Aldyen Donnelly: Sticking it to the Canadians

Posted on May 18, 2010 by energyprbe

(May 18, 2010) After I read the original draft Greenhouse Gas (GHG) reporting regulations, I phoned US EPA contacts as well as some staff in Senate and House representatives offices and asked: Given that all major US stationary GHG sources and importers of carbon-based energy and building products are required to report GHGs from biomass use and will eventually be liable for domestic production and the US consumer end use GHGs:

  • how will products derived from sustainable biomass be awarded a zero-GHG rating, and
  • how will foreign upstream GHGs associated with fossil fuel and biomass-based products be addressed?

Clearly, the existing US domestic GHG reporting rule obliges any US forest stand management operation and wood products plant that discharges 25,000 TCO2e/year or more to report their US production GHGs—not counting carbon stock losses. If the US GHG reporting regulations do not oblige biomass feedstock and finished product importers to account for foreign upstream supply chain GHGs, there is the potential that the US reporting regulation will favour imported biomass at the expense of biomass feedstocks and products that are sustainably produced in the US.

There was a rather amazing concensus among the divergent group I contacted with these questions. In all cases, they referred me to the existing US Renewable Fuel Standard (RFS) as the model that final US GHG regulations will replicate in the future.

The RFS is the regulation that implements the renewable fuel content mandate that is outlined in the 2005 US Energy Security Act and which was further amended in the 2008 Energy Security Act.

The legislation obliges US distributors of gasoline and diesel fuels to demonstrate that the products they sell in the US incorporate increasing percentages of “renewable” content. The legislation leaves it to the EPA to promulgate regulations to implement and enforce this renewable content requirement.

In regards to RFS regulation, the essential components for foreign biomass feedstock and bio-based energy products, in the current regulatory context and then expanded into the GHG regulatory context, are as follows:

  • The US EPA authorizes certified biomass feedstock and/or biomass-based fuel suppliers to create “Renewable Identification Numbers” or “RINs”, where one RIN represents one US gallon of certified renewable biomass or biofuel.
  • Any biomass and/or biofuel that is shipped with a RIN is deemed to be “renewable”. Any biomass or biofuel that is shipped without a RIN is deemed to be a fossil fuel (does not get a zero-GHG rating at the point of combustion) for purposes of compliance with the existing US Renewable Fuel Standard and—I am told—any future GHG regulations.
  • US gasoline and diesel fuel distributors prove compliance with the existing US renewable fuel content requirements by surrendering RINs equal to their legally-binding content targets to the US EPA.
  • Existing US GHG reporting regulations oblige US producers and importers of biomass feedstock and biomass-based energy products to report biomass combustion GHGs in the same manner that they report fossil fuel GHGs.
  • We are told to anticipate that the default procedure is that all biomass combustion will wear a GHG charge as if it was fossil fuel combustion. Then obligated parties (US biomass feedstock and/or finished product producers and importers) will be permitted to surrender RINs to the US EPA as units of compliance with any future US GHG standard.

So the critical question is: what conditions will Canadian biomass feedstock and finished product exporters need to meet to receive authority from the US EPA to create and ship RINs with their biomass commodity exports?

EPA officials as well as legislation drafters in Senate and House representative offices all respond that the same procedures that are outlined in the RFS regulation will be carried through into all US renewable electricity/portfolio standard and GHG regulation. In other words, the full trade implications of any final US GHG legislation will not be obvious until the EPA finalizes regulations pursuant to that legislation. But it is reasonable to anticipate that those final regulations will reflect existing practice as outlined in the existing RFS.

Read the primary conditions “foreign suppliers” have to meet to gain authorization to ship product with RINs starting on page 109. The regulation outlines separate requirements for “small refiners”, “cellulosic ethanol refiners” and “all other foreign RIN owners”.

In my view, the obligations this existing law imposes on Canadian biomass feedstock and bioenergy suppliers to the US should be deemed entirely unacceptable. They include obliging Canadian producers that are certified to issue RINs to sign a contract stipulating that:

