MVCAC February 2007

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9 discussions

Texas Utilities Make a "U"-Turn
by Duane330＠aol.com 27 Feb '07

27 Feb '07

TXU's emissions U-turn shocks power industry By _Jasmina Kelemen_ (http://www.marketwatch.com/news/mailto.asp?x=106+107+101+108+101+109+101+11… 533-a7e8-cc903d8e243b}&siteid=mktw) , MarketWatch, February 26, 2007 HOUSTON (MarketWatch) -- TXU Corp.'s decision to whittle down plans to build 11 carbon-spewing, coal-fired power plants as part of its buyout deal with private-equity firms sent a chill Monday through both Wall Street and Washington, signaling that utilities can no longer afford to ignore climate change. But with coal becoming too toxic to handle, nuclear plants taking too long to build and natural-gas prices going through the roof, little in the way of specifics is being offered on how utilities will provide clean and affordable power to an energy-hungry nation as more states push to deregulate their electrical grid and open it to the market's machinations. Environmentalists cheered the announcement that TXU was axing eight of 11 coal-fired power plants that it had planned to build in Texas by 2010 as part of a $45 billion buyout deal with Kohlberg Kravis Roberts & Co., Texas Pacific Group and Goldman Sachs Group. Prior to announcing the largest leveraged buyout in corporate history, the private equity firms spent about two weeks negotiating with powerful environmental groups to fashion a takeover proposal that would bring the activists on board and head off any potential costly litigation. "The decision by the buyers to reach out to our organization reflects a conclusion by the business community that they can't simply ignore global warming and come up with sound business strategies," said Dave Hawkins, director of the Natural Resource Defense Council's Climate Center during a call with journalists. "It's an earthquake that happened in Texas but the shock waves will be felt in Wall Street and Washington." People on Wall Street said the deal's ramifications went beyond the power industry, making it clear carbon emissions will be a factor for the entire economy. "It's a wake-up call to the whole industry and the whole economy," said Jeffrey Holzschuh, a vice chairman at Morgan Stanley. "The auto guys, the airline industry, everyone" has to deal with carbon emissions now, he said. Industry watchers in and outside the investment community consider it a near given that some sort of legislation restricting carbon dioxide emissions is on the horizon. For the power industry, this means balancing their customers' power needs against a hazy notion of potentially stricter air-quality regulations. "It's very difficult to build and design a plant that would have the ability to control for emissions before they know what those regulations are going to be," said Mark Morey, a director at Cambridge Energy Research Associates. In the 1990s, natural-gas replaced coal as utilities' fuel of choice, embraced as a cleaner and cheaper way to generate electricity while tapping secure and plentiful domestic supplies. In fact, gas was so cheap, around $2 per million British thermal units, that many state regulators said it was time to open their power markets to competition, thinking deregulation would inject more capital investment into the sector. For a time it worked. In the past decade, most of the country embarked on an aggressive buildup of power plants, 99% of which burned natural-gas, said Charles Gaffney, a utility analyst that manages the Eaton Vance Utility Fund. Not-so-cheap gas Meanwhile, natural-gas prices have risen steadily, peaking around $15 per million Btu in the weeks after Hurricanes Katrina and Rita thrashed the Gulf Coast oil and gas fields, eventually leveling off just below $8 per million Btu. Higher natural gas prices have meant higher electricity bills, especially in the states that have gone farthest toward deregulation, prompting many to demand lawmakers roll back plans to completely open their power markets and extend rate caps to shield consumers from rising costs. As a result, utilities are once again searching for cheaper fuel, bringing coal and nuclear power back to the table. But nuclear power plants are hugely expensive and take far longer to build than coal-fired plants and therefore cannot be relied upon to quickly meet growing power needs. "We are looking at potential (power) shortages say within 5-10 years if no new facilities are built," said Terry Hadley with the Texas Public Utilities Commission prior to the announcement of TXU's buyout deal. Prior to agreeing to the takeover, TXU insisted Texas needed its 11 power plants or else the Lone Star State risked the rolling blackouts that beset California at the start of the century. The Texas powerhouse has yet to spell out how it will replace the megawatts lost as a result of scrapping its plans and has not returned repeated calls and e-mails seeking a response. Other than vague calls for more energy efficiency programs, analysts and activists cheering the deal are also largely sidestepping the question of what power source will fill the looming gap on the state grid while the industry and its stakeholders look to Washington for further clarification on carbon emissions. But unless legislators mandate lower prices, electricity bills clearly will continue to rise along with the cost of generating power. Around the country, there are about 150 new coal-fired power plants on the drawing board. Following TXU's move, many will likely have to recalculate their expansion plans. "As utilities seek low-cost generation capacity, it's clear that coal continues to look attractive. But as air quality standards become more stringent, we expect the costs will continue to increase," said Eric Kane, an analyst with Innovest Strategic Value Advisors. Jasmina Kelemen is a MarketWatch reporter based in Houston. ************************************** AOL now offers free email to everyone. Find out more about what's free from AOL at http://www.aol.com.

