AN ENERGY LEGACY PLAN
January, 2003
Horace Heffner
THE PROBLEM
This plan is an attempt to change the legacy we have left for future
generations. This plan is about energy, about finding a practical and
comparatively painless means to meet growing energy needs with renewable
resources. It is an attempt to make at least some aspect of this
generation's energy legacy positive.
In recent years there has been continuous significant and heated debate of
problematic and energy related issues including global warming, energy
conservation, energy resource depletion, the economics of tax reduction vs
energy subsidies, energy as a war related factor, disposal of nuclear
waste, the funding of energy research, and the environmental impacts of
energy exploration, production, and use. The debate and problems have been
so broad as to demand continuous media, political and academic attention.
These and the many associated issues are too broad and controversial for
discussion here.
It is, however, a simple mathematical fact that to sustain 5 percent or
more annual growth in oil consumption that, even if a 10,000 year supply,
at our present rate of consumption, is found, we will consume it in the
lifetimes of the next few generations due to the rate of consumption
growth. It follows rigorously that we can not satisfy our exponential
economic and energy consumption growth with a supply side nonrenewable
energy attack. This was aptly shown by Professor Evar D. Nering in a June
4, 2001 New York Times Op-Ed article. (See
<http://www.mtn.org/iasa/mirage.html>)
It is also reasonable that a means to obtain large affordable amounts of
renewable energy should be helpful to society in all energy related problem
areas. However, a means to achieve renewable energy development at a
sufficient rate has been somewhat elusive. It is the intent here to help
solve that problem, and to eventually fund energy conservation measures
that ultimately will be necessary to sustain our civilization. This is the
intended legacy, a permanently self-funded trust for renewable energy
development and conservation.
A SIMPLE PLAN
A plan is proposed here, which, compared to the problematic issues
addressed, is very simple indeed. The following plan, in 9 parts, is hoped
to result in a significant and permanent reduction in energy problems.
1) Form a separate government agency, a Renewable Energy Agency, dedicated
solely to fostering the use of renewable energy, and give it the capability
to administer this plan. It should be a stand-alone agency, but, if that
is not politically feasible, it should be at minimum independent of NSF,
NASA, DOE, NREL and the national laboratories, as these agencies could be
potential bidders and significant benefactors of the plan.
Eventually support this Renewable Energy Agency using only a perpetual
Renewable Energy Permanent Fund plus agency revenues. A small seed funding
need be provided until sufficient energy taxes can be raised to obtain the
desired operations budget. It is the goal of the agency to achieve and
maintain self-sufficiency, to create renewable energy production assets,
and eventually to achieve a sufficient revenue stream to fund energy
conservation measures. The agency should be operated with as much
independence from direct management involvement of the administrative and
legislative branches of government as possible. When financially
independent, and maybe sooner, the agency should become a private
non-profit corporation, a trust, with special legislated benefits and
duties.
One goal of the proposed agency or trust is to achieve financial
independence within 20 years. Perhaps making the agency a private trust
can be done immediately, but there may be advantages to the USA in having
the entity be a government agency, due to the likely involvement of
international relations and international deals. Foreign bidding and
investment could simply be excluded, though this is less than optimum from
a world view, and may even violate existing treaties. Still, in that the
plan is based on profit, competition, and privatization, it logically could
be implemented by a private trust. Such a trust might be useful in
preventing the temptation of future legislators to raid the fund balance.
Some creative legislating would clearly benefit this plan.
2) Tax non-renewable energy like oil, gas and coal, enough to generate at
least 3 billion dollars a year for the renewable energy fund, about a
dollar per person per month. Rebate commercial transportation energy use
in order to avoid a significant burden in that sector of the economy. The
total net income from this tax is called here the annual tax income.
