mile, the installed costs of planned offshore wind generation would be approximately $10.5 billion; the connecting transmission would add $1.4 billion. They are matched in capacity, each approximately 3 GW, yet the transmission adds less than 15% to the capital cost of generation. This is in line with the market cost of leveling wind via existing generation, currently estimated to add about 10% to the cost of energy (10% cost adder for wind penetrations up to 20%, then a higher percentage cost added at higher penetration of wind).

When Bluewater Wind was first given the go-ahead to build an offshore wind farm in Delaware, a natural gas backup facility was proposed to compensate for the fluctuations in output. Kempton and others argued that a backup plant might not be necessary. Now he has some analysis to back up his opinion.

Offshore Drilling and the Economy

The Plum Line reported last week that the decision to open up some Atlantic waters to offshore drilling was designed, not to attract Republicans but Democrats, citing this statement from Senator John Kerry supporting Obama's decision:

In the difficult work of putting together a 60 vote coalition to price carbon, Senator Kerry has put aside his own long-time policy objections and been willing to explore potential energy sources off our coasts as part of a suite of alternative solutions. He and his colleagues are committed to find acceptable compromises on onshore and offshore oil and gas exploration, conducted in an environmentally sensitive manner that protects the interests of the coastal states.

Obama could also be looking to reduce the balance of trade problem created by imported oil as part of the larger effort to get the U.S. economy on a more solid footing. How often have your heard it said that the U.S. is borrowing money from the Chinese to buy oil from the Middle East? The current issue of the Economist includes an interesting analysis showing that net imports of oil and natural gas could decline in the next 15 years:

Increased supply and decreased consumption have radically altered the outlook for imports. Five years ago the EIA [Energy Information Administration] forecast that by 2025 America would be importing 16m barrels of oil a day, or 68% of its needs (see chart 6). Now that forecast has come down to less than 9m. Disappointingly, the total bill will still be higher because prices have gone up so much. But at least the American economy will be less dependent on imported oil.
The outlook for natural gas has changed even more. Five years ago the EIA thought that by 2025 America would be importing 28% of its natural-gas supply, much of that through newly constructed liquefied-natural-gas terminals. That forecast has now come down to 9% of its supply. Construction of a number of LNG terminals approved years ago is on hold.

One thing increased offshore drilling won't do is insulate the U.S. from world energy prices. Even if the U.S. were to completely wean itself from imported oil and gas, domestic energy prices would still be coupled to world prices. The only way to protect our economy from volatile fossil fuel prices is to reduce our use of fossil fuels.

Obama Announces Offshore Oil Drilling in Atlantic Waters

It was not a great day for proponents of clean energy. Barack Obama announced an expansion of offshore drilling to include areas off the Atlantic coast. The New York Times describes it as part of a political calculation:

In proposing a major expansion of offshore oil and gas development, President Obama set out to fashion a carefully balanced plan that would attract bipartisan support for climate and energy legislation while increasing production of domestic oil.

According to the News Journal, Delaware Audubon Society President Mark Martell sees the political angle as well:

"Many Republicans have stated recently that they intend to go after other new Obama initiatives in this election cycle and the president is shrewd for putting an initiative in front of them that has traditionally been one of theirs," Martell said. "Unfortunately for environmentalists, this political decision is seen as a setback to pushing for renewable energy sources."

Governor Jack Markell was cautious in his response:

"Although we are still reviewing the details of this proposal, I have concerns with the adverse impact it may have on our environment and Delaware's important tourism industry," Markell said. "We are committed to working with the Obama administration to reduce our nation's dependence on foreign oil, but I believe the first priority for Delaware's coastline should be moving forward with offshore wind and seizing the potential jobs from this emerging industry."

Meanwhile, Talking Points Memo writes that Interior Secretary Ken Salazar is backing away from the cap and trade approach to climate change:

"I think the term 'cap and trade' is not in the lexicon anymore," Salazar said, adding that supporters -- including senators working on legislation -- will focus more on ideas such as slowing pollution, creating jobs and becoming energy independent. "It's in that context" the Senate will move forward, he said.

Don't look for gasoline prices to drop anytime soon. The first leases won't be auctioned for another year or two, and it may take a decade before new platforms start pumping. We whould be able to build thousands of megawatts of offshore wind power by then.
And as Joe Biden pointed out two years ago, 79 percent of the oil in the Atlantic and Gulf of Mexico is already available for extraction. We may not see that much more of an oil rush from yesterday's announcement.