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Texas: power plants & non-attainment
by Duane330＠aol.com 26 Feb '07

26 Feb '07

Questions continue to arise in coal debates By KATE BOSWELL, Staff writer, The Baylor University Lariat, February 23, 2007 Gov. Rick Perry's October 2005 executive order to fast-track permits for 18 coal-fired power plants met with immediate controversy, which has reached a fever pitch in Central Texas. State District Judge Stephen Yelenosky's Tuesday ruling stated that Perry does not have the constitutional authority to issue such an order, and Wednesday, a panel of judges agreed with environmental groups who requested more time to prepare their opposition case. One of the complaints on this issue has been the lack of clear and objective information. A quick Internet search will reveal that even the stated number of proposed plants varies, depending on who the source is. "It looks to me like we have two political campaigns here," said Michael E. Webber, associate director for Center for International Policy at the University of Texas. "A lot of the facts are being misinterpreted or are misleading." What is certain is that TXU is has a proposition to build 11 coal-fired plants. Nine of these are in Central Texas and four in McLennan County. TXU has named Texas' growing demand for energy as the reason for the construction of the new plants. The company cites a study by the North American Electric Reliability Council (NERC) that says electric demand will increase by 19 percent over the next 10 years, but that the confirmed power capacity will only increase by 6 percent. Texas is listed as one of the areas where demand is expected to outstrip confirmed power capacity. TXU spokesman Tom Kleckner said this urgent need for power is the reason behind Perry's executive order. "Because the governor recognizes the same need for power to reach the state's growing energy demand that we did," he said. "One of the things his order did was eliminate all the administrative processes. It maintained the same time for public input and technical review, which are the most important parts of the process." Others have criticized the fast-tracking of the permits, which allow six of the proposed plants to be reviewed together as one plant. "I'd like to see people step away from a sense that we have to hurry," Webber said. He emphasized the need for objective facts and a reasoned decision, and pointed out that Texas could help reduce its current energy demand with conservation. "These plants are here for decades," he said. "I'm not saying coal is the wrong choice, but we just don't know." Webber said tactics such as energy-efficient appliances and public awareness campaigns helped reduce energy use in California and that simple adjustments could do the same in Texas. He said that Austin Energy was considering "smart meters," which can track when the most energy is used. Companies can then manage energy use by charging more for electricity during peak hours. "There's no single answer about what's best and what we need," Webber said. "We just don't have answers, at least not in a scientifically rigorous or objective form. None of us do." Others have cast TXU's motivations in a darker light, such as the Texas Clean Air Cities Coalition, a group made up of 36 cities, counties and school boards, of which Waco is one. "TXU's motives are something other than trying to provide you with affordable power," coalition attorney Stephen Susman, of the Houston-based law firm Susman Godfrey, told a cheering crowd in the Waco Convention Center Tuesday night. "We intend to prove that the idea of building these 11 plants in one year had nothing to do with providing affordable energy for Texas. It was all about locking competitors out of the Texas market." Dr. Max Shauck, director of the Institute of Aviation Sciences at Baylor, said there has been conjecture that a possible carbon tax is playing a part in the issue. He said because of concerns about global warming, there may be a tax imposed on the pollutant. "One of the conjectures about this rush to build all the plants is that they want to get these plants built and grandfathered in before the carbon tax," he said. "The tax would make building these inefficient and highly polluting plants much more expensive." Susman said he believes that TXU intends to gain as many credits as possible, through building new plants, before new federal regulations go in. "The more (pollution) they put in the atmosphere before federal regulations go in, the more carbon credits they get," Susman said. Another factor is non-attainment, which Shauck said is a technical status given to an area when it has exceeded safe pollution levels. "It means you've exceeded certain levels of one of the pollutants and in this case it's going to be ozone, because we are most in danger of exceeding the ozone standard here," he said. The consequences of non-attainment for Waco are two-fold, Shauck said. "That criteria is set because (the federal government) has determined that above that level there are health hazards," he said. Pollutants such as nitrogen oxide, sulfur dioxide, volatile organic compounds and others can become health hazards. Shauck said though health consequences are the most important, there are also economic consequences. "For example, new industry that might exacerbate that situation would only be allowed to come in if they could get trade-offs from existing industry," he said. "If they want to come in and start the business, they would have to go into another business and buy (pollution) credits. The other business would have to agree to reduce their pollution by that amount." Shauck and his research team conducted a study on behalf of the city of Waco that measured the effects the proposed plants would have on the Waco area. They used an airplane with specialized equipment to measure the air quality around the Waco area. Shauck, who has been air sampling in Waco since 1976, said this method is often more accurate than modeling since it deals with specific, rather than conjectured, data. According to Sergio Alvarez, Shauck's research assistant, the plane also has an advantage over ground stations. "They're in a fixed location, so if the wind blows from a different direction and the air pollution is being put out by a certain facility, that monitor might not measure it," he said. "That's the advantage of having an aircraft. You can measure and track a specific plume from a facility or urban area." Plumes, pollution from factory stacks that a is carried by wind, can travel from another city or facility and bring an area close to non-attainment, Shauck said. The power plants can bring the area the rest of the way. Shauck said the study's conclusions were clear, though it was started late in the season. Since ozone is what Shauck calls a "photochemical cocktail" created from a combination of nitrogen oxides and volatile organic chemicals in conjunction with sunlight and elevated temperatures, the weather plays a large factor. "The real question is how much effect does a power plant have? How much does it increase the ozone?" he said. "And, even late in the season when we didn't have the kind of temperatures that are productive of ozone, we saw a significant increase in the amount of ozone as a result from the (nitrogen oxide) from the power plant. It was definitive." TXU says the new plants will help, not harm Texas pollution levels. "We have modeling data that was done by independent organization called (Texas Emissions Reductions Plan)," Kleckner said. He said the data showed that the new plants are 80 percent cleaner than coal plants currently used. "It did show that there would be a minimal impact in the Waco area, but they did not take into account other companies shutting down their older units like we're doing," he said. "If other companies would shut down their older units it would help." However, TXU says there is no better alternative to these plants. "Coal is an easy way to meet the growing demand for energy," Kleckner said. "We can build the plants more quickly than nuclear ones." He said that while TXU is looking at nuclear power, it will be a long time before it's a viable replacement. He said that Texas is already overly dependant on natural gas and that the fuel's volatility makes the state vulnerable to swings. "The alternative is continuing to run older, less efficient, dirtier gas plants," he said, adding that 69 of those plants are already in non-attainment zones. "And to meet the demand if we can't build these, then we're looking at unmothballing 40 to 50-year-old gas plants, and our coal plants are cleaner than many of those gas plants." According to Webber, the most important thing in this issue is that everyone slow down and think. "We need to have an honest evaluation of options," he said. "Coal has some merits which need to be considered honestly, and it also has some problems which need to be considered." ************************************** AOL now offers free email to everyone. Find out more about what's free from AOL at http://www.aol.com.

