Higher Energy Prices Are Here To Stay: A Look At Denmark's Clean Energy Plan, World Energy Sources, Demand And U.S. Policy Implications

by Frank Thomas

INTRODUCTION 

Energy industry experts, researchers within the Congressional Research Service (CRS) the U.S. Energy Information Agency (EIA) have been publishing truly excellent reports dissecting and forecasting global fuel mix, growth and prices. These energy outlook analyses are vital to the debate on sustainable, secure energy sources. But, such detailed studies fall short in generating a Wake-Up call to the urgency of new thinking to achieve energy independence from imports and polluting fossil fuels – and emphasizing how this goal is affected by the broader world energy market supply-consumption balance among key countries, the finite sustainability of fossil fuel energy use, particularly oil, and environmental risks, including drilling in deeper and deeper waters.

The choices we make in fuel mix and in producing, importing,  consuming energy involve severe technical, economic, and ecological constraints. The strategic implications of those choices remain a mystery to most people. This information void applies, for example, to the world forces pushing fuel prices to ever higher support levels despite modest growth in demand for gasoline. Who or what is to blame? No one has a clear explanation. Public speculations and anger abound over the consistent upward path of gasoline  prices, now at an average U.S. price of $4.00 per gallon and ±$100 per crude oil barrel. Ongoing oil price increases to at least $150/barrel by 2020 and $200/barrel by 2030 are more than just likely.

Demand and sustainability are key to understanding the stark reality that the trend of rising fossil fuel costs – households now spend 10% on energy, mostly on fossil fuels – is irreversible. Little wonder escalating fuel prices, an oil import dependence that accelerates colossal trade deficits, and high CO₂ emissions from oil and coal are fueling uncertainty about future energy supply developments and the potential of devastating  ecological/environmental damage. U.S. domestically produced oil/gas supply shortages, technological advances, and ballooning fuel prices are driving offshore drilling to more  difficult, deeper waters of 800 - 1,000 meters or more … where development risks are exponential, where actual increases to total proven reserves from major offshore finds have been relatively modest in recent years. That is why world oil reserves are being depleted faster than the number and size of new offshore fields discovered … another subtle pressure on fuel prices.

Oil companies thrive on high pump prices that deliver the profits needed to pursue high-cost projects in high-risk offshore waters. This also adds to public cynicism and confusion about the right mix of renewable and traditional energy exploitation policies, their long-term effect on economic development and climate change in the context of transitioning to a clean, secure energy economy. 

The key issue explored in this paper is that the cost of fossil fuels, especially oil, and total energy consumption are certain to rise significantly the next two to three decades. This means the cost differential of transitioning to alternate green fuels is fast becoming marginal. And that is why Denmark is on a mission to remove carbon-polluting fossil fuels entirely by 2050 without introducing nuclear energy (coal power combined with carbon storage is an option but is not yet commercially feasible or environmentally friendly).

Other factors pushing fossil fuel prices ever higher include the composition of oil, natural gas, and coal supplies by country – the growing rejection of nuclear – and increasing concentration of oil/gas supplies in a few countries. These macro-factors also give commodity speculators and hedge fund investors a perfect playing field to apply their manipulative commodity shorting/longing trading expertise to milk the system – and to Hell with the rest of society!

The central theme in this paper is that there is a strategic necessity to make faster development of alternative green energy production an urgent national priority. The oil industry has no fiduciary or corporate responsibility to aggressively develop commercial alternatives to fossil fuels. U.S Government policy of getting out of the way of the oil industry – combined with generous subsidies, tax reduction gifts – and not participating as an active partner ( ^e.g. Norway’s example of a state oil company) has led us to the energy dependence we have today. Denmark and Germany realize this, but we still don’t.  

DISCUSSION

PART I:   Sustainability and Denmark´s Road to Fossil Fuel Independence

William Catton in his book, “Overshoot” defines sustainability as follows: 

“A sustainable process or state is one that can be maintained at a certain level indefinitely. It should provide optimal conditions for ALL organisms affected by it and not threaten, even indirectly, the viability of any organisms. … The current level of human activity is unsustainable. That it has been at all is due to the use of fossil fuels, a non-sustainable resource, whose use is by definition unsustainable.”

