Environmental Economics: Energy Production (Part 2)

Flip on a light, turn on your computer, and google ‘alexonomics’ while turning on your electric massage chair. What do all these activities require? Energy.

Energy production is one of the largest issues facing government policy creators today. It is no secret that more energy is being used currently than ever before historically, and that trend is expected to continue unless something is done to curb the estimated 2.3% energy consumption growth per year.  Right now many countries are looking at greener sources of energy and funding development through subsidization and other incentives.  Although some of these programs have seen unfortunate outcomes (such as Solyndra in the USA), it is generally a good idea to invest in cleaner sources of energy.  

There are two types of energy sources, renewable and non-renewable. Renewable energy does not run out, while non-renewable has a lifespan.  Non-renewable energy includes fossil fuels and nuclear energy while renewable can include tidal, geothermal, biomass or traditional renewable resources such as wind, solar or hydro power. Renewable sources account for around 20% of global electricity, with around 75% of that number coming from hydroelectricity.

Nuclear energy has been derided around the globe as of late; the Japanse tsunami really gave the entire nuclear industry terrible publicity as I have discussed earlier. Currently, nuclear power occurs from the process of nuclear fission. Using uranium rods atoms are split releasing energy which generates steam and turns the turbines to generate electricity. This process generates spent fuel rods which are radioactive and stored in concrete casks. Cold fusion has been deemed to replace nuclear fission, a process that expels far less radioactive and uses deuterium as a fuel. Again, extended information can be found on my past post regarding nuclear activities.

Fossil fuels have long been the popular method of electricity generation. Coal, petroleum, natural gas, crude oil, shale and tar sands are all fossil fuels used to generate electricity. Currently, oil reserves are estimated to give the world around 40 years of production, while natural gas and coal are estimated to be around for another century (both numbers fluctuate depending on the source). Peak Oil theory relies on a model developed by M. King Hubbert whom accurately predicted American oil production would peak around 1965 – 1970. Peak oil optimists suggest the production decline will begin in 2020, while pessimists suggest the peak of oil production has already, or about to occur. The International Energy Agency states that conventional crude production already peaked in 2006.

Environmentalists are quite opposed to the energy that most likely powers their latte machines.  The main reason is the pollution fossil fuels are attributed with. Combustion of fossil fuels produces nitrogen oxides, sulfur oxide, volatile organic compounds and heavy metals while 90% of greenhouse gases apparently come from fossil fuel combustion.

Let me explain something for a second. The Greenhouse Effect is a scientific natural occurring event, and is often associated as an evil. There is a layer of greenhouse gases (H₂O, CO₂, CH₄, N₂O, and O₃) which absorb and emit electromagnetic radiation which mostly comes from the sun. Without this layer, the earth would be a whole lot colder. The reason this effect is mentioned is fossil fuels emit greenhouse gases, and as we used more fossil fuels, a thicker layer is formed in the atmosphere while causes the earth to become warmer than it should naturally be.

Back to why fossil fuels are evil. Environment Canada states that electricity generation contributes to smog, and acid rain. Radioactive material is also released into the atmosphere from fossil fuel burning. To quantify that statement, it is estimated that in 1982 American energy production released 155 times as much radioactivity into the atmosphere as the Three Mile incident.

However, lately coal has been on the rebound as it has increased 6% last year and now accounts for 30% of all energy consumption. Also, many of the coal electricity plants exceed EPA standards. As it is a cheap and plentiful fuel, the main challenge in burning coal is ensuring less of an environmental impact – which the industry has apparently been succeeding in doing.

Extraction of fossil fuels is probably the most newsworthy item in terms of environmental impact. From the BP oil spill (4.2 million barrels dumped into the Gulf of Mexico) to the large empty lakes in Alberta left over from the oil sands, these images can be quite disturbing. Fossil fuel incidents around the United States can be found here.

It is no secret that pumping oil from the ocean or open pit mining can be troublesome to the environment, but new methods such as oil (bituminous) sand extraction or fracking are raising concerns. Oil sands are defined as having a mixture of sand, clay, water and petroleum bundled together and is naturally occurring – to put it simplistically. To extract cold flow, cyclic steam stimulation, solvent extraction, THAI, CHOPS and other methods have been tried. To explain all these methods would take quite a while, so if interested please research. However, the environmental concerns boil down to destruction of land, air pollution, water management, marine life destruction, and public health problems. In August of 2011, the Albertan government initiated a study to link higher rates of cancer to the oil sands. In terms of animal life, moose have been found to have 17-33 times the acceptable level of arsenic in their system (2006) while Lake Athabasca has apparently seen a rise in deformities and tumours in fish. Water Management may be the largest concern, as (according to Greenpeace –so heavily biased) the oil sands use around 349 million cubic meters annually of water – and end up in tailings ponds.

