I will buy your gas tomorrow


Our world and society have changed in the two last centuries more than in the two last millennia. The innovations born at the Industrial Revolution have modified our way of living probably only comparable to the Neolithic Revolution, when humans leaved their nomads lives to settle in cozier places thanks to agriculture.

The turning point that motivated Industrial Revolution was to learn how to dominate heat for generating power and how to use this power. Moreover, the prior changes on the structure of the civil society allowed the raise of innovation and scientific research. The last four or five generations of humans have understood and modified the world more than the hundred generations before. The changes have been so profuse and fast that today we are still catching up.

Nevertheless, probably these changes would not have taken place so quickly without the tremendous energy provided by fossil fuels. As it is known, fossil fuels were formed by natural processes such as anaerobic decomposition of buried dead organisms. Millions of years ago, those organisms processed CO2 and water to create high-energy chemical compounds, through the mechanism of photosynthesis. Those compounds evolved over geological time till what they are today, sometimes exceeding 650 million years. In other words, they are sun energy stored and chemically processed long time ago.

Unfortunately, burning fossil fuels is not free. They have condemned our society to two big issues which are getting worse every day, little by little, and that will probably drive to catastrophic consequences. The first problem is that fossil fuels are not infinite. Despite reserves of fossil fuels are expanding along with new exploration and techniques, some day they will end. Forecasts say that we will have oil for one or two centuries but coal will last three or four centuries more, under current consumption. The second big problem is related to a combustion product, the CO2 (burning is actually reversing the formula that created fuels). That gas is probed to be responsible for the global warming effect. The consequences of the generalized increase of earth temperature are unknown and under discussion, but there is consensus in that it is not prudent to modify a complex system as a planet ecology. This problem is closer in time and there is great literature and possible solutions (sequestration, cap-and-trade, quotas, CDMs…) to avoid or mitigate it, despite no one of the solutions have achieved to be effective enough to solve the problem.

This paper is focused on the first problem, especially oil which is used mainly for transportation. The common response to the issue is related to fuels substitutes. As oil becomes scarce, its price will rise, and today expensive substitutes will be profitable then, addressing to a smooth transition (Simon, 1996). Despite that could be probably true, there are some authors (Meadows, 1972; Barbier, 2005) who warn that this transition can slow down economic growth and cause a miserable crisis for a long time. Nevertheless, our bad decisions today are definitely creating challenging issues for future generations. There is an important intergenerational externality here, which is causing sub-optimal economic decisions from a broad time point of view. There is not only a moral o ethic problem here; I believe that this is an economic problem that should be faced by any responsible social planner.

Our current human generation should not be the only owner of the earth gratitude in terms of resource availability. Similar to a free rider in a public bus, we are taking advantage of the world endowment of energy. In thermodynamic terms, out rate of entropy generation (that is order or energy degradation) is greater than the system order creation (mainly by the sun supply), addressing to a non-sustainable equilibrium.

In this paper, I will try to address this economic problem and pose solutions or elements to take into account to solve it. The ideal conclusion would be to answer the question How much I owe you for using oil today, so avoiding you from using tomorrow?

Intergenerational externalities as a particular case of the Tragedy of the Commons

From my point of view, the biggest problem of capitalism is that the system confuses value with price. The dogma is that the value of the goods is the price that any consumer is willing to pay for it. In other words, for things that does not have price or its price is zero, they have no value or they are useless. For instance, nobody would pay a penny for a can of pure air or for knowing that there is an animal similar to the elephant with a horn in the face. However, nobody would say that clean air or black rhinoceros (an animal about to extinct) are worthless. Worthless means that your utility (or satisfaction) is the same having or not the good. Obviously nobody can be equally happy with clean air than with contaminated, as well as, nobody could say that watching a rhinoceros in a zoo or TV cannot cause someone else´s satisfaction.

Nevertheless, under our current economic and social scheme, these things have not price, or it is very difficult to determine, because, actually, there is not a market for them. That end in economic problems, like depletion, abusing, scarcity or injustice. That is what is known in economics as externalities. The common definition for externalities is a cost or benefit that is not transmitted through prices in that it is incurred by a party who was not involved as either a buyer or seller of the goods or services causing the cost or benefit. Quantify externalities is the hard part and the challenge for our current economic model.

As it has been said, the root of the problem is to set the price for those goods that are not traded in a market. One common resulting issue is what is known as the Tragedy of the Commons, that can be summarized in the depletion of a shared resource by individuals, acting independently and rationally according to each one’s self-interest, despite their understanding that depleting the common resource is contrary to the group’s long-term best interests.

There are many examples of this problem. In the figure below, some examples have been plotted considering the time to suffer the issue and the time required to solve the issue, with the current technology and knowledge, approximately. Note that the scale is logarithmic and that some issues do not have possible solution (or the time to solve them is infinite).

Sustainability issues, time to solve vs time to occur

Moreover, two lines have been projected, marking the area of influence of each human generation, which, for developed countries, could be considered for simplicity around a century. The area between axis and dotted lines (<100 years) is the temporal limit when the acts of a generation can be seen and can be solved within itself. That is to say, issues in that area could be, in theory, easy to solve or avoid for rational consumers, since they personally can see the results of their actions.

That happens in real world. There are successful mechanisms and examples that have solved these issues. For instance, the Montreal Protocol for protect the ozone layer, the cap-and-trade program of EPA for SO2 emissions that provoke acid rain, or toll highways for reduce traffic. In general, problems that can be solved (or regenerated) in less than a century (under horizontal dotted line), can be solved setting up a quota. However, a quota is almost useless for nuclear waste or oil consumption, since the problem will occur sooner or later.