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150 new power plants
by Duane330＠aol.com 25 Feb '07

25 Feb '07

February 25, 2007 Editorial, New York Times The Truth About Coal Last Wednesday, members of the Rainforest Action Network, a scrappy little advocacy group, assembled in New York outside the Citigroup Center, where Merrill Lynch has a branch office. Dressed in top hats, carrying bags of coal and calling themselves “Billionaires for Coal,” the group was protesting what it felt was the hypocrisy of a giant investment bank that proclaims a devout commitment to “environmental excellence” even as it provides financing for dirty power plants. Merrill is a lead underwriter for TXU, a Dallas-based utility that plans to build a dozen coal-fired power plants in Texas that will add significantly to atmospheric concentrations of carbon dioxide, the main global warming gas. Though Merrill was the protesters’ target, Citigroup must have been feeling queasy. It has also trumpeted its environmental virtues and is among TXU’s lead underwriters. There are at least two points to be made here. One, obviously, is there is a difference between talk and reality. Much of corporate America now appears to be out in front of the Bush administration in facing up to global warming. Some big players like Pacific Gas and Electric and DuPont seem seriously committed to mandatory controls on carbon dioxide emissions — in sharp contrast to the administration’s voluntary approach. Others, notably big investment banks, are still doing what comes naturally: seizing opportunities, whether or not those opportunities fit their green posturing. TXU can fairly claim that its plants, outfitted with the latest technology, will emit fewer pollutants that cause smog and acid rain than the clunkers that have been around for 50 years. But these plants will still be using the same basic technology — burning coal, with no ability to capture and dispose of immense amounts of carbon dioxide. That’s distressing from a global warming perspective. It is also distressing because cleaner, if costlier, technologies are available that could capture greenhouse gases before they enter the atmosphere (that is, if TXU or the private equity group that is negotiating to buy the utility were willing to make the investment). Which leads to the second point: There is a need to put a price on carbon to force companies to abandon older, dirtier technologies for newer, cleaner ones. Right now, everyone is using the atmosphere like a municipal dump, depositing carbon dioxide free. Start charging for the privilege and people will find smarter ways to do business. A carbon tax is one approach. Another is to impose a steadily decreasing cap on emissions and let individual companies figure out ways to stay below the cap. Barbara Boxer and Jeff Bingaman, the two senators who will have the most to say about climate change legislation, warned in a recent op-ed piece in The Dallas Morning News that companies like TXU that are racing to complete conventional coal-fired plants (nearly 150 are on the drawing board) will not be grandfathered under any new emissions law. Like any other company, they will be forced to meet their assigned carbon targets — which could be an expensive proposition. A surer way to prevent the construction of these plants is not to warn about such a law, but to pass it. ************************************** AOL now offers free email to everyone. Find out more about what's free from AOL at http://www.aol.com.

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Federal District Court---tomorrow
by Duane330＠aol.com 22 Feb '07

22 Feb '07

To: Participants and Friends RE: Complaint In Federal District Court, Hearing on Motion. DETAILS: Tomorrow, Friday, February 23rd, starting at 1:30 pm, a Hearing on Longview's Motion For Bond and Expedited Treatment will be held. The Complaint was filed by the Plaintiffs on February 13th, seeking a temporary injunction and permanent injunction for the Longview Power Plant, on the basis that the Air Quality Permit expired on September 2, 2005. Longview disputes this claim. Plaintiffs are Jarrett Jamision III, Fort Martin Community Association, and the Forks of Cheat Forest Property Owners Association. This is a continuation of the Appeal submitted by these same plaintiffs back in the spring of 2005, regarding this same Air Quality Permit [R14-0024]. Plaintiffs are represented by local attorney, Phillip D. Gaujot, of Morgantown. Defendants are Longview Power, LLC, the two holding companies and the three companies seeking to provide equipment and construction services. NOTES: 1. The above Hearing will be held in the US Post Office Building, Clarksburg, second floor court room. Photo-ID is required to enter the Second Floor 2. More details and an update will be provided after the Hearing this Friday. ************************************** AOL now offers free email to everyone. Find out more about what's free from AOL at http://www.aol.com.

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Taxes and Meeting Re: MVCAC Digest, Vol 22
by paula - pj- hunt 20 Feb '07