  • “any United States Environmental Protection Agency inspector or auditor must be given full, complete and immediate access to conduct inspections and audits of the foreign producer facility…
  • “Inspections and audits may be either announced in advance by EPA, or unannounced…
  • “Inspections and audits by EPA may include interviewing employees…
  • “any documents requested that are related to matters covered by inspections and audits must be provided to an EPA inspector or auditor on request….
  • “An agent for service of process located in the District of Columbia shall be named, and service on this agent constitutes service on the foreign producer or any employee of the foreign producer for any action by EPA or otherwise by the United States related to the requirements of this subpart…
  • “The forum for any civil or criminal enforcement action related to the provisions of this section for violations of the Clean Air Act or regulations promulgated thereunder shall be governed by the Clean Air Act, including the EPA administrative forum where allowed under the Clean Air Act…
  • “United States substantive and procedural laws shall apply to any civil or criminal enforcement action against the foreign producer or any employee of the foreign producer related to the provisions of this section…
  • “The foreign producer, or its agents or employees, will not seek to detain or to impose civil or criminal remedies against EPA inspectors or auditors, whether EPA employees or EPA contractors, for actions performed within the scope of EPA employment related to the provisions of this section…
  • “Sovereign immunity. By submitting an application to be an approved foreign producer…or by producing and exporting [feedstocks or finished products with RINs] to the United States under such approval, the foreign producer, and its agents and employees, without exception, become subject to the full operation of the administrative and judicial enforcement powers and provisions of the United States without limitation based on sovereign immunity, with respect to actions instituted against the foreign producer, its agents and employees in any court or other tribunal in the United States for conduct that violates the requirements applicable to the foreign producer under this subpart…
  • Bond posting. Any foreign producer shall…post a bond of the amount calculated using the following equation: Bond = G *$ 0.01 Where: Bond = amount of the bond in U.S. dollars. G = The largest volume of [RIN-related products] produced at the foreign producer’s facility and exported to the United States, in gallons, during a single calendar year among the most recent of the following calendar years, up to a maximum of five calendar years:..”

The regulations expressly states:

“Withdrawal or suspension of foreign producer approval. EPA may withdraw or suspend a foreign producer’s approval where any of the following occur:…

(2) A foreign government fails to allow EPA inspections as provided in paragraph (f)(1) of this section.

(3) A foreign producer asserts a claim of, or a right to claim, sovereign immunity in an action to enforce the requirements in this subpart.

(4) A foreign producer fails to pay a civil or criminal penalty that is not satisfied using the foreign producer bond specified in paragraph (g) of this section.”

If/when this existing practise—to date not challenged by any Canadian legislator—is incorporated in US GHG and renewable electricity/portfolio standard regulations, the US EPA will have completely bypassed Canadian legislators and made any major Canadian exporter of carbon-based products directly accountable to the US Congress and subject to US law.

When we are working together to develop an inventory-based methodology for accounting for forest and forest product carbon, I will be trying to ensure that the final methodology will have sufficient environmental integrity to both (1) meet with US standards and (2) support a WTO challenge of the current and anticipated future US EPA dictates that Canadian plants become directly subject to US laws.

For purposes of determining whether a biomass-based product is renewable and its producer will be authorized to issue RINs, the original RFS defines renewable energy that is cellulosic in origin somewhat ambiguously: “derived from any lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis, including dedicated energy crops and trees, wood and wood residues, plants, grasses, agricultural residues, fibers, animal wastes and other waste materials, and municipal solid waste…”

This original definition has spawned confusion and numerous disputes in the US market.  This led to significant amendments to the original RFS regulation—but no changes in the conditions that apply to foreign suppliers—and a new law was adopted on March 26, 2010.

I repeat: the above wording exists in existing law and determines how US distributors of gasoline and diesel will comply with existing US renewable fuel standards. The existing law does not, at this time, directly apply to renewable electricity and GHG standards. However, I have received many and frequent assurances from EPA officials and staff of elected Congress persons active on the climate change file that they see no need to develop an entirely separate procedure for demonstrating “renewable” for purposes of generating RINs to establish a zero-GHG charge for biomass used in all future regulated carbon-based products sold in the US.

The new version of the RFS states:

  • “This final rule also implements the revised statutory definitions and criteria, most notably the new greenhouse gas emission thresholds for renewable fuels and new limits on renewable biomass feedstocks. This rulemaking marks the first time tha greenhouse gas emission performance is being applied in a regulatory context for a nationwide program…
  • “it requires that all renewable fuel be made from feedstocks that meet the new definition of renewable biomass including certain land use restrictions…
  • “Parties that intend to generate RINs, own and/or transfer them, or use them for compliance purposes after July 1, 2010 will need to…modify their information technology (IT) systems to accommodate the changes…these changes include…adding a process for verifying that feedstocks meet the renewable biomass definition, and calculating compliance with four standards instead of one…
  • “We have established five categories of biofuel feedstock sources…These [include]:…2. Forest material including eligible forest thinnings and solid residue remaining from forest product production…
  • “the final renewable biomass recordkeeping and reporting provisions require that individual producers obtain documentation about their feedstocks from their feedstock supplier(s) and take the measures necessary to ensure  they know the source of their feedstocks and can demonstrate to EPA that they have complied with the EISA definition of renewable biomass. Specifically, EPA’s renewable biomass reporting requirements for producers who generate RINs include a certification on renewable fuel production reports that the feedstock used for each renewable fuel batch meets the definition of renewable biomass. Additionally, producers will be required to include with their quarterly reports a summary of the types and volumes of feedstocks used throughout the quarter, as well as maps of the land from which the feedstocks used in the quarter were harvested.

