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<title>October 2007: Big Green / Big Blue / Big U</title>
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<p align="left"><font face="Arial"><strong><small>About The Author:<br>
<br>
</small></strong><span lang="X-NONE" style="color: black"><font size="2">
ROGER FELDMAN, Co-Chair of Andrews Kurth LLP Climate Change and Carbon
Markets Group has practiced law related to the finance of environmental and
energy projects and companies for 40 years. In particular, he has analyzed
and executed a wide variety and substantial value of project financings. He
chairs the American Bar Association’s Committee on Carbon Trading and
Finance, serves on the Board of the American Council for Renewable Energy,
and has been a senior official in the Federal Energy Administration. He is
a graduate of Brown University, Yale Law School and Harvard Business School.</font></span></font></p>
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<img src="../images/feldman.gif" alt="Washington Viewpoint by Roger Feldman" border="0" width="375" height="75"><p align="left"><b><u><br>
October 2007</u></b></p>
<p align="center"><font size="6"><b>Big Green / Big Blue / Big U</b></font></p>
<p><strong>by Roger Feldman --
</strong><b>Andrews Kurth, LLP</b><strong><br>
</strong><font face="Arial" size="2">(<em>originally published by PMA OnLine
Magazine: 2008/01/26</em>)<br>
</font><span style="font-size: 10.0pt; font-family: Palatino; color: black">
</span></p>
<div>
Big Green has been filling its scrap book with reports of global
conferences, movie star catharses as to global warming’s meaning, and
clean tech investment reports shooting the moon. Big Green seeks to
combat The Dark Force -- hydrocarbon fuel -- Big Black -- which
simultaneously has the temerity to be rising in price in America,
soaking our atmosphere with heat absorbing carbon emissions, and
lobbying fiercely for market position. So, like every righteous movement
before it in history, Big Green -- frustrated by lack of progress -- has
turned to governmental power to overcome its adversaries.<p>It is not
surprising to find Herman Scheer, a leading philosopher of the renewable
energy movement saying:</p>
<dir>
<dir>
<p>Those favoring a strict neoliberal economic ideology will
argue that the state should not interfere in markets, yet
history shows that the market has hardly ever functioned without
the state . . . for democratic countries, governments
subsidizing renewables and alternatives could reflect the
desires of many of that nation’s constituents.</p>
</dir>
</dir>
<p>Nor should we be surprised, however, to find this principle utilized
and stood on its head by proponents of Big Blue: demand for nuclear
power is on the increase. More than $200 billion will be spent by 2030
on harnessing the atom for energy output. By 2050 India expects to have
25% of its energy provided by nuclear power. And the resurgence of
nuclear energy is being not merely theorized but emerging in a proposed
new wave of plants licensed by the NRC, the NRC promising an expedited
licensing period, and utility sponsors financially abetted by a loan
guarantee program that was part of the last Energy Act and which may may
be enlarged by future legislation. “A Second Act for Nuclear Power”
trumpets the <u>Wall Street Journal</u>. No less than the former EPA
head Christie Todd Whitman has been pressed into service by the nuclear
industry’s multi-million dollar public relations campaign. No less than
the author of last year’s bestselling book, <u>Freakonomics,</u> mocks
the China Syndrome fears of nuclear cores falling through the Earth.