20 Feb '07

Duane, 1.) Don't we have to file *something* with the IRS for taxes, even if we brought in $0 ?? 2.) I NEVER heard anything from Jeff Riffle. He was responsive at first; now nothing. He has my USB drive too! I would really like a new voter list. It will save a lot of time. I guess we could buy one from the County ourselves. He told me "It was only a penny per name so I think it was somewhere around $230." 3.) Meeting: Mon Feb 26: I am in the field all day long and would likely be late to the meeting, if attend at all Tues Feb 27: good March 5,6,7: all good so far..... Thanks, paula At 2/20/2007 12:00 PM, you wrote: >Send MVCAC mailing list submissions to > mvcac(a)cheat.org > >To subscribe or unsubscribe via the World Wide Web, visit > http://cheat.org/mailman/listinfo/mvcac >or, via email, send a message with subject or body 'help' to > mvcac-request(a)cheat.org > >You can reach the person managing the list at > mvcac-owner(a)cheat.org > >When replying, please edit your Subject line so it is more specific >than "Re: Contents of MVCAC digest..." > > >Today's Topics: > > 1. Planning & Notes (Duane330(a)aol.com) > > >---------------------------------------------------------------------- > >Message: 1 >Date: Tue, 20 Feb 2007 10:27:27 EST >From: Duane330(a)aol.com >Subject: [MVCAC] Planning & Notes >To: mvcac(a)cheat.org >Message-ID: <d43.2b13bca.330c6d5f(a)aol.com> >Content-Type: text/plain; charset="us-ascii" > >Proposed upcoming meeting dates. > >Let me propose the following possible dates > >for the next meeting of the MonValley Clean Air Coalition > >1. Monday or Tuesday, February 26th or 27th > >2. Monday, Tuesday or Wednesday, March 5, 6, 7. > >PLEASE LET ME KNOW AS SOON AS POSSIBLE OF ANY CONFLICTS >WITH THESE DATES. THIS WOULD BE AN EVENING MEETING STARTING >AT 6:30 OR 7 PM. > > >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> > >I have just inquired into the database of the WV Secretary of State; > >it appears the following are in good standing: > >1. MonValley Clean Air Coalition, chartered on 7/11/2005 >as a non-profit volunteer association in the State of West Virginia. > >2. Citizens for Alternatives to Longview Power, chartered on 7/11/2005 >as a non-profit volunteer association in the State of West Virginia. > > >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> > >NOTE: On January 26, 2007, the U.S. Internal Revenue Service approved >the application of the Mon Valley Clean Air Coalition for tax exempt status >under Section 501-(c)-3 of the Internal Revenue Code. This means that >contributions to MVCAC are tax deductible under Section 170 of the Code. > >This tax status is retroactive back to July 11, 2005. We are required to >submit >Form 990 only if our gross receipts are normally more than $25,000 per year. >So, let's do some fund raising, up to $24,999.99. > > >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> > >MonValley Clean Air Coalition >P. O. Box 4679 >Morgantown, WV 26504-4679 >

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Planning & Notes
by Duane330＠aol.com 20 Feb '07

20 Feb '07

Proposed upcoming meeting dates. Let me propose the following possible dates for the next meeting of the MonValley Clean Air Coalition 1. Monday or Tuesday, February 26th or 27th 2. Monday, Tuesday or Wednesday, March 5, 6, 7. PLEASE LET ME KNOW AS SOON AS POSSIBLE OF ANY CONFLICTS WITH THESE DATES. THIS WOULD BE AN EVENING MEETING STARTING AT 6:30 OR 7 PM. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> I have just inquired into the database of the WV Secretary of State; it appears the following are in good standing: 1. MonValley Clean Air Coalition, chartered on 7/11/2005 as a non-profit volunteer association in the State of West Virginia. 2. Citizens for Alternatives to Longview Power, chartered on 7/11/2005 as a non-profit volunteer association in the State of West Virginia. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> NOTE: On January 26, 2007, the U.S. Internal Revenue Service approved the application of the Mon Valley Clean Air Coalition for tax exempt status under Section 501-(c)-3 of the Internal Revenue Code. This means that contributions to MVCAC are tax deductible under Section 170 of the Code. This tax status is retroactive back to July 11, 2005. We are required to submit Form 990 only if our gross receipts are normally more than $25,000 per year. So, let's do some fund raising, up to $24,999.99. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> MonValley Clean Air Coalition P. O. Box 4679 Morgantown, WV 26504-4679

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AP: Citizens Suit vs. Longview Power
by Duane330＠aol.com 14 Feb '07