The EISA definition includes:

 

  • how will products derived from sustainable biomass be awarded a zero-GHG rating, and
  • how will foreign upstream GHGs associated with fossil fuel and biomass-based products be addressed?

Clearly, the existing US domestic GHG reporting rule obliges any US forest stand management operation and wood products plant that discharges 25,000 TCO2e/year or more to report their US production GHGs—not counting carbon stock losses. If the US GHG reporting regulations do not oblige biomass feedstock and finished product importers to account for foreign upstream supply chain GHGs, there is the potential that the US reporting regulation will favour imported biomass at the expense of biomass feedstocks and products that are sustainably produced in the US.

There was a rather amazing concensus among the divergent group I contacted with these questions. In all cases, they referred me to the existing US Renewable Fuel Standard (RFS) as the model that final US GHG regulations will replicate in the future.

The RFS is the regulation that implements the renewable fuel content mandate that is outlined in the 2005 US Energy Security Act and which was further amended in the 2008 Energy Security Act.

The legislation obliges US distributors of gasoline and diesel fuels to demonstrate that the products they sell in the US incorporate increasing percentages of “renewable” content. The legislation leaves it to the EPA to promulgate regulations to implement and enforce this renewable content requirement.

In regards to RFS regulation, the essential components for foreign biomass feedstock and bio-based energy products, in the current regulatory context and then expanded into the GHG regulatory context, are as follows:

  • The US EPA authorizes certified biomass feedstock and/or biomass-based fuel suppliers to create “Renewable Identification Numbers” or “RINs”, where one RIN represents one US gallon of certified renewable biomass or biofuel.
  • Any biomass and/or biofuel that is shipped with a RIN is deemed to be “renewable”. Any biomass or biofuel that is shipped without a RIN is deemed to be a fossil fuel (does not get a zero-GHG rating at the point of combustion) for purposes of compliance with the existing US Renewable Fuel Standard and—I am told—any future GHG regulations.
  • US gasoline and diesel fuel distributors prove compliance with the existing US renewable fuel content requirements by surrendering RINs equal to their legally-binding content targets to the US EPA.
  • Existing US GHG reporting regulations oblige US producers and importers of biomass feedstock and biomass-based energy products to report biomass combustion GHGs in the same manner that they report fossil fuel GHGs.
  • We are told to anticipate that the default procedure is that all biomass combustion will wear a GHG charge as if it was fossil fuel combustion. Then obligated parties (US biomass feedstock and/or finished product producers and importers) will be permitted to surrender RINs to the US EPA as units of compliance with any future US GHG standard.

So the critical question is: what conditions will Canadian biomass feedstock and finished product exporters need to meet to receive authority from the US EPA to create and ship RINs with their biomass commodity exports?

EPA officials as well as legislation drafters in Senate and House representative offices all respond that the same procedures that are outlined in the RFS regulation will be carried through into all US renewable electricity/portfolio standard and GHG regulation. In other words, the full trade implications of any final US GHG legislation will not be obvious until the EPA finalizes regulations pursuant to that legislation. But it is reasonable to anticipate that those final regulations will reflect existing practice as outlined in the existing RFS.

Read the primary conditions “foreign suppliers” have to meet to gain authorization to ship product with RINs starting on page 109. The regulation outlines separate requirements for “small refiners”, “cellulosic ethanol refiners” and “all other foreign RIN owners”.

In my view, the obligations this existing law imposes on Canadian biomass feedstock and bioenergy suppliers to the US should be deemed entirely unacceptable. They include obliging Canadian producers that are certified to issue RINs to sign a contract stipulating that:

  • “any United States Environmental Protection Agency inspector or auditor must be given full, complete and immediate access to conduct inspections and audits of the foreign producer facility…
  • “Inspections and audits may be either announced in advance by EPA, or unannounced…
  • “Inspections and audits by EPA may include interviewing employees…
  • “any documents requested that are related to matters covered by inspections and audits must be provided to an EPA inspector or auditor on request….
  • “An agent for service of process located in the District of Columbia shall be named, and service on this agent constitutes service on the foreign producer or any employee of the foreign producer for any action by EPA or otherwise by the United States related to the requirements of this subpart…
  • “The forum for any civil or criminal enforcement action related to the provisions of this section for violations of the Clean Air Act or regulations promulgated thereunder shall be governed by the Clean Air Act, including the EPA administrative forum where allowed under the Clean Air Act…
  • “United States substantive and procedural laws shall apply to any civil or criminal enforcement action against the foreign producer or any employee of the foreign producer related to the provisions of this section…
  • “The foreign producer, or its agents or employees, will not seek to detain or to impose civil or criminal remedies against EPA inspectors or auditors, whether EPA employees or EPA contractors, for actions performed within the scope of EPA employment related to the provisions of this section…
  • “Sovereign immunity. By submitting an application to be an approved foreign producer…or by producing and exporting [feedstocks or finished products with RINs] to the United States under such approval, the foreign producer, and its agents and employees, without exception, become subject to the full operation of the administrative and judicial enforcement powers and provisions of the United States without limitation based on sovereign immunity, with respect to actions instituted against the foreign producer, its agents and employees in any court or other tribunal in the United States for conduct that violates the requirements applicable to the foreign producer under this subpart…
  • Bond posting. Any foreign producer shall…post a bond of the amount calculated using the following equation: Bond = G *$ 0.01 Where: Bond = amount of the bond in U.S. dollars. G = The largest volume of [RIN-related products] produced at the foreign producer’s facility and exported to the United States, in gallons, during a single calendar year among the most recent of the following calendar years, up to a maximum of five calendar years:..”

The regulations expressly states:

“Withdrawal or suspension of foreign producer approval. EPA may withdraw or suspend a foreign producer’s approval where any of the following occur:…

(2) A foreign government fails to allow EPA inspections as provided in paragraph (f)(1) of this section.

(3) A foreign producer asserts a claim of, or a right to claim, sovereign immunity in an action to enforce the requirements in this subpart.

(4) A foreign producer fails to pay a civil or criminal penalty that is not satisfied using the foreign producer bond specified in paragraph (g) of this section.”

If/when this existing practise—to date not challenged by any Canadian legislator—is incorporated in US GHG and renewable electricity/portfolio standard regulations, the US EPA will have completely bypassed Canadian legislators and made any major Canadian exporter of carbon-based products directly accountable to the US Congress and subject to US law.

When we are working together to develop an inventory-based methodology for accounting for forest and forest product carbon, I will be trying to ensure that the final methodology will have sufficient environmental integrity to both (1) meet with US standards and (2) support a WTO challenge of the current and anticipated future US EPA dictates that Canadian plants become directly subject to US laws.

For purposes of determining whether a biomass-based product is renewable and its producer will be authorized to issue RINs, the original RFS defines renewable energy that is cellulosic in origin somewhat ambiguously: “derived from any lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis, including dedicated energy crops and trees, wood and wood residues, plants, grasses, agricultural residues, fibers, animal wastes and other waste materials, and municipal solid waste…”

This original definition has spawned confusion and numerous disputes in the US market.  This led to significant amendments to the original RFS regulation—but no changes in the conditions that apply to foreign suppliers—and a new law was adopted on March 26, 2010.

I repeat: the above wording exists in existing law and determines how US distributors of gasoline and diesel will comply with existing US renewable fuel standards. The existing law does not, at this time, directly apply to renewable electricity and GHG standards. However, I have received many and frequent assurances from EPA officials and staff of elected Congress persons active on the climate change file that they see no need to develop an entirely separate procedure for demonstrating “renewable” for purposes of generating RINs to establish a zero-GHG charge for biomass used in all future regulated carbon-based products sold in the US.

The new version of the RFS states:

  • “This final rule also implements the revised statutory definitions and criteria, most notably the new greenhouse gas emission thresholds for renewable fuels and new limits on renewable biomass feedstocks. This rulemaking marks the first time tha greenhouse gas emission performance is being applied in a regulatory context for a nationwide program…
  • “it requires that all renewable fuel be made from feedstocks that meet the new definition of renewable biomass including certain land use restrictions…
  • “Parties that intend to generate RINs, own and/or transfer them, or use them for compliance purposes after July 1, 2010 will need to…modify their information technology (IT) systems to accommodate the changes…these changes include…adding a process for verifying that feedstocks meet the renewable biomass definition, and calculating compliance with four standards instead of one…
  • “We have established five categories of biofuel feedstock sources…These [include]:…2. Forest material including eligible forest thinnings and solid residue remaining from forest product production…
  • “the final renewable biomass recordkeeping and reporting provisions require that individual producers obtain documentation about their feedstocks from their feedstock supplier(s) and take the measures necessary to ensure  they know the source of their feedstocks and can demonstrate to EPA that they have complied with the EISA definition of renewable biomass. Specifically, EPA’s renewable biomass reporting requirements for producers who generate RINs include a certification on renewable fuel production reports that the feedstock used for each renewable fuel batch meets the definition of renewable biomass. Additionally, producers will be required to include with their quarterly reports a summary of the types and volumes of feedstocks used throughout the quarter, as well as maps of the land from which the feedstocks used in the quarter were harvested.

