US pump prices of gasoline continued their record drop at 61 straight days falling to less than $2.10 per gallon. I now see the possibility of gasoline to fall below $2 per barrel for at least a number of weeks. But the bullish factor of colder weather (increasing heating fuel demand) may stabilize the price soon — the lower 48 states are a bit colder than normal for mid-November as the high here in NYC is predicted to be in the 30s for the next two days. We will see what Wednesday’s oil report and Thursday’s natural gas storage numbers reveal about fuel inventories as the heating season commences.

Bottom line: Widespread recession is lowering demand faster than OPEC cuts and non-OPEC declines for the time being. The resulting lower greenhouse gas emissions and lower energy prices could help stabilize our climate and our checkbooks — as long as we base our 2009+ economic recovery on energy efficiency rather than reverting back to our gas-guzzling, energy insecure ways of a few years ago.

The EIA weekly reports for oil and natural gas show fuels in a healthy equilibrium for the winter. The only fuel in a significantly worse supply situation than last year (based on current demand days of supply) is propane. But the ample fuels situation sector-wide means it would take a seriously cold winter to trigger much worry for propane. So, in the short term, there are few signs of big fuel price increases or shortages. But the low oil prices, now at ~$57 per barrel of oil, are delaying numerous Canadian tar sand expansion projects since the cost of production there is below such a low price. These delays, along with the frozen capital markets slowing future project financing, may trigger a big upward price swing once the economy starts growing again.

But if we base our future growth on an efficient renewable energy revolution, then we can tame the rise in energy prices that awaits beyond 2009. Let’s make it happen!

With only one and a half months to go, projections expect oil consumption to fall 5.4%, coal demand to stay the same, and natural gas demand to increases only 1.1% this year (compared to 6.5% last year). Add those totals together and, leaving other emissions constant, we get net carbon dioxide emissions of ~6.11 billion tons of carbon dioxide equivalent, ~2.5% below 2007 and lower than any output so far this century.

Higher fossil fuel prices spurred our country to a more efficient lifestyle that utilized our natural resources of bright sunshine and strong winds. Wind power is forecast to have a record year, growing more than 40% or over 7 GW. This growth will put us over 24 GW, overtaking Germany as the top wind power producer in the world. Even as nationwide gas prices have now fallen below $2.20 per gallon (almost $1 below last year at this time), consumers are driving fewer miles and more efficient vehicles. We were also lucky to get a cooler summer, requiring less coal- and natural gas-fired electricity to cool our buildings than in 2007.

For 2009, the EIA predicts further emission reductions as our nation faces the tough economic reality of a deep recession with 1.4% lower GDP. This estimate, especially a large reduction in industrial production, leads them to project a drop in consumption of all fossil fuels (oil, natural gas, and coal) in 2009. Growth in renewables such as wind and solar will slow, creating both positive and negative impacts. On the positive side, consumers will see lower prices for wind turbines and solar panels as supply catches up with demand. But on the other hand, lower prices may undercut the cost of production, erasing the strong profits of the last several quarters. The passage of a cap-and-trade climate bill in 2009 will be crucial to assure these innovative industries that robust long-term growth prospects await them when the economic recovery takes hold.

The lower emissions of 2008 will make our 2020 goal of 1990 levels easier to achieve. With this update on the projections I reported last month, our nation is able to adjust our energy system at a very manageable 1% per year average rate of emissions reduction through 2020. While we will not have as much cash to finance more expensive projects in 2009, we can use the period to focus on cost-cutting efficiency to get our balance sheets in order toward a renewable energy wave in the 2010s.

Bottom Line: Congratulations, USA! You have shown the world in 2008 that you can deploy efficiency and renewable energy to lower carbon dioxide emissions substantially. But 2009 will test our commitment.

Will we 1) seize the opportunity to lower our energy costs further through efficiency and prepare for a sustainable energy revolution that spurs economic recovery?

Or will we 2) fall into our old 1990s habits of excessive energy consumption growth that contributed to our current economic difficulties?

Sustainable Energy Transition (SET) aims to help individuals and institutions thrive by picking choice #1 to lead a global energy revolution that empowers local communities, creates millions of jobs, and stabilizes our climate to preserve a livable world for ourselves and future generations.