14 Feb '07

The Associated Press: February 14, 2007, 4:11PM EST Foes sue to stop W.Va. power plant By VICKI SMITH, AP, MORGANTOWN, W.Va. Opponents of a $1 billion, coal-fired power plant are trying once again to halt the construction, filing a federal lawsuit that claims an air quality permit for the project expired in 2005. The lawsuit was filed Tuesday in U.S. District Court on behalf of Cass resident Jarrett F. Jamison III, the Fort Martin Community Association and the Forks of Cheat Forest Property Owners Association. It seeks an injunction against Longview Power LLC, a subsidiary of Needham, Mass.-based GenPower LLC, which plans to start building the 600-megawatt plant near Allegheny Energy's Fort Martin plant this year. Local citizen groups have fought the project for years, complaining it would create noise and air pollution, damage their views and cause harm to their health and environment. An original permit issued by the state Department of Environmental Protection expired in September 2005, but the DEP's Division of Air Quality granted a one-year extension in February 2006. The lawsuit, however, argues that both the state and Longview Power failed to ask permission from the U.S. Environmental Protection Agency, which the plaintiffs contend should have held a 30-day comment period. Last month, the plaintiffs asked the state to revoke the permit, but were refused in a Feb. 1 letter that said Longview now has "irrevocable financial commitments" and already has begun site work. That leaves the state unable to act, the letter said. Chris Colbert, GenPower's vice president of coal power development, dismissed the latest lawsuit as being "without merit." Longview started construction in January, he said, and it has signed contracts and "large financial commitments that can't be taken back." Last summer, the state Public Service Commission issued final approval for construction, ruling the job creation and financial benefits of the plant outweigh any negative effects. The PSC laid out conditions to placate the citizen groups, including a noise control plan, proof of financing and a $3 million performance bond in case the money runs out before construction is completed. The opponents, however, dismissed that as "a sellout to out-of-state developers, a tax scam, and a threat to our health and well-being." Longview could become the first company to built a coal-fired plant in West Virginia since the 80-megawatt Grant Town power plant in 1993. All of Longview's output is targeted for the wholesale electricity market outside West Virginia, while about 25 percent of the Fort Martin plant's generation now heads to state consumers. Longview says the plant will employ 60 people and create up to 1,600 construction jobs, then consume more than 2 million tons of coal a year when completed. Monongalia County, which approved a payment in lieu of taxes plan, would get $105 million from the project over 30 years.

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Fwd: Texas Coal Plants
by Duane330＠aol.com 12 Feb '07

12 Feb '07

FYI

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NRDC
by Duane330＠aol.com 11 Feb '07