Another important factor is that the time to problem was under the limit when the current generation can suffer the issue or think that they are in charge to solve it (on the left of the vertical dotted line). In this case, it is feasible that different governments achieve an agreement to put a limit in the shared good or, at least, everyone agrees in that the problem does exist. There are still many advocates that doubt about the climate change or even the depletion of fossil fuels (for instance, John Skvarla, secretary of the Department of Environment and Natural Resources in North Carolina), as new reserves or methods (as fracking) are emerging. The common response is to rely on future innovation to get rid of the issue. It seems risky to trust in scientists that are not born yet, for clearing up problems that we have not been able to solve.

There is an ancient implicit psychological factor in all of this. Despite we usually take care of our children, it is very difficult to make decisions thinking in more than two or three generations. The uncertainty of our lives, tend to overvalue the present to the future, and that can represent a failure from the complete timeline view. Our capitalist economy follows this principle, and the rate is the inflation. Money today values more than tomorrow, or translating in goods, a gallon of gas today values more than tomorrow, so, for us, it is worthier to burn it today. But maybe, the demand and human needs of tomorrow are greater than today, so, actually, a gallon of gas could value much more in future than today. This is what happens with exhaustible resources. However, it can be difficult to ask an oil producer to not sell oil today and leave it to his great grandchildren to use it for making more profit.

This type of issues are called intergenerational externalities, that is, cost or benefits that are not transmitted through current prices and are assumed by future consumers. They are, in fact, a Tragedy of the Commons case when more than one human generation is involved.

Current and future generations have limited opportunities for trade or coordinate polices, and, moreover, it would be an asymmetrical negotiation, when the current generation has an advantageous position over the future ones. So, traditional solutions as Coase’s theorem, quotas or prohibitions are ineffective methods, as it can be seen in real world, where the problems on the upper-right corner remain unresolved.

The economics of exhaustible resources

The first economist who studied these issues in depth was Hotelling in 1931. As he stated in the first lines of his article, contemplation of the world’s disappearing supplies of minerals, forest and other exhaustible assets has led to demands for regulation of their exploitation. The feeling that these products are now too cheap for the good of future generations, that they are being selfishly exploited at too rapid rate, and that in consequence of their excessive cheapness they are being produced and consumed wastefully has given rise to the conservation movement. He studied the case from the producer point of view in different market cases as competition, monopoly or oligopoly. The concern, at that time, was to find the appropriate rate of extraction that maximize the ‘total utility’, since restricted exploitation could raise prices over benefiting producers, but excessive production could sink the prices and bankrupt producers. His conclusion is called the Hotelling’ rule: the most socially and economically profitable extraction path of a non-renewable resource is one along which the price of the resource, determined by the marginal net revenue from the sale of the resource, increases at the rate of interest. His work laid the foundation for further research in the field of non-renewable resource economics, and derived from the classic model called cake-eating economy.

Before the 1970s, serious attention was not given to Hotelling’s views regarding economics of exhaustible resources. Great Depression and World Wars recoveries were more impending issues. However, the oil crisis on 70s, and the work of Meadows and the Club of Rome, set off another period of intense public concern for natural resources.

The reality is not so simple as the Hotelling model, since, there are capital and/or technical change that can compensate for the decrease of the resource. That has been deeply studied by economist as Solow (1974), Stiglitz (1974) or Dasgupta and Heal (1974, 1979), who have cared about how to maintain growth in an economy based on exhaustible resources. Under different hypothesis, they conclude that an optimal path of extraction with a positive consumption exists if the discount rate is high enough. Then, the declining use of the resource is compensated for by capital accumulations. In simple words, if the yields of the capital investment (and technology development) are high enough to compensate the lost of the resource, then exhaust the resource would not badly affect the economy. Similar conclusions are posed using the maximum criterion or Rawls’s criterion: if the elasticity of output with respect to capital is greater than that of the resource used, then a sustainable positive level of consumption exists. That introduces the concept of efficiency, meaning that it could be sustainable if what you obtain by using a resource (for instance, a car moving) is greater than the value of that resource (oil) used.

Nevertheless, it is not clear what should be the sustainable discount rate in the case of oil, or what is the actual value obtained for using oil. So the solutions go from not using the resource at all (total conservationism or ‘dictatorship of the future’) to using it at a certain rate (‘dictatorship of the present’).

Moreover, these economic models do not cope with intergenerational equity or altruism questions; and they do not take into account the fact described in previous paragraphs, about the discrepancies between the today decision maker and the future affected. For that reason, the overlapping generations (OLG) framework have been used recently to address the problem. Different models and assumptions have been studied by Howarth (1991) o Gutierrez et al. (2003).

Another interesting example of sub-optimal economic allocation due to intergenerational externalities has been recently studied by Lazkano (2012), using the OLG model and regarding the positive externality of research and development in clean energies. In her work, it is demonstrated that as consumers do not care about the effect of capital accumulation on future pollution, their demand for clean technologies is not sufficiently high to offset the negative effect on the environment. Moreover, the economy’s transition from dirty to clean technologies, […], might not occur because of the insufficient demand for clean technologies. And as a result, when agents care little about the environment, environmental quality not only deteriorates but economic growth can be negative.

That represents a market failure. In the same way, not compensate future generations for consuming an exhaustible resource implies that the current demand of oil can be greater than the optimal and the oil price lower than the optimal. That price probably is not high enough to encourage investigation and investment in substitutes as renewable sources. That results in an inferior rate of substitution and a delay in the transition, letting some future generation to assume these costs and facing lower economic growth.

All of the previously commented models try to find the optimal solution or the best extraction path. Another approach has been currently studied by other economists as Martinet et al. (2006), focusing on feasible solutions, that is, viable development paths that can be or not the optimal. With that, they lower the requisites for achieving a sustainable economy and find interesting conclusions.