First of all, it depends on generous global cooperation between national oil companies (NOCs) and international oil companies (IOCs). Recent developments show such a scenario may be wishful thinking. For instance, many major producers such as Russia and Venezuela have intensified their nationalistic postures toward IOCs over the last few years. Higher prices have emboldened these countries to renegotiate contracts or even expropriate fields. In the case of the largest discovery this past decade, disputes between IOCs and the Kazakhstan government have contributed to an eight-year delay in production from their super-giant Kashagan field. This IOC lock-out is the main reason major IOC production is falling and they are relegated such high-cost ventures into the Canadian tar sands. So, my question is: What will change to begin the IOC-NOC cooperation that you call for? It seems it took a collapse in production for Mexico to revise their laws to allow PeMex to partner with IOCs (and Mexico, our third biggest source of imports, is still on course to have no export capacity within six short years).

The rapid growth in oil production throughout the Middle East may not be realistic. Whether Saudi Arabia will be interested in producing more than their 2010 capacity target of 12.5 million barrels per day (Mbd) is a serious question. They have indicated 12.5 Mbd as their ceiling - so the IEA prediction of Saudi Arabia’s 15.6 Mbd contribution in 2030 is precarious. I also would not bet on Iraq nearly tripling their current production to 6.4 Mbd, as IEA does. Nor would I rely on an already declining Russia to maintain production at 9.5 Mbd, only 5% below today’s rate. If Russia follows the US example and declines at ~2% per year, then production will be less than 7 Mbd by 2030. If Russia decline rates resemble those of Mexico, the UK and Norway then we may see their production fall below 4 Mbd!

Adding these factors together, I arrive at an even more startling call for change in our energy system. Luckily, much of the technology to mitigate future oil scarcity and climate change exists today. We just have to corral the collective strength of our public and private sectors to utilize them. A cap and trade system in the US, that eventually links emissions markets worldwide is an efficient way to accelerate the sustainable energy transition to a sufficient speed.

The irony is, even though this report calls for a sustainable energy revolution, the situation appears to me (and to scores of other energy analysts, from geologists to the CEOs of Shell and Total) to be more urgent than they project. The report may rather present the geologic possibility of conventional and non-conventional oil production increasing to 106 million barrels per day in 2030. But a lack of seamless cooperation may bring a peak in oil production somewhere in the 2010s that will bring us to a crossroads: Do we forget about climate stability as a global community and replace oil with non-CCS coal OR do we make deployment of energy efficiency and renewables a driver for the next global industrial revolution?

As you know, I advocate the latter.

Leading voices include James Hansen and Bill McKibben who call on concentrations not only to stop rising, but also to fall from today’s ~385 ppm down to 350 ppm. They make the case that we have already reached a concentration that would, if left this high, set off catastrophic climate change and a sea level rise of many meters. Their belief stems from a review of the history of Earth’s climate over the last many million years that shows whenever GHG concentrations were this high, sea level was more than 75 feet above the level today. Those who push for a global regime to achieve 450 ppm (or higher) believe the transition to less ice and higher seas will occur so slowly that we can adapt more easily over the next century than we can revolutionize our energy system from fossil fuels to zero carbon sources over the next 25 years.

For instance, the US has hundreds of billions invested in coal plants, sunk costs that lead rational economists to think Al Gore’s Repower America plan (zero carbon electricity in 10 years) is a nonstarter. But if Hansen and McKibben are right about the catastrophic costs of >350 ppm, maybe Al Gore has chosen the best target. And when our country sets its mind to something, impossibilities disappear. Maybe Obama can help inspire a sustainable energy transition over the next eight years on the scale of the ’40s war effort or the ’60s Apollo Project.

My current thinking focuses on the 450 ppm goal as a policy driver for now (which would take tremendous change in the developed world of an 80% cut in emissions over the next 42 years). As yesterday’s blog described, our country can probably achieve this at very little cost. As long as we set up our cap and trade system as a flexible instrument ready to adapt, we will be set. If the scientific consensus emerges that 450 ppm is indeed too high, the emission cap cuts should accelerate accordingly. My energy portfolio projections make zero carbon US electricity more plausible for 2030+ (even with aggressive growth for wind, solar, and efficiency) than Gore’s call by 2018. But I think institutions with ample resources should be Repower America models. For instance, Princeton University should step up and join Google, Yahoo!, UNC-Chapel Hill and others committed to climate neutrality in their global footprint. Once the models are established (with their lessons learned through success and failure), they can guide the nation and indeed the world to a sustainable future.