11 Feb '07

National Resources Defense Council ONEARTH magazine, winter 2007, FRONTLINES column. _http://www.nrdc.org/onearth/07win/frontlines2.asp_ (http://www.nrdc.org/onearth/07win/frontlines2.asp) Running on Fumes How bad is the current energy crisis? Really, really bad, says oil expert Charley Maxwell. After half a century in the oil business, Charles Maxwell is widely referred to as the dean of energy analysts. As a Marshall Scholar at Oxford he specialized in Arabic and Persian language and history before joining Mobil in 1957. He spent a decade with the oil giant, scheduling tanker shipments, working in a field office in Nigeria, and negotiating Middle East production agreements. When the Arab oil embargo hit in 1973, he was already being hailed by Institutional Investor as Wall Street's number-one oil analyst. Today he is a senior energy analyst with Weeden & Co., which provides proprietary research to institutional investors. Charley Maxwell is not your classic environmentalist -- he favors further development of coal and nuclear energy and sits on the board of a coal-bed methane company in Denver. But in this late-September conversation with Sonia Shah, author of Crude: The Story of Oil, Maxwell urges a new conservation ethic that may -- or may not -- save us from the worst energy crisis we have yet faced.You are famous for coining the term "energy crisis" in the 1970s. Do you think that we're entering another crisis now? I do. In the first energy crisis, we tried to keep prices low and ration the physical gasoline. People sat in these long queues and it was a huge loss of time and money. When the second energy crisis hit, in the late seventies and early eighties, we just allowed the price to rise. And that's what we're doing now -- rationing by price. The fact that gasoline recently hit $3.20 a gallon would suggest that we are in crisis. I would say even $2.50, which is where it is now, represents some form of crisis.What are the underlying reasons? There are four, I think. First and foremost, there was a lot of oil that could have been discovered that wasn't, because the national oil companies such as Saudi Aramco didn't invest enough in exploration. Second, the big oil companies didn't exercise much vision. When prices went up in 2000, they basically pocketed the money. Of course, if you're an executive and you have stock options, you start to think that the whole world depends on your stock price rather than on getting more oil. And who's to say that we should have more oil? If it means that everyone is going to work harder and longer to make possible the greater use of SUVs, is that a worthy end in the world of God?And the other two reasons? The third is political instability around the world. And the fourth is that we are now approaching the 50 percent mark of recoverable oil. Global oil production will reach a maximum rate and then it will inexorably start to go down. I predict that will be between 2015 and 2020. When that happens it will be the single biggest problem that we face.And we're using more oil all the time. Yes, as the world economic system grows, we're needing about 1.5 percent to 2 percent more oil every year. Right now the non-OPEC countries are providing about half of that. But those proportions are changing fast. In 2010 that door slams shut, and we will have to call on OPEC for all the new oil we need. So they will have complete control over its availability and its price.How much more oil is still waiting to be discovered? There is still a lot of oil out there. But if it takes 30 years rather than 10 to discover it, then we're not going to be producing enough each year to meet our needs. What's happened is that the search has slowed dramatically. So we're in deep trouble.Exxon has said there could be up to 4.8 trillion barrels of oil still recoverable. And there are other industry estimates that go as high as 7 trillion. I read that stuff and it's good background humor, you know what I mean? But I really hope they don't think anyone takes them seriously.So is it just a PR thing? No, I think Exxon actually believes it, which is really sad.What's the outlook for new sources of oil, so-called unconventional sources? Most of that is actually gas. There's coal-bed methane, which is the gas from coal deposits. There's the gas from so-called tight sands, which are geologic formations on the way to becoming sandstone. And then there's shale, which gives up the gas very slowly. That makes it uneconomic when [natural] gas costs $2 [per million Btu], but in a world of $7 gas, you'd accept the slow production and you'd still be happy to get it.Do