The EISA definition includes:

  • “…Planted trees and tree residue from tree plantations cleared prior to December 19, 2007 and actively managed on that date…
  • “Slash and pre-commercial thinnings from non-federal forestlands that are neither old-growth nor listed as critically imperiled or rare…
  • “Biomass cleared from the vicinity of buildings and other areas at risk of wildfire.”
  • “EPA’s final renewable biomass recordkeeping provisions require renewable fuel producers to maintain sufficient records to support their claims that their feedstocks meet the definition of renewable biomass, including maps or electronic data identifying the boundaries of the land where the feedstocks were produced, documents tracing the feedstocks from the land to the renewable fuel production facility…and for producers using planted trees or tree residue from tree plantations, written records that serve as evidence that the land from which the feedstocks were obtained was cleared prior to December 19, 2007 and actively managed on that date.

Both versions of the US RFS and more background can be downloaded here.

Aldyen Donnelly, May 18, 2010

Posted in Aldyen Donnelly | 1 Comment

Sources: A US$13-billion business

Posted on May 18, 2010 by energyprbe

Lawrence Solomon

May 14, 2010

Minerals Management Service: People Promoting Energy, the Environment, and the Economy

Minerals Management Service Disburses $10.68 Billion in FY 2009

Minerals Management Service: Royalty Relief

Minerals Management Service: Frequently Asked Questions

The Minerals Revenue Management (MRM) Program

Minerals Management Service: Milestones

Minerals Revenue Management: Guide to Royalty Information

Randall Luthi, Director of the Minerals Management Service, remarks at the International Oil and Ice Conference

Johnnie Burton, head of the US Minerals Management Service (MMS), speech at the Special Institute on Royalty Valuation and Management

Leasing Oil and Natural Gas Resources: Outer Continetal Shelf

Posted in Fossil Fuels | Leave a comment

Brain tumour risk in relation to mobile telephone use: results of the INTERPHONE international case–control study

Posted on May 17, 2010 by energyprbe

(May 17, 2010) A study on the possible health risks related to radiofrequency electromagnetic fields from cell phone technology. Continue reading →

Posted in Hormesis | Leave a comment

Interphone study reports on mobile phone use and brain cancer risk

Posted on May 17, 2010 by energyprbe

(May 17, 2010) The Interphone Study Group today published their results in the International Journal of Epidemiology (direct media link). The paper presents the results of analyses of brain tumour (glioma and meningioma) risk in relation to mobile phone use in all Interphone study centres combined. Continue reading →

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Brain tumour risk in relation to mobile telephone use: results of the INTERPHONE international case–control study

Posted on May 17, 2010 by energyprbe

Elisabeth Cardis;
Oxford University Press
May 17, 2010

Background: The rapid increase in mobile telephone use has generated concern about possible health risks related to radiofrequency electromagnetic fields from this technology.

Methods: An interview-based case–control study with 2708 glioma and 2409 meningioma cases and matched controls was conducted in 13 countries using a common protocol.

Results: A reduced odds ratio (OR) related to ever having been a regular mobile phone user was seen for glioma [OR 0.81; 95% confidence interval (CI) 0.70–0.94] and meningioma (OR 0.79; 95% CI 0.68–0.91), possibly reflecting participation bias or other methodological limitations. No elevated OR was observed ≥10 years after first phone use (glioma: OR 0.98; 95% CI 0.76–1.26; meningioma: OR 0.83; 95% CI 0.61–1.14). ORs were <1.0 for all deciles of lifetime number of phone calls and nine deciles of cumulative call time. In the 10th decile of recalled cumulative call time, ≥1640 h, the OR was 1.40 (95% CI 1.03–1.89) for glioma, and 1.15 (95% CI 0.81–1.62) for meningioma; but there are implausible values of reported use in this group. ORs for glioma tended to be greater in the temporal lobe than in other lobes of the brain, but the CIs around the lobe-specific estimates were wide. ORs for glioma tended to be greater in subjects who reported usual phone use on the same side of the head as their tumour than on the opposite side.

Conclusions: Overall, no increase in risk of glioma or meningioma was observed with use of mobile phones. There were suggestions of an increased risk of glioma at the highest exposure levels, but biases and error prevent a causal interpretation. The possible effects of long-term heavy use of mobile phones require further investigation.