Trying to calculate a figure to add to the current price of oil can be hard and it will need more time and effort than the scope of this paper, but, however, I will try to contribute with some ideas with a simple example, in the next section. That quantity should be a tax on the consumption of oil specifically designated to investigate in oil substitutes (increasing technology development) or a ‘green’ fund for future generations (increasing capital accumulation).

The cake of oil

Let’s imagine a simpler and graphical example of what we are discussing here. Imagine a cake that is sliced in 20 pieces. Imagine that there is a cue of 20 people waiting for eat one piece everyone. Each person can take as many as pieces he or she wants and are on the plate at that turn, and they cannot discuss between them, only with the next or two next persons on the cue. They would be happy just eating one piece (1/20), but if they take more, it is ok.

The first person in the line can perfectly take all of the cake, eat one piece and throw away the rest, but he does not so because the second person is watching out and he does not want to be a bully. However, he takes two pieces (2/20), one more just in case he gets hungry again. The second person does the same, and so the third and the rest ones (maybe the ninth and tenth would take only one regarding the almost empty plate, but it doesn’t matter). The problem arises with the eleventh and following, because there is not more cake on the plate. So ten people are more than happy but other ten are very disappointed because they eat nothing; and moreover, the first tenth have already left the fiesta¡

If you have gone to any party, you know that this is possible to happen. Now, just substitute the cake for an exhaustible resource as oil, and each person in the line for a complete generation, and you have our oil-based economy. It is obviously much more complicated in reality, because that cake can produce other outputs, there are substitutes for it, and the price fluctuates pushed by momentary offer and demand. All of these assumptions are considered and studied in the articles mentioned before.

Looking at the historical prices of oil, plot below (inflation adjusted, red line), it can be seen a great stability in prices until the oil crisis, that seems a steady and pace cake-eating model. It reminds me to the first lucky tenth. From the 70’s the prices started to fluctuate, due to the decisions of some of the people to keep some of the cake for rising prices (let’s call them party-poppers?) and the crazy new game called ‘trade the cake’ where the party animals play to exchange pieces of cake betting some money.

History of oil prices without inflation

Maybe, the simple cake example could be solved just by imposing a quota (a sign with ‘please one piece by person’), but imagine an infinite cue with people with bigger or lower necessities. That bring to us to what has been posed in previous paragraphs, how to define an extra price or define the externality for consuming today an exhaustible resource on future generations? How create a market where consumers do not exist yet? It would be difficult to get this number but one thing it is clear, it has to be something.

This type of economic and social justice problems considering generation’s distribution have been addressed by some oil-producers countries and regions. Some countries and regions have established the so-called permanent funds, which are sovereign investment funds where the royalties for resource exploitation are saved and re-invested, letting future generations to enjoy the benefits of the resource endowment. Some examples are the Alaska Permanent Fund, the Alberta Heritage Savings Trust Fund, the State Oil Fund of Azerbaijan, the Future Generations Fund of the State of Kuwait or probably the largest one, the Government Pension Fund of Norway, previously known as The Petroleum Fund of Norway. These funds were not actually created with the objective to allocate benefits among generations; despite it is a consequent benefit. They were created to avoid the problems known as the Resource Curse, Paradox of plenty or Dutch Disease, which refer to the paradox that countries and regions with an abundance of natural resources, tend to have less economic growth and worse development outcomes than countries with fewer natural resources. This is hypothesized to happen for many different reasons, including a decline in the competitiveness of other economic sectors (caused by appreciation of the real exchange rate as resource revenues enter an economy), volatility of revenues from the natural resource sector due to exposure to global commodity market swings, government mismanagement of resources, or weak, ineffectual, unstable or corrupt institutions. That is probably happening nowadays in North Dakota, where the boom of the exploitation of shale oil is creating a great inflation in costs (outsize prices in rents, salaries, etc) that are drowning other non-oil related business. (Dobb, 2013).

The royalties are dedicated to the fund, which give it back to citizens as a yearly dividend (in some cases like Norway, that amount is determined by the Constitution). That resolves partially the inflation effect through sterilization and providing a stable revenue stream. As a consequence, allocate the benefits of exploitation among time, compensating future generations of the country for emptying the resource endowment. Nevertheless, that is not being done in a worldwide basis, creating a future problem of injustice.


In this paper, some relevant problems and ideas related with exhaustible resource exploitation have been posed. It is clear that allocating benefits and cost between different generations drives to economic issues than are not totally resolved. As many other current problems of our society, solutions and decisions should be taken considering the whole world and next generations.

Probably the existing system of resource extraction and consumption is not the best solution and is creating a problem that must be dealt by future generations. How to find the best answers is now under debate by economists. Nevertheless, there are some solutions running as the permanent funds, which should be adopted and considered as a regular basis. Moreover, I think that the investment policy of these funds should be oriented to projects that achieve reduce or eliminate the dependency on the resources that feed them. Otherwise, the future is probably compromised.

So, if we would want to buy the gas of our great grandchildren, we should start to save money now, since, they are actually paying part of our gas today.