So the solution to all these problems is renewable energy. Let’s break down each resource one by one.

First, wind power simply is hoisting a windmill, and allowing the wind to turn the turbines to charge a battery. Wind power is growing 21% annually, with the Walney Wind Farm in the Irish Sea being the largest wind farm in the world.  Turbines see operation and maintenance costs of 20-35% of total yearly costs. As I don’t want to get too much into it, a great reference is this source.  Concerns over wind power is the high cost of initial investment (which has fallen drastically due to new technologies), and noise/aesthetic complaints.

Photovoltaic (PV) cells are used to convert light energy supplied by the sun to electricity at the atomic level. Basically, the sunlight hits the solar cell (created from silicon) carrying energy which is converted into electrical current by the wires attached. A cell is divided into the glass, encapsulant, crystalline cells, encapsulant, back sheet, junction box, and the frame/rail holding it all together. The main issues with solar power is the cost, low level of efficiency and constant maintenance/replacement costs. However, solar farms have a higher level of efficiency as although as a single unit a cell is not very efficient, many more cells are.  Also, the chemicals used in the creation of solar panels are quite, well dirty. Arsenic, cadmium telluride, hexafluoroethane, and poluvinyl fluoride are used in the creation. According the 2009 report from the Silicon Valley Toxic’s Coaltion the harm from these chemicals are accrued at the alpha and omega of a cell’s life. The toxins that manufacturers expose their workers to are quite harmful and if solar panels are not disposed of properly, the environmental impact is quite lethal. For example the backsheet of a cell is made from polyvinyl fluoride which contains lead, chromium, cadmium, selenium, arsenic and antimony. However, companies such as BioSolar are attempting to alleviate the environmental impact by creating a backsheet that will degrade without causing contamination of the environment.  Financially, BioSolar has lost $2.6 million since 2006.

Companies are attempting to solve this issue with programs like First Solar’s recycling program. Researchers are working on developing organic cells made from nontoxic chemicals, however they are very inefficient.  

Hydroelectric power is damming rivers and using their energy to turn turbines, and thus create electricity. Quebec has quite the industry surrounding this resource. Interestingly, a study with a dam in the Amazon shows that the dam created a 3.6 times larger greenhouse effect per kWh than burning oil for energy production. This is caused by flooding river valleys, and the ensuing decaying organic material releasing large amounts of methane. Currently, underwater turbines are being researched for development.

Biomass and Geothermal production are two other energy sources that are not as talked about. Biomass production involves capturing the methane from decomposing methane and burned to produce electricity. Ethanol fuel is widely known, although the subsidization of the process used to create it has been blamed for rising food costs. Geothermal power is about harnessing the heat produced from the earth. One well is drilled into the ground to extract ground water and the other well injects that water into the ground. Hot rocks heated by the earth warm the water which causes steams, and turns the turbines to produce electricity. Natural geothermal energy from geysers, volcanoes, hot springs or steam vents also can occur. Iceland is a good example. Although a great example of a renewable resource, geothermal energy is quite expensive.

Again, I will tie this up in my fifth and final post of this series in terms of economics. Below is a chart showing the decommission, production and construction costs of electrical production per kilowatt-hour.  

Click here to view the website of the creators of this graph!

Energy production will continually be an ongoing debate as countries gravitate between cost, feasibility and of course the different lobbyist groups attempting to spin the government’s direction toward one source or another. A great example of this is ethanol, which is heavily subsidized due to the green lobby. However this has caused many farmers to cash in by growing corn for the sole purpose of creating ethanol, which some economists attribute to the growing cost of food. Additionally, it is arguable that these subsidies have little to no return environmentally as ethanol does very little to alleviate the environmental damage of fossil fuels – even in the present massive production. Brazil, currently, is another large producer of ethanol.

Most importantly, to make decisions regarding energy production an understanding is needed of the different options available – and how these options work. I encourage any policy maker to fully understand the non-renewable and renewable energy industries before drafting any energy policy.

Global energy statistics can be found here (yes it’s BP so biased).