3) On an annual basis, based upon competitive proposals, distribute 5
percent of the agency's total prior year's annual income to research, using
about 0.5 percent, 1/10 of the 5 percent, to support research in
non-conventional, controversial, or long term development areas, like zero
point energy (ZPE) research, low energy nuclear reactions (LENR), hydrinos,
etc. The non-conventional research program is intended to be modeled after
NASA's Breakthrough Propulsion Physics program. However, it is reasonable
to commit up to half of the 0.5 percent to infrastructure development for
amateurs, small collaborations, and small businesses working in related
areas. Such infrastructure might include lending libraries, instruction,
consultation, laboratory or shop facilities located about the country,
and/or for am energy device test or concept verification center. Any
research funds not dispersed by the end of a physical year are deposited
into the permanent fund.
Proposal cycles for research might be quarterly rather than annually, with
special projects being awarded on an as desired basis from any remaining
non awarded research funds or for some fixed percentage of the research
funding. On average, research projects should receive less than 0.5
percent of the annual research budget, and no research project should
receive more than 5 percent of the annual research budget.
4) On an annual basis, based upon competitive proposals, distribute 5
percent of the agency's total prior year's annual income to follow-on
prototype development, pilot projects, or small yet novel projects, with
emphasis on those designed to produce a billable product. Proposal cycles
for this could be similar to research awards, but probably less often due
to the expected lower number of grants due to the fact bidders in this
category would likely have had successful research awards.
5) On an annual basis, based upon competitive proposals, distribute 75
percent of the agency's total prior year's annual income to projects that
will produce energy that can be sold at a profit. Awards to be based on
best 10 year return on investment, as proposed by the bidders and adjusted
as desired by the proposal reviewers when there is cause. A critical
requirement is sufficient profitability to meet the goals of the plan,
including sustained self-sufficiency.
In years of operation subsequent to construction, successful proposers can
use or reserve up to 40 percent of annual revenues (operating income) from
their project for operation and maintenance, including land, insurance,
property taxes, etc., and may apply any balance remaining from that 40
percent to expansion of their proposed facilities on a cost plus basis.
There might be considerably different proposals made and accepted, but this
is the basis of the numbers used in this plan.
It may be questionable as to the feasibility of the suggested numbers.
However, a hopeful project energy source is wind energy, the cost of which
has dropped 90 percent in the last 20 years. Wind projects currently are
designed to last 10 to 30 years. The suggested numbers appear to be
feasible even presently for wind projects of 50 MW or better. In any case,
annual adjustments to plan percentages are part of the plan itself, and may
require tailoring depending on the energy source.
The balance of energy sales income, in the aggregate from all projects,
called the annual energy sales income, is treated as annual income to the
agency. At the end of the year any non-awarded funds are deposited into
the renewable energy permanent fund described below. The requests for
proposals should be in large, medium and small categories, with minimum and
maximum funding amounts in each category, with roughly equal funding to
each category. In the event of no or insufficient acceptable bids in a
category in a year, the balance of funds for that category for that year
are to be placed in the permanent fund.
6) Reserve 5 percent of the agency's total prior year's annual income for
maintenance of or disposal of abandoned facilities, and emergency expenses.
This fund is managed separately from all others.
7) Reserve 10 percent of the agency's total prior year's annual income for
depositing into a permanent fund for renewable energy development, the
Renewable Energy Permanent Fund. The "total prior year's income" used
throughout the plan is the prior year's sum of tax income, annual energy
sales income, and permanent fund interest income after inflation proofing
deductions. If the emergency fund balance becomes excessive to needs, a
portion may be rolled into the Renewable Energy Permanent Fund. Oversight
of the fund management should be by an independent board in a manner
consistent with the management of trusts. The board is expected to
contract all or portions of the fund management on a periodic basis, but no
more than 25 percent of the fund management should be awarded to a single
bidder. The permanent fund goal is to make at least 5 percent interest
after inflation proofing deductions. This is difficult but the chances for
success are enhanced by suggested financial leverage mechanisms which are
part of this plan.