  • Barbier Edward B., Natural resources and economic development, Cambridge University Press, Cambridge, 2005
  • Dasgupta, P., Heal, G., The optimal depletion of exhaustible resources, Poceedings of the Symposium on the Economics of Exhaustible Resources, 1974
  • Dasgupta, P., Heal, G., Economic Theory and Exhaustible Resources. Cambridge University Press, 1979
  • Dobb, E., The New Oil Landscape. National Geographic, 2013
  • Gutierrez, M.J., Agnani, B., Iza, A., Growth in overlapping generation economies with non-renewable resources, Journal of Environmental Economics and Management, 2003
  • Hotelling H., The Economics of Exhaustible Resources, The Journal of Political Economy, 1931
  • Howarth, R.B., Intertemporal equilibria and exhaustible resources: an overlapping generations approach, Ecological Economics 4, 1991
  • Meadows Dennis L., The limits to Growth, Pan Books Ltd, 1972
  • Lazkano I., Intergenerational Externalities and Sustainable Growth, 2012
  • Schilling M., Chiang L., The Depletion of Non-renewable Resources for Non-sustainable Externalities as an Economic Development Policy, CPSA Annual Conference, 2009
  • Simon Julian L., The Ultimate Resource, Princeton University Press, Princeton, 1996
  • Solow, R.M., Intergenerational equity and exhaustible resources, review of economic studies, Proceedings of the Symposium on the Economics of Exhaustible Resources, 1974
  • Stiglitz, J., Growth with exhaustible natural resources: efficient and optimal growth paths, Proceedings of the Symposium on the Economics of Exhaustible Resources, 1974

Oportunidades para los ingenieros industriales en proyectos energéticos internacionales. Induforum 2013.

Induforum 2013 es la Feria de Empleo de la Escuela Técnica Superior de Ingenieros Industriales de la Universidad Politécnica de Madrid y ha tenido  lugar los días 3 y 4 de abril de 2013.

descargaHace ya seis años desde que, como alumno de último curso, tuve el placer de formar parte del grupo de organizadores de la feria de empleo Induforum 2007. Gracias a ello, conseguí mi primer empleo como ingeniero de proyectos renovables, antes de acabar siquiera la carrera, en una de las empresas participantes. Era el momento del despegue de las energías renovables, gracias a las generosas tarifas reguladas (o feed-in tariffs) que proporcionó el RD661, del mismo año. Fueron unos años de gran actividad e inversión en el sector energético, pero, como se ha comprobado después, resultaron en un crecimiento insostenible.

Ahora he tenido el gran honor de escribir un artículo para su revista. Se titula Oportunidades para los ingenieros industriales en proyectos energéticos internacionales, y hago un repaso de la situación de las energías renovables en EEUU y las oportunidades para los jóvenes licenciados. La revista completa de Induforum 2013 se puede descargar aquí.

Enhorabuena al comité organizador de la feria y mucha suerte para los recién licenciados, tenéis por delante un reto importante pero, sin duda, vais a encontrar vuestro sitio.

Volunteering at Grid Alternatives. Installing PV for low-income

I have always believed that the technology has to serve the citizens as a way of prosperity and social equilibrium. In that sense, I have participated in one of the best experiences of my live as engineer and specialist in energy: volunteer for installing solar PV panels for a low-income family in Los Angeles.

The brilliant idea of the nonprofit Grid Alternatives is to bring the benefits of solar technology to communities that would not otherwise have access, providing needed savings for families, preparing workers for jobs in the fast-growing solar industry, and helping clean our environment. So, they address all of the triple bottom line’s objectives. They basically install solar PV for free on low-income roofs. Panels and equipment is finance by donations at manufacturers’ special prices, and the labor comes from volunteers.

I knew about them at UCLA and I loved the idea. Several months ago I registered and I did the orientation session, where they explained basic safety and installation issues. I was surprised because the majority of the volunteers are unemployed people who want to gain experience on solar PV installations, to get a job. It is ironic that, at the end, the most generous persons are those who are more needy.

After several months of being waitlisted (they have more volunteers than projects to accommodate), I could get a spot. The home was located very closed to Compton, which is sadly infamous in LA for its heavy concentration of gangs and gang violence, ranked as the 8th most dangerous city in the country by FBI, but being the place where probably gangsta rap sub-genre born (Ice Cube, etc). Nevertheless, it did not seem so dangerous to me, it actually has a very similar look to many parts of my home town, Madrid.

The house was one story with a back and a nice front yard. We installed 20 panels of the brand Sun Power, probably E-19 series(245W/each), in two racks of 14 plus 6. The first day we installed the footers and rails where the panels would be fixed, on the second day, with the electrical connections. It is frankly surprising see how the panels generate voltage between the two terminals when you measure it with a multimeter, even if they are not facing the sun. Such a wonderful technology¡

After two days of pace and relaxed work, drilling holes, screwing bolts, joining wires and pouring glue, the work was finished, and the installation running¡

Solar PV Installation in Compton - Grid Alternatives

Donations to Grid Alternatives

Aprobar el LEED GA

¡He aprobado el examen de LEED GA! Os voy a comentar la claves y  algunos recursos para aprobar este examen.

LEED Green AssociateComo se sabe, la acreditación de profesionales según LEED, sirve para demostrar el conocimiento en el programa de certificación y en los principios de construcción sostenible. La acreditación no es necesaria en ninguno de los pasos para certificar un edificio, si bien es recomendable que alguno de los profesionales involucrados en el proyecto esté acreditado o cuanto menos, conozca el sistema en profundidad. Además se puede conseguir un punto adicional por ello.

El motivo de esta acreditación es el mismo que el de la certificación LEED, servir para diferenciar a los profesionales y agregar valor en el competitivo mercado laboral.

Existen dos tipos de credenciales, LEED GA (Green Associate) y LEED AP (Accredited Professionals), este último con cinco especialidades. Para obtener dichas credenciales es necesario pagar ciertas tasas, aprobar un examen y en el caso del AP, tener cierta experiencia previa en proyectos que se hayan certificado con LEED.

En Estados Unidos, es cada vez más frecuente ver como profesionales en el sector de la construcción, especialmente arquitectos o  ingenieros, añaden en su firma las siglas LEED GA o AP, que indica que están acreditados por el GBCI. Actualmente existen en todo el mundo más de 160.000 profesionales acreditados (sólo 160 en España); muchos más, de lejos, que proyectos en fase de certificación.