Download the full study here. 

Posted in Hormesis | Leave a comment

Interphone study reports on mobile phone use and brain cancer risk

Posted on May 17, 2010 by energyprbe

International Agency for Research on Cancer
World Health Organization
May 17, 2010

The Interphone Study Group today published their results in the International Journal of Epidemiology (direct media link). The paper presents the results of analyses of brain tumour (glioma and meningioma) risk in relation to mobile phone use in all Interphone study centres combined. This interview-based case-control study, which included 2708 glioma and 2409 meningioma cases and matched controls was conducted in 13 countries using a common protocol. Analyses of brain tumours in relation to mobile phone use have been reported from a number of cohort and casecontrol studies, including several of the national components of Interphone. No studies, however,have included as many exposed cases, particularly long-term and heavy users of mobile phones, as this study.

Read the full study. 

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A US$13-billion business

Posted on May 17, 2010 by energyprbe

Lawrence Solomon
Financial Post
May 14, 2010

Is it any wonder that the BP calamity occurred? Here’s what has been preoccupying its environmental regulator, the Minerals Management Service, ever since MMS was established in 1982.

“Record for number of lease sales in a year,” MMS crowed, referring to its success in 1983. “Greatest high bid dollar amount received in a lease sale,” it added, displaying its haul to the very last digit: “US$3,469,214,969 in the Central Gulf of Mexico.” In 1984, more records: “Most tracts offered at a lease sale (8,868 tracts in Eastern Gulf of Mexico)”; “Record number of exploratory wells drilled in a year (597)”; and “Record number of platform installations in a year (229).”

Year after year, this agency went from one business milestone to another, seeing the accomplishments of its leaseholders — companies like BP, Exxon Mobil, and Texaco — as its own. In 1996, it cheered the “Well drilled in deepest water (world record well at 2,324 meters, or 7,625 feet)” and the “Deepest well drilled from a semi-submersible at 7,712 meters (25,450 feet).” In 2000, it achieved the “World’s tallest freestanding structure Installed in 535 m (1,754 ft) of water” and the “World’s deepest water drilling and production platform.” In 2001, it boasted the “largest find to date world deepwater drilling record set at 9,687 feet.” In 2002, it “Established world water depth record for well production and laying a pipeline at 7,209 feet” and announced that “The tallest self standing conductor.”

This all translates into cash. Last year royalties approached US$13-billion, making this agency an important source of revenue for the government, its take second only to that of the Internal Revenue Service.

The federal government, in turn, depends on MMS to meet numerous needs, everything from funding national parks to dams, canals, and other land and water-related projects. After the devastation of Hurricane Katrina, the government asked MMS to crank up its lease-sales effort to come up with the cash needed to help restore New Orleans. To squeeze more money still out of the Gulf by maximizing the amount of drilling underway, the MMS offers leases on the cheap in marginal drilling areas.

MMS is in the business of making money for government — it is, in effect, the continent’s largest exploiter of natural resources, as was intended when the U.S. government created it as a cash cow. By MMS’s 25th anniversary in 2007, its director summarized with pride his agency’s accomplishments: “Since our formation in 1982, MMS has overseen the production of 11 billion barrels of oil and 116 trillion cubic feet of natural gas,” he stated, and “collected and remitted to the U.S. Treasury, the Indian Tribes and the States their shares of nearly US$165-billion dollars.”

This gung-ho money-making agency of 1,700 employees is overwhelmingly focused on its bottom line — setting the royalty rates it charges the oil and gas drillers, ensuring it collects the royalties that are its due, creating financial instruments to squeeze more value out of its royalties, delivering the money to its government masters. MMS also has a sideline — it regulates its leaseholders to ensure safety. To acquit its responsibilities in this sideline — overseeing the safe operations of 2600 companies operating 4,000 drilling platforms and 30,000 wells in 43 million leased acres over an expanse of 1.76 billion acres of the Outer Continental Shelf alone — it hires some 60 inspectors. Put another way, it might almost not bother.

Because of the conflict of interest — numerous reports indicate MMS downplays safety concerns to maximize its take — the federal government is now proposing to beef up the number of inspectors and place them in an independent safety-inspection division within MMS. This would do nothing to change the fact that MMS would still be regulating itself, or that safety would still be subject to political trade-offs. Governments are not disinterested parties looking out for the public good — first and foremost, they look out for themselves. In the case of the BP spill disaster, for example, the federal government suffers few financial concerns — thanks to its Oil Pollution Act 1990, it inoculated itself from the pain that citizens and private businesses in the Gulf will endure.