Denmark and Germany have accepted the reality message behind this definition. They have resisted  the temptation to consider renewable green energy sources as merely a modest and not a dominant contributor of net energy supplies. While the world population is still growing , though more slowly, these two countries realize the Earth’s oil and gas resources are severely limited and that carbon storage and pollution from coal are an environmental nightmare.    

These two countries recognize that the Earth's ability to absorb global warming emissions of ±7 billion tons of carbon dioxide annually from fossil fuels is also limited and very costly. These two countries are getting behind the lifestyle changes and potential net savings of investing heavily in clean, sustainable wind, biomass, and solar energy. As everyone knows, Germany has decided to phase out its nuclear plants. Denmark has no nuclear plants.                        

This brings me to a brief overview of Denmark´s remarkable societal unity and pioneering commitment to a 100% clean, sustainable energy economy. For a detailed description of Denmark’s plan to convert to renewable, clean energy, see   “Energy Strategy 2050,” The Danish Government, Feb. 2011. The Danish define independence from fossil fuels as producing sufficient renewable energy to cover at least 100% of energy demands in 2050.  This would meet a EU policy goal of reducing greenhouse gas emissions 80% by 2050 vs. 1990 emissions. Renewables cover 29% of total electrical production today. Tables 1 and 2 reveal the sheer audacity of Denmark’s accelerated path to renewable energy.      ______________________________________________________________                                                     TABLE  1 :  DANISH GROSS ENERGY CONSUMPTION IN 2050 

                                           Petajoule (PL) Per Year

                                  FOSSIL FUELS                  NON FOSSIL FUELS

                             2008          2050 (1)           2050 (2)          2050 (3)

                                           (unambitious climate policy)      (ambitious c.p.)   

Oil                            292                210                 0                   0

Natural Gas               149                 79                 0                   0

Coal                         187                272                 0                   0

Fossil Fuels             628 = 80%    561 = 64%     0                   0

Solid Biomass             84                 99               433               124

Biogas, Waste            44                 76                 82                 76

Wind                          25                 74               136               265          

Photovoltaics, Wave     0                   0                  0                  15

Heat Pumps                 6                  67                59                 77

Solar, Geothermal        1                   3                10                  25

Renewable Fuels   160 = 20%   319 = 36%   720 = 100%  582 = 100%

Grand-Total             788               880             720               582 

Source: Denmark’s Road Map for Fossil Fuel Independence, July 2011; Energy Strategy 2050, The Danish Government, Feb. 2011

Remarkably, Denmark already produces 20% of its total energy needs from renewables versus 8% for the U.S. today. Denmark will increase this percentage to 33% by 2020, meeting the EU 2020 target of 30% comprising wind, biomass, biogas, biofuels, solar. The above range of gross energy consumption mixes in 2050 under different energy scenarios are calculated to meet expected energy  demand in 2050 of 600-700 petajoule (PL) per year.                                                                                                   

Alternative 1 assumes continued use of fossil fuels. Alternative 2 assumes elimination of fossil fuels. Both scenarios assume an “Unambitious” international climate policy, ^i.e. that rates of CO₂ emissions reduction will remain essentially unchanged and fossil fuel scarcity continues to push energy prices higher. Unambitious emissions reduction policies are assumed to result in moderate prices for biomass and CO₂.                                                      

Alternative 1, is a possible but less attractive scenario. It includes the combining of less renewables and much coal with carbon capture and storage (CCS). Alternative 2 assumes an aggressive expansion of biomass  and wind energy sources where prices are expected to be low. Biomass production used in the energy system in 2050 is limited to relatively the same sustainable food production amount and agricultural area as exist today. Biomass will grow in relation to its price competitiveness with other renewable energy sources.                                                              

Alternative 3 represents Denmark’s ideal scenario to eliminate fossil fuel use under an “Ambitious” international climate policy that restricts rates of atmospheric carbon levels to 450 parts per million, ^i.e. limiting human-caused global warming to within 2 degrees C. This requires western nations to reduce 1990 net greenhouse gas emissions by at least 80% by 2050. Under ambitious emissions reduction policies, it is assumed fossil fuel prices will rise more slowly while biomass and CO₂ prices will increase.  A 25% reduction in total energy consumption by 2050 is predicted and comes from significant energy efficiency improvements , ^e.g. broad deployment of efficient cost-effective heating pumps, and substantial rises in wind and solar supplies.                                                 