El primer tramo de la certificación, el LEED GA, está indicado para aquellos profesionales relacionados con la energía y construcción pero que no trabajen directamente en dichos proyectos. En general no es un examen difícil de aprobar. Yo lo hice directamente en inglés, aunque se puede realizar en castellano (pero es posible que esté algo ‘latinizado’ y sea aún más difícil de entender, cómo suele ocurrir en las traducción americanas). Para poder registrarse al examen es necesario haber realizado algún curso o haber participado antes en algún proyecto LEED. Yo aproveché un asignatura de UCLA, aunque creo que hay cursos online que permiten cualificar para este requisito. Recomendaciones:

  • Materiales de estudio:
  • LEED GA Study Guide de Studio4. Gratis. Es muy extensa pero aporta una visión profunda de los conceptos que hay que tener.
  • Guias de Rating systems de la USGBC. Gratis. Son la certificacion en sí. Hay que empezar por leerse (varias veces) los creditos y prerequisitos de la New Construction &Major Renovations por ser la más general. Después conviene revisar el resto de sistemas para ver las peculiaridades, sobre todo LEED for Homes y Operations and Maintenance.
  • Exámenes de prueba:
  • Recomiendo hacer muchos antes de presentarse al examen. Te da una idea del nivel de dificultad y del tipo de preguntas que se hacen. Al final hay siempre un gran número que se repiten. Aquí se pueden descargar varios exámenes de prueba:
  • Exámenes de prueba LEED GA (1)
  • Exámenes de prueba LEED GA (2)
  • Exámenes LEED GA. Hay que registrase, pero es gratis.
  • Consejos:
  • Leerse los créditos varias veces, al final es lo que te preguntan.
  • Ver la web y el demo de LEED online.
  • Leer los glosarios de las guías, ya que existe vocabulario en inglés que quizás no se conozca, como materiales de construcción o ciertos verbos.
  • Conocer los estándares que se utilizan, no es necesario leerlos, con saber cuál se utiliza en cada caso es suficiente. Hay cuatro principales, ASTM 90.1, 62.1, 55 y 52.1. y algunos menores, como Green Seal, Green Label Plus, Green-e, etc
  • Con un mes de preparación (2-3 horas al día) es suficiente.
  • Hacer muuuuchos exámenes de práctica.
  • En general el examen me ha parecido fácil, pero hay que dedicarle cierto tiempo hasta conocer los diez-veinte conceptos importantes de LEED.

Animo a todos a sacarlo y si tienes alguna duda, deja un comentario o escríbeme un email.

Artículo publicado sobre certificación sostenible LEED

Las edificaciones juegan un papel prioritario en la sostenibilidad de las sociedades, puesto que representan, en los países desarrollados, el primer foco de emisiones de CO2, seguidas del sector transporte y de la industria. Además, según la U.S. Energy Information Administration (EIA), las edificaciones son responsables del 40% del
consumo de energía primaria, el 72% del consumo de energía  eléctrica y el 13% del consumo de agua potable. Por lo tanto, un diseño y operación adecuados de ellas, pueden suponer grandes mejoras en el objetivo de crear una sociedad sostenible.

Con este fin se creó en Estados Unidos en el año 1993, el U.S. Green Building Council (USGBC), que tiene la misión de “transformar la manera en que los edificios y las comunidades se diseñan, se construyen y se operan; permitiendo un entorno próspero, sano y medioambiental y socialmente responsable que mejore la calidad de vida”.

En el siguiente artículo se explican y comentan las principales características de esta certificación energética de edificios, publicado en este documento elaborado por el grupo de trabajo coordinado por el COIIM en Conama 2012, celebrado en Madrid del 26 al 30 de noviembre de 2012, donde ha sido presentado y debatido con los asistentes a la sesión.

Conama2012 Eficiencia energética en edificios. Implicaciones de la nueva Directiva Europea

Ponente en Foro Ficon 2012

Me han invitado a ser ponente en Foro Ficon 2012, que se celebró en Don Benito (Badajoz) los días 28 y 29 de Noviembre.


Hablé sobre el sector de las energías renovables, que continúa su crecimiento en Estados Unidos y muchas empresas españolas aprovechan su experiencia para ganar contratos e invertir en el país. Sin embargo, la organización del mercado eléctrico y las políticas de promoción de renovables son totalmente diferentes a las seguidas en España, por lo que las empresas tienen que adaptarse al modelo estadounidense y enfrentarse a un mercado muy competitivo y con importantes riesgos. En la ponencia se explicó la situación real del sector, oportunidades y dificultades en energías renovables, casos prácticos de empresas españolas y mecanismos de apoyo para la internacionalización. Estuve encantado de participar, si bien la afluencia de personas no fue abundante, aunque el nivel de ponentes fue excepcional, destacando el catedrático Valeriano Ruiz, o Eduardo Collado de UNEF.

La presentación realizada se puede ver aquí:

Energy Policies for US from a Public Health, Environmental & Economic viewpoint

1.     Introduction

The US faces important challengers for defining their energy policy. The US has a strong dependence on fossil fuels, and despite it is one of the biggest producers of them, they are, by far, the biggest consumer, so it relies greatly on imports. That implies geopolitical issues as well as security concerns. From the environmental and health point of view, a combination of economic liberalism, plenty availability of natural resources and ‘not-in-my-backyard’ policies have lead the young country to not concern about environment so much as European countries where these problems are perceived closer. That can be seen, for instance, in the high level of pollution of some places in the US, the lack of commitment with the Kyoto protocol or the individual car-based transportation system.