What do you think is the optimal GHG concentration?

Should we aim for 350, 450 or some other level? What first steps do you think the new federal government should take?

Together, we can stabilize the climate and achieve energy security.

To achieve a target of 2 degrees Celsius global warming (~450 parts per million carbon dioxide equivalent in the Earth’s atmosphere), we need to begin lowering global emissions by 2020. If we wait until 2020, emissions will need to fall roughly 3.3% per year. If instead we begin the cuts in 2015 or 2010, the pace of emissions cuts are easier to manage at 2.4% or 1.8% annually. The key legislative template designed to achieve such a cut is a Lieberman-Warner style cap on emissions that allows trading to achieve 1990 levels by 2020 and then 70-80% below current emissions by 2050. Such dramatic cuts in emissions from an economy so dependent on fossil fuels for its energy intuitively seem to require large costs. But the EDF report surveys five different economic model runs and finds the costs are miniscule.

Instead of a 2.86% GDP growth rate through 2030, a capped economy is projected to grow at 2.84% per year. Put another way, the roughly doubling of our economy by 2030 to $26 trillion occurs in April under a cap instead of January. Average electricity bills increase less than 4% as renewable sources take a growing market share and appliances become more efficient. And these numbers don’t even take into account the benefits of such climate mitigation! Most economists estimate the external cost of GHG pollution of at least $10/ton carbon dioxide equivalent, translating into tens of billions in savings. And there are ancillary benefits such as improved air and water quality that such a sustainable energy transition would create. Since our economic prosperity depends on US leadership in innovation, our jobs and growth would suffer if we remained behind the EU and Japan in this emerging global economic engine, the multi-trillion dollar low-carbon energy industry. With all of these benefits admittedly not quantified in the recent EDF report, a cap and trade system is more likely to reap net benefits than net costs for our country.

Within the economy, some industries will benefit more than others. For instance, rapidly growing solar and wind industries will accelerate their development while coal producers will see their growth prospects dim. But corporations such as Peabody Coal and Exxon Mobil can use their giant resources to diversify from coal and oil companies into energy companies that further explore the limits of solar electricity generation and transmission cost reduction. Coal companies could also invest more heavily into Carbon Capture and Storage (CCS) technology, a tool that could give their fuel new life in a carbon-constrained world.

For the poor already struggling with today’s higher energy prices, the auctioned permits in a cap-and-trade system can generate revenues to support their transition to a low-carbon future. And these low-income households can benefit from the job growth already beginning in the green energy revolution. Lost textile and automaker jobs in the Rust Belt are replaced by wind turbine manufacturers and solar module producers.

An intriguing question I would like to explore in the months ahead is whether strong climate mitigation policy like a cap-and-trade system can actually lower the price of oil and coal in the medium-term since it will reduce their demand. Lower demand could reduce the pressure on companies to produce in more expensive places like the Canadian tar sands, allowing the lower marginal cost production in Saudi Arabia, Kuwait and elsewhere to suffice. This is the argument that leads many renewables advocates to conclude that energy costs will actually fall by 2020 if we invest more into wind and solar development over the next decade.

In sum, don’t let the coal or oil industry scare you into thinking climate mitigation will grind our economy to a halt. That same fear of change mentality is what doomed our domestic automakers. While opponents to climate mitigation may cherry-pick the highest cost estimates of Lieberman-Warner, EDF does a great service in providing a synthesis of many economic models to show the broad consensus of extremely low costs. The benefits of near-term action include a slower and more manageable rate of emissions cuts, reduced levels of conventional pollutants like mercury and ozone, increased energy security, and leadership in the next global industrial revolution. Action by this last developed country to mitigate climate change would also erase the excuse of China and India for inaction.

Obama and Congress, 2009 is a window of opportunity for climate progress that our nation cannot afford to miss.