The Oil Pollution Act 1990 determines liability for accidents such as the one now underway in the Gulf of Mexico. In passing it, the federal government took pains to accomplish two ends. First, to save itself from the billions in cleanup costs that an oil spill could cause, the federal government held oil companies and drillers fully liable here.

And second, to make sure that the oil industry wouldn’t be scared off by the much greater potential damage to citizens and private businesses from a massive oil spill — the costs to the fisheries, tourist industry, and private landowners — the federal government eradicated the private sector’s property rights by denying it fair compensation for its economic losses: The Oil Pollution Act 1990 limited the liability of the oil and gas industry to these private parties to US$75-million in the event of a spill, or a few cents on the dollar in the event of a worst-case accident.

Governments make for good regulators, but not when they regulate themselves. To provide the independent, arms-length regulation that the public deserves, there is but one option: Governments must get out of the private sector by privatizing their commercial holdings. A privatization of the Outer Continental Shelf would be a good place to start.

Lawrence Solomon is executive director of Energy Probe and Urban Renaissance Institute and author of The Deniers: The world-renowned scientists who stood up against global warming hysteria, political persecution, and fraud.

Read "U.S. law disaster", another article from Lawrence Solomon concerning the oil spill in the Gulf of Mexico.  

Read the sources for this column.

Posted in Energy Probe News, Fossil Fuels | Leave a comment

A US$13-billion business

Posted on May 14, 2010 by energyprbe

(May 14, 2010) Is it any wonder that the BP calamity occurred? Here’s what has been preoccupying its environmental regulator, the Minerals Management Service, ever since MMS was established in 1982. Continue reading →

Posted in Oil | Leave a comment

La dolce vita: green and unemployed

Posted on May 12, 2010 by energyprbe

Question: Would you pay more than a million dollars for a job? Probably not. Let’s rephrase that question: would you spend more than a million dollars of someone else’s money for a job? If you’re a politician in Italy, the answer is a resounding yes.

According to researchers Carlo Stagnaro and Luciano Lavecchia from the Italian think tank Istituto Bruno Leoni, subsidies for wind and solar power projects in Italy will cost Italian consumers €566,000 (CAD 716,000) to €1.26 million (CAD 1.62 million) per green job.

Sadly, Italians are already accustomed to paying a premium for their electricity—so tacking on more subsidies to politically-favored green projects likely won’t be controversial.

Green energy is already subsidized through a premium on electricity bills for Italian consumers—amounting to about 4.3% of the average bill and partly exlaining why electricity costs in Italy are some of most expensive across Europe. Industrial consumers are hit particularly hard—in 2008 they paid at least 25% above the EU average for electricity.

Yet, it gets worse, as each “green” job costs as much as 4.8 jobs in the entire economy, or 6.9 jobs in the industrial sector.

More worrying still is that politicians in Italy seem intent on forging ahead with green energy policies when, according to Mr. Stagnaro and Mr. Lavecchia there “is no conclusive evidence” whether such policies will produce a positive or negative effect on GDP created vs. GDP destroyed.

To highlight this problem they note that, to date, the National Institute for Statistics (ISTAT) does not collect numbers for people working in the renewable energy sector. Instead, researchers investigating politicians’ claims on creating “green” jobs have to rely on figures from a range of resources.

“This lack of transparency should ring a bell about the accountability of this program (green subsidies for renewable energy), which is worth billions of euros,” they write.

Mr. Stagnaro and Mr. Lavecchia, on the other hand, are fairly certain that a subsidy-driven increase in green jobs will likely have two effects. First it willl result in job losses from the crowding out of cheaper and more conventional forms of energy generation. Second, there will be job losses in energy intensive sectors—a direct result of higher energy prices required to support such subsidies.

So much for the sweet life.

Energy Probe is a keen supporter of renewable energy. We believe renewable energy has the ability to diversify our electricity supply, while allowing for more decentralized sources of power for consumers. But we’re not in favour of throwing massive subsides at forms of energy that are not technically or economically feasible.

Read the previous gangrene economy report, "Green jobs are the new cash for clunkers" here.

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U.S. law disaster

Posted on May 10, 2010 by energyprbe

Lawrence Solomon
Financial Post
May 8, 2010

Washington laid the groundwork for the Gulf oil spill by letting the offshore oil industry dodge its liabilities.

BP deserves to be excoriated for contaminating the Gulf of Mexico. Preoccupied with phony multi-million-dollar PR campaigns to cast itself as green and “Beyond Petroleum,” it failed to focus on the actual multi-billion-dollar environmental catastrophe that could come of a worst-case blow-out.