Even leading environmental groups, their eyes squarely fixed on
greenhouse gas issues (rather perhaps than on the global safety ball)
have begun to note the emissionless, lower volume impact which nukes can
have.</p>
<p>Dismayed by this development, Big Green loyalists have reverted
immediately to their historic role: that of protectors of the Earth
against marauders of the environment. Once again, and not without
reason, the anti-nuclear arguments are being assembled and updated for
the 21st century: security against sabotage and terrorism, lack of
stringent nuclear industry oversight, nuclear waste risks, dangers
exacerbated by the effect of cost overruns. And finally, as it was at
the beginning of the green movement, an appeal to the “big tent” theory
of global warming control: “prudence dictates that we pursue many
options to reduce global warming,” states a Union of Concerned
Scientists spokesman, “as part of that effort, nuclear power research
should continue, but with a focus on enhancing safety security and waste
disposal.” Mollifying the incipient beast with spurious pluralism:
“look, everyone can play, let’s all be friends,” doesn’t work that well
in the hardball energy game.</p>
<p>But there are other issues with which Big Green must deal with Big
Blue. Popular moods and governmental trends are fickle forces in a
capital-driven democracy. If renewables are to have a sustained place at
the table there are ultimately two hard realities they must face:
economic competitiveness and institutional regulation. Pandora’s Box of
government interventionism in the name of global warming control has
been opened -- but the emerging whirlwind can be colored green or blue,
depending on which side prevails.</p>
<p>Renewables can only be cheap and large enough to fit the electric
utility industry regulatory framework if they offer up, in addition to
distributed energy, big concentrated power, abetted by energy storage,
which can serve utility baseload purposes. AEP, the nation’s largest
user of coal (as well as payor of mega-fines), certainly doesn’t think
the concentrated solar scenario will work today. As its chairman says
with reference to solar energy: “Is the land there? Yes. Is it practical
now? I don’t think so.” Nevertheless some utilities, like PGE and FP&L
are, to fill part of their baseload requirements, beginning to look
toward larger scale solar utility companies that Silicon Valley Venture
Capitalists have backed. Whether concentrated solar power (CSP) will
achieve the magic figure of $10 per kilowatt hour is still problematic
-- but at least it is focused on the issue which will make Big Green
sized growth of more sustainable dimensions than photovoltaics can
obtain. Doing so helps to overcome the observation which John O’Donnell,
the solar zealot driving CSP developer Austra has articulated, “a lot of
people in the environmental community can’t count.” Diffused, variable
sourced energy streams just can’t stand up to Big Blue; they barely can
make their voices heard over Big Bad Old Black.</p>
<p>But willingness to come to terms with economics is not enough. The
reality for renewables is that they must find favor with the utility
industry which still forms the spine of this our Central Station Nation.
Utilities are not, as environmentalists may sometimes cast them,
inherently evil polluters in pursuit of profit. But they are decidedly
tropistic toward least-cost solutions to power supply (which includes,
for them, their sunk infrastructure costs). That tropism can be tweaked
by imposition of extra costs for internalized externalities, like cap
and trade, or by mandatory standards. But economic evolution certainly
seems more likely to occur best when there is an alignment of manmade
laws and the applicable principles of economics. That would be the case,
if a regulatory system in the US were focused on giving utilities the
ability to be indifferent to being producers or consumers of power; to
recover costs and have adequate rate recovery when they are renewable
producers; to be able to entertain distributed generation renewables
options with prospects of economically effecting and/or recovering
transmission costs; and to contemplate being rewarded as “prudent” if
they do so as well as being concerned with being slapped on the wrist if
they do not. Big Blue seems to be sneaking up on Big Green because its
characteristics were once perceived to be -- and some credibility is
being restored that they may again be for the regulated utility industry
-- consistent with this model. Global warming reduction through Big Blue
use really may be for the Big U the modern day rationalization for an
otherwise potentially preferable centralized supply solution.</p>
<p>And so Big Green would be advised to focus on its tie-in to this
regulatory model, whether through utilities or providers to them --
through technology, cost reduction, or appropriate ratemaking
structures. It is only through the equation of the regulated
marketplace, not the abstract calculus of regulatory costs and benefits,
that Big Green can ultimately sustain its current position in the sun.
One thing US energy history confirms: never underestimate the “Big U”
factor in shaping the ultimate profile of events.</p>
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<p class="MsoBodyText" align="left" style="margin-bottom:0in;margin-bottom:.0001pt;
text-align:left"><font face="Arial" size="2">
<span lang="X-NONE" style="color: black">ROGER FELDMAN, Co-Chair of Andrews
Kurth LLP Climate Change and Carbon Markets Group has practiced law related
to the finance of environmental and energy projects and companies for 40
years. In particular, he has analyzed and executed a wide variety and
substantial value of project financings. He chairs the American Bar
Association’s Committee on Carbon Trading and Finance, serves on the Board
of the American Council for Renewable Energy, and has been a senior official
in the Federal Energy Administration. He is a graduate of Brown University,
Yale Law School and Harvard Business School.</span></font></p>
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