The executive summary of their 800-field assessment projects a reference business-as-usual scenario as well as two climate mitigation scenarios through 2030 in its annual World Energy Outlook. Their Outlook includes major shifts from last year stemming largely from a deeper understanding of accelerating declines in the bulk of global oil fields. Their research found that smaller oil fields decline faster (especially offshore) than the giants and super-giants of old. So, as we become more dependent on offshore and smaller oil fields for the bulk of our new oil, the overall decline rate accelerates. They estimate natural decline rates are currently 9% per year and expect rates to rise to 10.5% by 2030. Advanced technology and investment allows producers to slow the current rate to 6.7%, though they project it will increase to 8.6% by 2030. Based on these estimates, producers will have to add ~5.5 million barrels per day (Mbd) in new fields in 2009 and a growing amount each year afterward just to maintain current production levels ~86 Mbd.

If you match up this 6.7% decline rate to the Oil Megaprojects Database maintained by Petroleum Review editor Chris Skrebowski, we get peak global oil production by 2012. Beyond that year, the world has less and less oil to transport its people and goods. This wouldn’t mean the world runs out of oil in 2013 by any means — 80+ Mbd of oil will still allow millions of trucks to roll and airlines to fly. But prices would increase to levels to slow demand growth, probably above $100 per barrel again. The IEA calls current prices ~$60 per barrel temporary, believing that a return to average economic growth will bring higher prices. As I’ve mentioned in previous blogs, they think any further fall in price is dangerous for oil market balance since it could delay high-cost oil projects that are needed to come online to make up for field declines in the years ahead.

Contrary to the Oil Megaprojects conclusion, the IEA still believes oil production can grow through 2030, thanks to unconventional oil sands, heavy oil, and oil shale making up for declines in conventional oil. But their hopes are precariously pinned on maintaining current high investment levels ~$350 billion per year and increased cooperation between international oil companies (IOCs) and national oil companies, especially in the Middle East. At a time when many oil producing nations are getting more nationalistic and making terms less favorable for IOCs, the IEA projects greater cooperation. For instance, the IEA depends on Saudi Arabia increasing its production by ~50% to over 15 Mbd — even though their current policy is to grow capacity to only 12.5 Mbd, leaving some oil in the ground “for future generations.”

For the climate, the 9% lower oil consumption estimate in this year’s WEO for 2030 (106 Mbd rather than 116) translates into a reduction in carbon dioxide emissions. But since coal is a key substitute, the overall reduction is only 1% and does not prevent dangerous emissions levels. The IEA then makes a serious call for climate change mitigation, outlining scenarios of emissions reduction to achieve 550 parts per million (ppm) carbon dioxide in the atmosphere and 450 ppm. The climate scenarios not only help the environment but they also lower the price of oil significantly and create trillions of dollars in fuel savings over the years. But to get implemented, either scenario will take serious political will and progress in post-Kyoto negotiations culminating in Copenhagen next year.

The report highlights the exact reason I launched SET — our world faces twin challenges of oil energy security and climate change. The best policy choices are ones that mitigate both challenges simultaneously: a Sustainable Energy Transition based on rapid deployment of efficiency and renewables.

With the full report coming out on Wednesday, I will share more information on this groundbreaking report in the days ahead.

As a result, oil prices dipped toward $60 again, and the average US price of gasoline is fast approaching $2.30 per gallon. It appears ready to fall another 10 cents or so before potentially stabilizing on next week’s IEA report that highlights rapid oil field depletion and as winter heating demand picks up. Yesterday, the weekly US Energy Information Agency (EIA) oil report showed US crude inventories remained around average levels while products such as gasoline, distillates/diesel, and propane remained low. But decreased demand allows these lower levels to suffice for now. If the lower prices bring demand back up then the price would stabilize or even climb a bit.

In natural gas, the EIA reported today that storage for the winter reached slightly above the five-year average but below last year’s record. Our high domestic production keeps US prices lower than the tighter regional markets in East Asia and Europe, especially since lower US industrial manufacturing slows our demand growth.

With the IMF predicting US GDP growth of -.7% in 2009, this is certainly a difficult time for the Obama Administration to take the reins. But it also provides a new beginning, where creative initiatives that drive job growth through efficient and clean energy technology can keep cutting our greenhouse gas emissions even as our economy churns toward recovery in late 2009.