Nevertheless, the good availability of resources and the adequate economic situation (maybe not the best nowadays, but for sure better than the rest of the world) could facilitate the necessary change to a greener economy if the political will is strong enough.

In the graph bellow, the sources and sinks of the energy consumption of the US can be seen. Almost 80% of the energy comes from dirty and finite fossil fuels, mainly petroleum. The two main consumers sectors are Transportation (27%) and Electric Power (38.6%). 

Sources and Use of Primary Energy in the US

Transportation is a big contributor to the energy, environment and health issues in the country. There are many policies which can be implemented in this area but the dependence on liquid fuels and the spread US neighborhood development are two important obstacles for the development of a new transportation system.

The first difficulty is partially solved by current technology. There are available new types of fuels but all of them still have relevant difficulties to trigger a change in the market. Hydrogen is not produced in enough quantities yet, in addition of the security concerns related with the great inflammability of the gas. Biofuels are already introduced, but the competition with food markets and the difficulties for introduce biodiesel in the US market (lack of diesel fleet and gas stations network) are important issues yet. Natural Gas (NG) vehicles face the same problems; despite the low price of NG makes interesting this fuel for transportation, mainly feasible for trucks. Electric Vehicles (EV) are in the radar nowadays as the solution, but they will need a change in the electric sector first, to be a real environmental and energy solution (since an EV today is actually powered by coal, NG, nuclear and a little bit of renewables). In addition, the less autonomy issue is an obstacle for consumers, despite technology is improving it very fast.

The spread US neighborhood development is a great difficulty for setting up an efficient and economically feasible public transportation system in mostly cities within US. Some important programs are being implemented nowadays, as Los Angeles metro expansion, high-speed rail in California, and others, but it seems difficult that they will imply a great change in energy consumption in the whole picture. They are actually more focused on solve traffic congestion and local pollution problems.

So, despite Transportation has an important role in the US energy puzzle, it might be very difficult to produce important changes through policies in a short term. However, actions in Electric sector could be more effective and relevant in modifying the energy consumption pattern. Indeed, Electric sector is the biggest consumer with a 38.6% of the total energy usage. Electric sector consumption comes mainly from the activity of ‘Generation’, that is actually, the transformation of primary fuels into electric fuel or electricity, easier to transport and use for innumerable machines. Generation also is responsible for the majority of the air pollution and green house gases (GHG) emission in the sector. (Some emissions are produced in transportation due to SF6 gas used in switchgear, but we can avoid it in this whole picture).

Generation is an activity pursued mainly by electric utilities and some independent power producers (IPP) and, despite there are some thousand of power plants, it could be easier to regulate and address them than convince almost 200 million drivers to switch to brand new EVs or public transportation. In addition, technical solutions to deal with the problem are already plenty available.

This paper is going to be focused on it, trying to propose policies for the Electric power sector for addressing the energy issue in the US. First, the current situation of electric generation is going to be exposed, as start point for posing policies recommendations. In addition, forms of implementation are going to be suggested, extremely important in a huge country where federal, state and local administrations share the authority on the power sector.

2.     US Electric power sector

The U.S. electric power grid serves more than 143 million residential, commercial, and industrial customers, through more than 6 million miles of transmission and distribution lines owned by more than 3,000 highly diverse investor-owned, government-owned, and cooperative enterprises; resulting in probably the biggest and complex machine in the world.

Nevertheless, there is not a unified national policy on power sector, and the majority of the competences are held by States in a very heterogeneous way, and only some general interest and security issues are responsibility of the Federal government (through FERC and DOE). Important issues as the generation mix, rates, utilities regulation are State competences. (in many cases, even counties or cities competences).

The current market organization is the result of more than 100 years of evolution. The first electric system was set by Thomas Edison in New York in 1882 for serving 59 light consumers in Wall Street. The plant which powered that system was called Pearl Street Station and it generated DC current from a coal-fired steam generator. From that, the market was growing pushed by technology innovation. Regulations and laws were catching up when they were required for ordering the market and provide a scheme through clients and companies were protected, or when terrible blackouts occurred (for example in 1965 and 2003).

The resultant model today, is a complex system where the vertically-integrated utility is the most usual model, but liberalized markets also exist. Vertically integrated means that the utility is a little monopoly in the zone where it serves, doing generation, transportation, distribution and supply of electricity. The oversee of this monopoly is assigned to state regulators, called Public Utility Commissions (PUC), or municipal governments (as the case of LADWP). These regulators set the rates and approve new plants and lines, among other functions. There are about 3,200 utilities, 2,200 Publicly-owned but only represent 17% of sales and 818 are cooperatives with 12% of sales. The 242 remaining are Investor-owned, and they are most important ones since they represent almost 60% of sales.

US Sources of Electricity Generation About power generation, currently the main source continues being coal (42%). Natural gas represents a 25% and nuclear plants the 19%. Renewable are the 13%, being 8% hydro power, 3% wind, 1,4% biomass, 0,4% geothermal and solar less than 0,1%. So, despite the great political and media coverage of new renewable technologies, they actually represent a little bit of the cake. Just to compare, in countries like Spain, around 20% of the electricity in a year is only produced by the variable wind.

The plenty availability of coal in the US (second producer after China) joined with its low price (comparing historically with gas) and ease of use (few operation risk than nuclear), have ended in being the most preferred technology. However, the implications of its use on emissions are important, since coal-firing is the worst air polluter, locally and globally. Due to its solid condition and chemical composition, burning coal produces bad gases as NOx, SO2 and particles. Some poisoned mercury is also liberated due to its minimal presence in coal. All of them provoke well-known air pollution and health issues in the plant surroundings, and even farther problems as acid rain. Those issues are partially hidden by locating coal plants in remote and low populated zones. Nevertheless, the global impact as a GHG (CO2) producer is even greater. Since coal formula is mainly carbon, when reacts with oxygen, CO2 is greatly produced. NG and petroleum formulas contain more hydrogen instead, so the combustion produces less CO2 and more H2O (which is not considered a problem in global-warming curse). Burning NG generates between 40-50% less CO2 emission than coal and 25-30% less than oil. (The real average data for the US are: NG 1,135 lbs CO2/MWh, coal 2,249 lbs CO2/MWh, oil 1,672 lbs CO2/MWh, from EPA).