For all alternatives, wind and biomass play a crucial role as does a broad range of cost-effective energy efficiency initiatives including for example:      

• raising the energy savings target energy firms must implement for their customers by 50% starting in 2013 and by 75% during 2017-2020                        
• tightening building codes, energy standards, ^e.g. renovation of buildings
• implementing an intelligent energy network and electric meters
• phasing out of oil and gas furnaces, no installations starting 2017
• converting to electric vehicles and 2050 goal that vehicles and average home are using 29% and 40%, respectively, of energy used today                          
• deploying heat pumps for individual, district, and industrial heating  
• providing financial incentives for wind energy through cooperatives
• While costs of heat and electricity will rise moderately, homeowners will be given the opportunity to lower energy costs by greater efficiency. A broad range of renewable energy initiatives will not only promote more efficient energy use but will also encourage a switch to biomass in power plants of cities and increase the consumption of renewable energy.

Denmark’s path to fossil fuel independence along with an 80% reduction in net greenhouse gas emissions by 2050 is ambitious and smart. The near-term goal to double electricity from renewables by 2020 is impressive if achieved. 

TABLE 2 : Denmark’s % Share of Renewables in Electricity Production, 2009 Compared to 2020 Goal

__________________________________________________                                                     

                                    2009                       2020

Fossil Fuels                      71%                         38%

Wind                               19%                         42%

Biomass                          10%                         20%

Total                              100%                       100%                                         

Source:  Danish Energy Agency; Energy Outlook 2012 by EIA

_________________________________________________________________                                                                  

A spectacular 62% of electricity generation is expected from renewable sources by 2020, largely wind and biomass. The doubling of wind capacity to the 42% goal of electricity generation will come from construction of new offshore wind turbines at the Kriegers Flak wind farm, coastal wind turbines, and land-based turbines. Wind energy will go from a 3 GW capacity now to a 10 GW to 18 GW by 2020-2050. More intensive energy efficiency efforts will reduce gross energy consumption by 6% in 2020 compared to 2006, increasing to 25% by 2050 assuming an “Ambitious” international climate policy.    

The Danish are not waiting to learn that fossil fuels are a finite global resource. Protecting future energy security and reducing greenhouse gas emissions are driving Denmark’s transition to a new energy strategy, NOW. The country’s planning for fossil fuel independence is thorough, covering  all contingencies    – a far cry from our seemingly “business as usual” market approach to energy supply security, environment, and financing policy initiatives. Danish clean energy investments will be offset by lower fossil fuel expenditures and CO₂ reductions and a proposed security of supply tax. Denmark’s Commission on Climate Change Policy sums up the gradual increased pressure on public budgets as the result of tax revenues lost by reduced use of fossil fuels as follows:

“The government’s objective is to be independent of fossil fuels. This has the effect, that fossil fuels that are highly taxed will be replaced by other, more environmentally friendly types of energy        taxed at a lower rate and in some cases tax exempt. In order to offset this detrimental effect on tax revenues, other energy taxes may be increased, provided the overall tax burden is not increased.”

SUMMARY

A Danish research team put in perspective the cost of Denmark’s visionary conversion to renewable energy quite well:

“It may seem surprising that the total phase out of oil, gas, and coal use will not involve large costs for society in the long term. However, there are several reasons for this: Firstly, transition of the energy system will take place gradually over a long period of time (just as Denmark has done by starting with wind energy in 1970 to now being the world leader in this electrical energy source), so that existing capital stock (infrastructure) will be exploited. Secondly, over this time period, an increased global demand for energy will make traditional alternatives to renewable energy sources still more expensive. Simultaneously, technological development will gradually make many renewable energy sources more competitive and emission reduction targets will have a cost if Denmark continues to use fossil fuels. Finally, total expenditure on energy services constitutes only a minor 5-6% share of GDP in 2050 under all scenarios. Thus, although total expenditure on energy services rises about 5% because of the transition to fossil fuel independence, the cost measured as a % of GDP decreases in significance.” 

PART II.  Strategic Policy Implications of U.S. Energy Supply, Demand, Price Trends, and Concentration of World Supplies 

To be continued …