But BP’s bad conduct is as nothing compared to that of the real villain in this piece: the U.S. federal government.

I blame the U.S. government not because, as the owner of the Outer Continent Shelf where the accident occurred, it bears ultimate responsibility for activities that occur on its property. Neither do I blame the U.S. because it actively solicited bids from oil firms for drilling in the Outer Continental Shelf. Accidents happen, despite best efforts. Spacecraft can explode. Olympic lugers can crash. Nuclear plants can melt down. Coal mines can collapse. Elevators can plummet. Hydro dams can fail.

I blame the U.S. government not because an accident happened but because it failed to ensure that BP — along with every other firm drilling off the U.S. coast — had every incentive to avoid an accident. To the contrary, the federal government told the firms drilling in submerged lands under federal jurisdiction that they needn’t be unduly troubled about the consequences of a worst-case scenario on their bottom line.

“Do your best to avoid an accident,” the U.S. in effect said, “but don’t worry about going the extra mile. If the worst occurs, we’ll backstop you. You’ll never have to be fully accountable for the damage an accident does, your shareholders will never need to worry that an accident will bankrupt you.”

The U.S. provides this backstop through its Oil Pollution Act 1990, which limits the liability of offshore oil firms to US$75-million plus cleanup costs, and then even absolves the oil firms of responsibility if the accident occurs as a result of an act of God, an act of war or the negligence of a third party. In the case of the Gulf of Mexico disaster, the third party could turn out to be the company whose rig BP leased: Transocean Ltd.

BP is already on record disavowing responsibility, since it was Transocean’s Deepwater Horizon rig that exploded and sank last month. As BP’s chief executive, Tony Hayward, told NBC, “We are responsible not for the accident but we are responsible for the oil and for dealing with it and cleaning the situation up.”

While BP has publicly agreed to pay “all necessary and appropriate cleanup costs” as well as “legitimate and objectively verifiable claims for other loss and damage caused by the spill,” it will ultimately be up to the courts to determine what is “necessary,” “appropriate” and “legitimate.” If Transocean was indeed solely responsible for the accident, and if BP decides to use the U.S.-government-created loopholes designed to entice offshore oil exploration, BP could be off the hook for the lion’s share of damages associated with its drilling.

I do not blame BP, or any firm, for obeying both the letter and the spirit of the law. But I do blame the U.S. government for creating a bad law that dilutes the strict liability needed to focus the mind of any company operating in a vulnerable environment. Had BP faced unlimited liability, putting its entire market capitalization of $150-billion at risk, financial prudence would have required it to consider robust prevention and contingencies in the event of a catastrophic blowout.

BP would have examined the potential liability of destroying the area’s fisheries and shrimperies, of destroying its tourism and other industries, and then weighed the cost of having backup safety systems in place to avert a worst-case disaster. Because an immense liability was at play, any insurers brought in to protect BP would have done their own assessment of liabilities, and based their premiums on their judgment of the robustness of BP’s preparedness. The experimental measures that BP is now desperately employing — such as the cofferdam containment dome it yesterday dropped over the wellhead — would have been tested and retested well in advance.

As a result of a sober assessment of the full risks and benefits, BP and the insurers might have determined that the risks of drilling in the Outer Continental Shelf were too high, and abandoned the project. Or, more likely because of the extraordinarily high value of the oil in the Gulf, BP would have demanded redundancy in fail-safe measures in a rig, and BP would have devised reliable emergency containment systems to rapidly deploy in the event the fail-safe systems failed.

As it was, BP didn’t need to go through any of these precautionary exercises. The consequences to BP of presiding over what could potentially have become the greatest oil spill in human history, one with untold potential to wreak economic and environmental harm, was so trifling a matter to BP’s bottom line that BP didn’t even need to get insurance — it decided to self-insure, to save itself the cost of the insurance premium. The mismatch between the consequences of a catastrophe to BP and the consequences to society at large was entirely a function of U.S. law.

The U.S. law has other untoward consequences still. Beyond the U.S. portion of the Outer Continental Shelf lie oilfields owned by other nations and leased to foreign companies. If an accident occurs there, the ecology, people and industries of the Gulf could become every bit as much at risk. The best protection for the Gulf is a safety culture, and a safety infrastructure, that a regime of strict liability would have inculcated. As it is, thanks to an unprincipled U.S. federal law, there is no safety infrastructure and no safety culture and no reason to think an even worse catastrophe couldn’t occur in the future.

LawrenceSolomon@nextcity.com

Lawrence Solomon is executive director of Energy Probe and Urban Renaissance Institute and author of The Deniers: The world-renowned scientists who stood up against global warming hysteria, political persecution, and fraud.

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