It means that considering the current mix and making some simple calculations, for every 1% of coal generation which was switched for NG generation, a reduction of around 1% of GHG emission will be achieved in the electric power sector, caeteris paribus. In addition, burning NG is more efficient due to the higher temperatures which can be reached (the young genius Carnot demonstrated it in 1824 with his famous equations), so for the same electrical output, less fossil fuel will be needed. Switching to nuclear or renewable will be even better, since it will produce a reduction around 3.5% in emissions per 1% of coal taken out. Switching to oil makes no sense, since oil is more valuable for transportation as liquid fuel.

So, it seems that coal is a bad guy in the US energy and environmental problems. In next section, some policies will be posed to deal with it.

Another difficulties has to be considered in power polices definition. The current power market model of regional monopoly-supervision is probably not the most adequate for introducing strong reforms which try to solve a national problem (type of tragedy of the commons here). The main concern of the regulators (PUCs, municipalities) is to guarantee supply and keep rates lower in its area, since problems related with both of them are politically sensitive. That does not leave a big margin to make experiments or push for changes, despite the California market reform in 2000 was a pretty remarkable example but a sad fiasco. The system is destined to be conservative in the investments and the results are a problematic lack of capacity in transmission lines and an old and obsolete equipment. Difficulty in building new transmission lines (owned by utilities) is a big issue in developing renewables, since, unfortunately, the places where the resource exists, are not the same where consumption is. Transmission lines usually go through territory of different utilities, regulators and States, and it is not clear how to allocate the costs of the lines in such heterogeneous jurisdiction scheme, despite the Federal Energy Regulatory Commission (FERC) is trying to deal with it (Order 1000).

3.     Policy recommendations

So, with all the tough restrictions those have been presented before, the definition of the US energy policy should be cautious but smart, introducing mechanisms which allow easy and small changes every year but addressed in the right direction to produce a big change in next decades scope. Small steps in the right direction lead to destiny, as a good pilgrim knows.

The principles or restrictions which drive the policy definition have to be cost-effective, politically realistic and objective-oriented. The goal is clear: reduce fuel imports, reduce emissions and allow economic prosperity.

Taking into account this, the energy policy should be focused in one simple thing: Reduce generation from coal and replace it for a combination of NG and renewables.

Local and global range emissions would be obviously reduced, and the rest of goals would be achieved without exceed the restrictions. Coal is greatly mined in the country and is relatively cheap, so doing that change cost-effective and from autochthonous sources is the challenge. Nuclear is discarded due to the great investment costs, the growing opposition after Fukushima disaster and political issues. Moreover, it is not recommended despite it does not contribute to global-warming because of the greater health risks that implies, and the unsolved solution for the nuclear waste disposal. Only one nuclear plant is being built nowadays in the US, the Vogtle project in Georgia, which will need 10 years of development and it will be the sole new nuclear project to become online since Three Mile Island accident in 1979.

Promoting renewable technologies has obvious benefits to reach the target: they do not produce emissions, they do not need import energy, they do not jeopardize lives in case of failure, and they create jobs and industry. In this sense, there is much work to do, since the current percentage of renewables in the mix is lower. However, the cost of energy produced by renewables is still considerably higher than coal, in spite of technology innovation is lowering this price every day. Till grid parity was achieved (cost of renewable equal market reference), regulators, utilities and consumers probably will not be eager to pay more for electricity. Moreover, the grid upgrades and back-up generation that they need, pushes the balance against them.

However, this over-cost can be easily minored by increasing NG generation, which also contributes to reduce emissions from the current situation. Increasing NG generation would require almost nothing new investments. In the figure below, it is presented the current coal generation (the less efficient plants in green); and in blue the generation potential of NG combined cycles already online but currently not working at plenty capacity. (in fact, these plants are working much less hours than those for they were conceived).

Fully Dispatched NGCC potential

As it can be shown, there is a great potential of switching coal to NG, at very low cost. Underutilized NG combined cycles do not need infrastructure upgrades since they are already connected to the grid and the gas supply network is more than enough to deliver all the plants. The reason why they are not plenty utilized is because coal used to be cheaper and because, in reality, utilities decide their generation program regarding their own interest (many times not lowering the cost since they are going to recover it through the negotiated rates with PUCs).

US Natural Gas ProductionUS Natural Gas and Oil price evolution

The price of natural gas has been historically growing every decade, since it used to be tied to oil (so it is in the rest of the world). But the discovery of the new ways to make profitable natural gas from shales, have revolutionized the market. The great increasing in shale gas production has sunk the prices in the last few years, and the projections predict that the availability of NG will increase in US.

However, a warning has to be done here; this fortune’s gift can become a curse if it is used as a substitute for renewables instead of for replacing coal. That would be a strong temptation unless appropriate regulation and policies were set, since in absence of GHG control, cheap gas can be converted in cheap electricity, good for utilities’ revenue and politician’s image.

To conclude, the successful energy policy would be to change coal for renewables and natural gas, balancing this combination depending on the evolution of the generation cost of both technologies and the efforts that consumers were willing to assume.