you think price levels are high enough at the moment to start triggering changes in our behavior? Even with $3 gas, nobody's saying, "I can't take Johnny to the soccer match." But there's no doubt we're going to have to change our habits. We're going to have to design our cities differently. We're going to need greater population densities and more public transportation. We're going to have to build our houses to different building codes. But the system can't change overnight. We can change our habits in two or three years and the next generation of equipment will be developed with energy conservation in mind, but people will have to go on with their present equipment for a time. Even so, I think we're already triggering some favorable changes at $3, like the decline in SUV sales and the increased sales of smaller sedans. I read the other day that in 10 years, 10 percent of the country will be using hybrids -- which isn't that much. So there's got to be more than hybrids, and I think Honda is on to it with a new small diesel with a very efficient engine. One advantage of diesel is that the engine lasts longer than the gasoline engine.But doesn't our whole model of economic growth depend on throwing things out and getting new ones? Yes, but I think this new conservation ethic is going to come in. It will be hard on General Motors and Ford and Chrysler, and it may take some subsidies. I don't think the government can afford to put any of those companies into bankruptcy.Do you see any prospect of a gasoline tax? Or is that still a taboo? I think it's changing. But there are lots of ways to do it. You don't have to have a gasoline tax; you can have a tax on horsepower and thus give a huge lift to lighter cars with less powerful engines. There's a recognition that we have to decrease the weight of vehicles. We can now make cars with traditional engines that are half the weight of the cars today. There are some marvelous new plastics that give us this very light weight with great strength, so we'll be able to hold on to these cars for much longer.Where's the political leadership on all this? I mean, when the president talks about our being "addicted to oil" and needing more ethanol... Well, he's just being told what to say by his minions, you know. Ethanol, for the moment -- meaning ethanol from corn -- is a stupid investment, as people are discovering. Pretty close to 100 percent of the savings [in oil consumption] that you get on ethanol is consumed by the hydrocarbon fuel that has to be used to grow the corn. You do save something in national security terms -- it's not from the Middle East, and you're not putting dollars out into the wider world. But if they can convert cellulose to sugar, and sugar to alcohol, then we will really have something.They're using sugarcane in Brazil, of course. But you mean other crops, like switchgrass? Yes, that's right, and that would give you maybe a 40 percent savings. That's coming, but probably not for six or seven years.What about solar and wind and other alternatives? I'm very keen on solar, because it works and it's getting more efficient every year. But the problem is that today it represents maybe one-tenth of 1 percent of the energy we produce. In 10 years it may be half a percent. So it won't solve the problem. Wind will be a little better, a little bigger. And I do believe that when the problem is solved, it will be solved by a host of small contributions like this, from different directions.And that will take a lot of technological innovation. Yes. You know, entrepreneurs are doing all kinds of things -- racing to design new types of wiring for electric motors, new types of batteries for cars. In garages around the country, the inventive geniuses are being let loose. I think it's going to become an American jamboree, in a way, because what we do best is innovate.Does that make you an optimist? I think we'll get through this problem by about 2020 to 2025. My worry is how we get there. We have a time when oil is winding down before anything is able to slide over and solve the problem. A lot of nuclear development is being brought along by the incipient shortage of future oil, and it's putting people into a proliferation mode. The whole world could come under this threat, and it's a terrible one. We could also be in deep trouble as a social system. How do we achieve fairness [in rationing scarce energy supplies] when the gridlock between rich and poor already stops us from having an energy policy in this country? We could see democracy entering its death throes.

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MVCAC February 2007