Tuesday, November 4th, brought a huge shift to the US political landscape. The Obama landslide opens up an opportunity to update our energy policy for 21st century leadership. After eight years of stagnant federal climate change engagement, the Obama Administration promises no less than a sustainable energy revolution that moves our country toward climate responsibility.

But, as always, effective civic engagement from organizations like Sustainable Energy Transition (SET) and its allies will be necessary to ensure such progress occurs. The good news is, with your help, SET is poised to contribute to American leadership on climate change. We will need to rise to the occasion on the following three challenges over the next four years.

Challenge #1: Preventing a Rush to Coal

Our country is rich in coal resources. Our reserves roughly equal the combined total of the world’s next top countries, Russia and China. And with oil and natural gas prices more than double their 2002 level, there will be pressure to substitute some of that energy with domestic coal.

But increased coal consumption has serious environmental consequences. The main threat of coal, on top of air and water pollution from mercury and sulfur dioxide, is that it releases more carbon dioxide per energy unit than all other fossil fuels.

Obama’s home state of Illinois is a major producer of coal and Obama/Biden have supported the use of “clean coal” throughout the campaign. But clean coal is more of a PR term than a reality today. Carbon Capture and Sequestration (CCS) [the idea that we can take the carbon from coal’s emissions and bury it in the ground for centuries] has not yet been deployed commercially — so it cannot be seen as a first-term option for Obama except on a pilot project scale. Coal companies will put pressure on Obama to support new coal plants, but civil society must raise a strong enough voice to prevent such a move unless these plants are CCS plants. The US could benefit tremendously if we advance CCS technology toward rapid deployment throughout the world (we could export CCS technology along with the fuel – an extremely lucrative potential in a carbon-constrained world).

Challenge #2: Maintaining progress on conservation & efficiency with sub-$2.50 gasoline

With pump prices below $2.50 per gallon for gasoline and approaching $3 for diesel, public support for fuel efficiency may wane from its highs last summer. As a result, Big 3 automakers may revert to their old identity as producers of gas-guzzlers (which was very profitable until recently) and resist more aggressive fuel efficiency standards for their products. Such a move would be woefully short-sighted as the cheap oil age is coming to a close and today’s lower prices are mostly the result of recessionary lower demand. Prices are likely to rise once the economy turns around and oil supply stagnation rears its head in 2010+, especially if US consumers go back to SUVs and trucks like before 2008.

Again, it will take an active civil society to help the Obama Administration and Democratic Congress have the backbone to stay focused on efficiency and other climate-friendly alternative transportation methods. Just look at the Clinton Administration, with climate champion, Nobel laureate Vice President Gore. Under their watch, fuel efficiency actually fell as their federal government-automaker partnership ended up supporting US vehicles growing larger and faster rather than getting any greener.

Challenge #3: Keeping their eyes on the long-term climate prize

The Administration has inherited a double whammy of recession and huge fiscal deficit/massive public debt. The short-term economic pain will be a strong influence on policy, as it should be. But civil society must help politicians keep the long-term threat of climate change high in the public (and thus political) consciousness to ensure our country addresses this critical issue of the 21st century. If we drag our feet through the first administration, it may get too late to prevent runaway global warming and its dangerous symptoms.

I call it the climate prize for a reason. Not only are the long-term costs of climate inaction high, but the medium-term benefits of action are great. The US can create millions of jobs, making our economy more efficient and utilizing the plentiful wind of our Great Plains and sunshine of our Southwest to lower dependence on foreign oil. After developing these solar, wind and other climate-friendly technologies, we can export them to the huge markets of the EU, Asia and beyond that will demand such clean tech in our carbon-constrained future.

The best way to begin our transformation to global climate leader is to pass an economy-wide cap and trade system in 2009. Such a system would set annual caps on emissions (like 1990 levels in 2020, falling to 80% below today’s emissions by 2050) and allow companies and institutions to trade emission permits to minimize the cost of the emissions reduction. The Obama Administration and Congressional Democrats are committed to such a program, but public pressure is critical to make sure it becomes law. A similar cap-and-trade system, passed under the first Bush Administration, has helped us significantly reduce acid rain caused by sulfur dioxide-belching coal plants. This bipartisan precedent may prove crucial to prevent a Senate filibuster of the bill. A climate cap and trade bill passed in 2009 would put us on the right track and give post-Kyoto international negotiators the message that the US is ready to lead again.