4.     Policies Implementation

It is not only important to recommend energy policy, but to suggest how implement it. And that is crucial in a country with such complex and distributed jurisdiction in power markets. Here, some ideas are going to be given to address with the practical sense of the energy reform. They are directed to different administrations, federal, state and local:

  • The definition of the strategic energy plans are nowadays responsibility of the departments of energy of every State according with its PUC. It could be more convenient that these plans (where the switch from coal to NG/renewals can perfectly be included) were agreed with a federal agency as the Department of Energy (DOE) and FERC. It makes sense since the effects of the electricity production not only involve a sole State, but the whole country (regional and global emissions, imports of fuels…)
  • Since Federal agencies have a narrow margin to impose legislation to States (litigation can convert the planning process in a nightmare), the Federal agencies can try another strategy. They can offer conditioned funds (for example those from ARRA) to those States which achieve the objectives set by Federal, for example, to reach a certain level of renewables, to coordinate energy plans, to open market for transparency, to coordinate lines with neighbor States, etc. The State have the option, not the obligation, to do the things right and get the funds (politicians would love to win them). It is making and incentive and leave competition works.
  • Municipal and local utilities should be under control of State regulators of PUCs, and the municipality governments should endorse it. Despite we respect personal freedom, it is totally unfair and biased that municipal utilities (as LADWP) do not have the obligation of the State Renewable Portfolio Standard, and they can arrange their generation structure as they want. It is unfair that, for example, in Los Angeles, consumers pay less for their electricity than in Orange County, because LADWP generates more with coal and do not have the obligation of buying renewables as SCE. And it is unfair because emissions from this decision affect equal both consumers.
  • Maintain and update the tax incentives to renewables. Without cancelling all subsidies (including those oil, gas and coal have), that it is not a bad idea at all; it is better to maintain, at least, the current incentives for renewables, as Investment Tax Credit (ITC) and Production Tax Credit (PTC). Moreover, a long term strategy should be done, to avoid the stop and go in investments that the sector suffers. Wind power is a good example, and just this year we are seeing the same stop as 2004 because the PTC has not been renewed yet for 2013. These ups and downs do renewables more expensive because companies and banks need higher loan rates to compensate the variable regulation risks.

5.     Conclusions

As it has been explained, Transportation and Electric Power sector are the two main causes of the energy consumption in the US, and both of them rely so much on fossil fuels. Transportation is mainly dependant on petroleum (94%) because, however it could be hard to understand when you visit the gas station, it is actually the cheapest liquid fuel that can be found today, with the current logistic chain. For sure that there are alternatives, but it is difficult its introduction due to the great upfront investments they need. Even the EV will not be the solution unless Electric power sector changes before.

However, decisions taken in the Electric sector can be more effective and reduce emissions and consumption. Energy efficiency improvements has not been considered in the paper, despite they are totally recommendable, because they will be probably compensated with the increase in energy demand due to population and economic growth (forecasts say that the increasing on demand will be around 1% every year, and the energy per capita will decrease slowly till a 20% of current in 2035).

In Electric sector, the most obvious action seems to be reducing dirty coal and introducing renewables (zero emissions, zero imports but still expensive) with a combination of natural gas (less emissions, no imports thanks to shale gas and cost-effective). Achieving the changes is a challenge with the current market organization and regulation, so the political determination has to be strong enough to go together in the right direction and leave apart lobbies and particular interests in order to fulfill the general interest.


6.     References:

AB32: the weapon against climate change

In 2005, California Governor Arnold Schwarzenegger signed Executive Order S-3-051 setting long-term greenhouse gas (GHG) reduction targets, with a final target of 80% below 1990 levels by 2050. Nevertheless, the Executive Order did not say how to achieve these reductions. They were establish in 2006 trough California Assembly Bill 32, also called the Global Warming Solutions Act or simply AB32. It set a target of reducing GHG emissions in the State to 1990 levels by 2020. The AB32 bill provided for the State the organization to implement these reductions, including the option of market-based compliance mechanisms such as a cap-and-trade program. AB32 designated the California Air Resources Board (ARB), which depends on the California Environmental Protection Agency, to implement the legislation. The program that has resulted includes both a cap-and-trade component as well as a variety of complementary and direct regulatory measures. Another remarkable achievement of the bill is to set the Renewable Portfolio Standard to 33% by 2020, which means that the 33% of electricity consumption has to be generated from renewable sources by this time. That applies to the big utilities of the State and has converted California to leader of renewable generation in the country.

At the end of 2010 ARB adopted a cap-and-trade program to place an upper limit on statewide greenhouse gas emissions. This is the first program of its kind on this scale in the United States. The program had a soft start in 2012, with the first required compliance period to start 2013. Emissions are to be reduced by two percent each year through 2015 and three percent each year from 2015 to 2020. The rules apply first to utilities and large industrial plants, and in 2015 will begin to be applied to fuel distributors as well, eventually totaling 360 businesses at 600 locations throughout the State of California. Free credits will be distributed to businesses to account for about 90 percent of overall emissions in their sector, but they must buy allowances (credits) at auction, to account for additional emissions. The auction format used will be single round, sealed bid auction. A preliminary auction was held August 30, 2012, and the first actual quarterly auction took place on November 14, 2012.

In this Presentation, more details are provided about this leader bill to fight against climate change in the US:

Artículo en la revista del COIIM: Situación de la energía eólica en Estados Unidos

He vuelto a conseguir publicar otro artículo en la revista de Colegio de Ingenieros de Madrid Nº57, esta vez sobre la situación del mercado eólico en Estados Unidos. Se repasa el estado del mercado y se comentan los retos a los que se enfrenta, a corto plazo la renovación del PTC y a largo plazo, la falta de capacidad de transporte eléctrico y la competencia del shale gas:

Articulo Situacion eolica Estados Unidos

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