Achieving Energy Independence


The Milken Institute conducted its third Financial Innovations Lab for Achieving Energy Independence on Tuesday, October 23, 2007, at the Metropolitan Club in New York. The purpose of the Lab was to address the real state of the art with regard to alternative energy.

The Milken Institute's Financial Innovation Labs are proprietary research tools that bring together researchers, policy-makers, and business, financial and professional practitioners to create market-based solutions to business and public-policy challenges.

Participants in this Lab included members of SAVE, the Strategic Action Volunteer Effort, inaugurated by Michael Milken in April 2006, to bring together volunteer teams adept at deploying state-of-the-art financial technologies and capital-market solutions to tackle particular issues. Those attending also included leading scientists and technologists from Sandia National Laboratories, the National Renewable Energy Laboratory, the California Institute of Technology and Stanford University.

The goal of the working session was not to provide answers about technologies to a group of capital market leaders, said Ron Stoltz, Head of the California Liaison Office of Sandia National Labs, at the start of the day. Rather it was to provide the informational context that would lead to better questions.

Professor Arnulf Grubler of Yale University and a lead author of several studies by the Nobel-Prize winning Intergovernmental Panel on Climate Change, introduced a term that reappeared throughout the day: "timescales." The IPCC climate-change scenarios, and the history of previous large-scale changes in energy supply, point to timescales of 30, 70 and 100 years, he said. Within this long-term framework, government policies and fluctuations in prices play an insignificant role in the climate and technology outcomes.

The key driver of outcomes is demand, as experienced through end-use applications, he said. For example, Thomas Edison invented the light bulb and then started an electric company to supply its power. That power company built its delivery systems around alternating current (AC) electricity, rather than the direct current (DC) system prevalent at the time, because AC is a better fit for the light bulb -- the end-use application.

An important finding in Grubler's research, he explained, is that markets select dominant technology clusters based of end-use requirements. This insight leads to a new and different set of questions for both policy analysts and capital market participants, he said.

So what is the potential for renewable energy? Dan Arvizu, Director of the National Renewable Energy Laboratory, recalled being asked this question in Washington, D.C., at a meeting with political leaders. Using transportation fuels as an example, he replied that the United States could achieve energy independence quickly if it relied in equal parts on domestic oil, biofuels and higher fuel efficiency.

That answer illustrated an important insight of the day: carbon reduction is not a single-technology solution, but a combination of current and new technologies and greater energy efficiency.

Two gaps persist in the renewables landscape, said Arvizu: delivery of renewable technologies at less than $30 per barrel and investment in energy efficiency. One example of the latter is the zero-energy home, which he characterized as a low-hanging fruit.

Terry Michalske, Director of Biological and Energy Sciences at Sandia National Laboratories, provided a nuanced road map on biofuels. Moving the discussion beyond the use of ethanol, he suggested a broad scope of use and an important role for biofuels in an economic transition to reduced carbon emissions. The optimal sources of cellulose vary significantly across the varied climates of the United States, he said. Each source requires a tailored biological process for conversion efficiency, and thus a different infrastructure (production facilities, distribution systems, and auto fuel systems). He added that biofuels do release carbon and that as the U.S. economy becomes more carbon-efficient, it is expected that their use will decline. Michalske also pointed out that the emerging biofuels industry has yet to take advantage of the bountiful tool set developed in the biotech industry, and its adoption will greatly enrich and speed biofuel development.

Franklin Orr, who directs the Global Climate and Energy Project at Stanford University, reinforced two frequent themes of the day: the enormous scale of the climate change problem (and consequently its solution) and the need for a portfolio of technologies. To illustrate the magnitude of the challenge, he explained that for carbon sequestration alone, the country would need a new infrastructure 40 percent the size of the infrastructure developed for the global oil industry.

Sequestration in geological cavities created by oil and gas extraction is possible in the near-term, said Orr, adding that at current rates, there is capacity for 10 years of emissions. More research is needed for sequestration in saline aquifers and the cavities created by coal extraction, but they have a 100-year capacity. Carbon, once emitted, remains in the atmosphere for about 300 years before sinking into the ocean, so carbon capture at the point of emission is needed. (Further, it is more expensive to extract carbon from the atmosphere, and carbon-intense oceans are profoundly harmful to our marine ecosystem, he warned.) Consequently, new coal plants must be sited close to the geological opportunities for sequestration. The United States has abundant geological capacity for sequestration, he said, but China does not, again suggesting that there is no single technology solution for carbon emissions from coal power plants.

But what if carbon emissions could be transformed from a "bad" to a "good"? Andrew McIlroy of Sandia National Labs, used the example of algae for biofuels. Carbon is a nutrient for algae growth, he said, and there are R&D projects focused on the opportunity to take carbon out of the air to use to feed the organic material used to make biofuel. Another example is the use of CO2 for enhanced oil and gas extraction, with a current price of $50 per ton.

McIlroy also identified opportunities in non-carbon greenhouse gases, each hundreds and thousands of times more harmful to the climate than carbon. These gases are emitted in smaller quantities than carbon, but because of their concentrated impact, the right incentives could make a big difference in emissions. He also noted that carbon credits or the $25 million Earth Challenge Prize offered by Richard Branson could motivate breakthrough streams of research.


To view the lab presentations, click on any of the links below:

Dan Arvizu: "Alternative Energy: Solar, Wind, Geothermal"
Terry Michalske: "Biofuels"
Franklin Orr: "Carbon Sequestration"
Andrew McIlroy: "Novel Concepts: Carbon Sinks and Carbon Recycling"
Arnulf Grubler: "Putting Climate Change in Context"

See related documents:
Financial Innovations for Achieving Energy Independence