It is wonderful to have an Administration that consistently calls climate-friendly energy policy a top priority. The $150 billion promised over the next 10 years to further progress innovation in the clean tech sector can transform America from a dependent, crippled consumer to a prosperous leader in the future global energy order. Only if we turn up our efforts of public education and advocacy will we accomplish our goal of responsible federal climate policy.

Progressive philanthropists, you showed your financial support can help push change in an election. Now those of us from Sustainable Energy Transition to Environmental Defense Fund to Transportation Alternatives need you to support a strong enough climate civil society to ensure these new leaders achieve their potential. Just like the election of 2008, the stakes are too high for any of us to sit this one out. The stability of our climate depends on US political will to seize today’s opportunity and build a sustainable energy revolution that creates jobs, lowers costs, and frees our country from the shackles of foreign oil dependence.

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The scenario I laid out to achieve a 1.1% annual reduction in US carbon emissions is to lower oil consumption 2% per year, coal demand .5% per year, and keep natural gas demand growth at a low .2% per year. If that occurred with no growth in other energy sources, by 2012 and 2016 the US would have 3.4% and 6.5% lower energy demand, respectively. But such energy demand reduction (a rate of .9%/year) is a difficult task as our population grows. So, what role can wind and solar power play in maintaining an ample energy supply?

Half of the energy demand reduction seems achievable through a tightening fuel efficiency standard for new vehicles and smarter transit networks that include bus, rail, bicycling, and telecommuting. And wind and solar are poised to replace the other half of fossil fuel energy.

The bigger player today is wind power, due to its competitive price. Wind has a cumulative capacity of ~22 GW and provides just over 1% of our nation’s electricity. Solar capacity is somewhat harder to measure as it includes PV and thermal electricity generation along with water-heating installations. A reasonable estimate by the end of the year is ~1.5 GW, contributing almost .1% of our electricity supply. But don’t let these small percentages fool you. Their growth rates of 25+% (compared to -4% to +6% per year for fossil fuels) make these energy sources major energy players in the years ahead. Wind power has been the second largest source of new electricity generation (after natural gas) these past few years. And solar power has vast potential beyond our current energy demand, but needs a few more years of industry development to get prices competitive with conventional sources.

Growth targets for our incoming President:

For wind and solar to keep our nation’s energy supply sufficient while we transition from oil, I identify some growth the new President can get behind.

Wind:

We just became the world’s largest wind producer in 2008, passing Germany. As China wind rises, the next president will need to continue support for the wind industry for us to maintain our status as the leading wind generator. For wind to replace oil for electricity and much of the .5% reduction in coal electricity, our wind capacity should grow to ~50 GW by 2012 and ~100 GW by 2016. This represents ~20% annual growth, lower than the quick growth over the past several years but a challenge because of the large scale of such growth. Such an achievement could provide millions of jobs if we continue to manufacture more of our wind turbines domestically, replacing automaker and textile jobs lost these past few years.

Solar:

Our ~1 GW solar capacity is way behind Germany (~4 GW) and Japan (~2 GW). But our potential, especially in the Southwest, dwarfs theirs and gives us a chance to become the world’s solar leaders by the end of the next president’s second term. A 40% growth rate to 2012 would bring us toward global leadership at ~6 GW and then 35% growth to 2016 would almost certainly put us in the lead at ~20 GW. This could provide hundreds of thousands of jobs and help make the US a center of innovation and development for this highest growth potential energy source of the 21st century.

In sum, renewable energy deployment will be crucial to have a strong energy system less dependent on foreign oil. Wind energy goals of 50 GW and 100 GW along with solar growth to 6 GW and 20 GW by 2012 and 2016 would both replace a climate responsible lower oil and coal consumption share and help our economy get back to health as a leading innovator and producer of these key energy sources of the future. Future blogs will describe some of the crucial policies available to our next president to achieve such a sustainable energy transition.