Any contributions to the fund should be, at minimum, tax deductible, but
preferably encouraged by further incentives. Investment leverage should be
achieved by award of tax free green investment bonds. One income producing
element should be green loans for financing of energy efficient housing
construction or business building construction, or for home or business
energy efficiency improvements. Achieving the combined housing and
business finance goals might be achieved via a single subordinate housing
entity similar to existing home finance entities, with such an entity
having bond holders and equity holders, in addition to the permanent fund
equity itself, each earning their corresponding returns on investments. If
a Cap and Trade System for greenhouse gas credit trading is implemented in
the US, then income from greenhouse gas credits earned from plan projects
should be treated as fund income.
8) Annually adjust the plan percentages and other agency operating
parameters as required, consistent with prior commitments, changing
legislation, regulations and economic conditions, and with the long term
goals of the agency.
9) At the end of 10 years of operation, or sooner if it is desirable to the
agency and the facility in question is is abandoned, place project
facilities into the private domain. This is called here "project
disposal". Project disposal is by sale to proposer at an appraised value
less an incentive percentage of 10 to 20 percent specified in the proposal.
If that is not agreeable, sale is then by auction, but with the proposer
retaining his incentive percentage as a bidding advantage. Net proceeds
are deposited into the Renewable Energy Permanent Fund. Abandoned property
may be operated by the agency or the agency may choose to put the operation
out to bid using the bid parameters of its choosing. If a project can not
achieve the proposed revenue for the 10 year operating period, including
disposal income, then the operating period may be extended at the choice of
the agency, until the proposed total return can be achieved.
It is a goal of the plan that the agency can become self funding within 20
years. It is further hoped that the large and comparatively risk-free sums
available for energy systems design and construction can garner serious
attention from big high-tech companies or even some government agencies,
like the national laboratories or NASA. Special legislation might be
required to permit such agencies to compete commercially or to partner with
commercial competitors in this limited arena.
At some distant point the fund may have an extreme excess of earnings after
inflation proofing, and at that point it is reasonable to consider applying
some or all of those excess funds to incentives for or funding for energy
conservation programs.
A PRELIMINARY LOOK AT SOME NUMBERS
Below is a first rough cut at some 40 year numbers, inflation ignored.
Here excise taxes remain in effect for a full 20 years, then are
eliminated. The fund runs on its own revenue after that. Average payback
time for the projects to achieve this is about 13 years. This is very
reasonable if the cost of energy rises significantly above inflation over
the 20 year period, or the cost of renewable energy production continues to
drop as it has for wind power. At the end of 20 years the fund is
self-sustaining, even excluding consideration of prototype sales revenue,
intellectual property rights revenue, and possible creation of lynch pin
technologies. Also excluded is any project revenue growth due to the 40
percent of sales dedicated to the proposers, which can at their discretion
be used to grow their projects. Below, project disposal in the 40 year
estimate occurs 10 years after a project is initiated. However, in
practice the period might be varied significantly, possibly at the request
of proposers, or at the agency's discretion. The full value awarded to the
project is deducted from the Total Project Amount, while only 50 percent of
that is assumed recovered from the property disposal. That 50 percent
recovery amount is placed into the Renewable Energy Permanent Fund balance.
Total Fund Maint. &
Taxes Sales Int. Income Bal. Disposal
Year (M$) (M$) (M$) (M$) End Yr. (M$)
1 3,000 0 0 3,000 3,000 0
2 3,000 0 150 3,150 4,500 150
3 3,000 55 225 3,280 6,048 158
4 3,000 114 302 3,416 7,660 164
5 3,000 174 383 3,557 9,338 171
6 3,000 237 467 3,704 10,908 178
7 3,000 311 545 3,856 12,357 185
8 3,000 397 618 4,014 13,671 193
9 3,000 494 684 4,178 14,839 201
10 3,000 606 742 4,348 15,844 209
11 3,000 731 792 4,523 16,671 217
12 3,000 871 834 4,705 17,906 226
13 3,000 973 895 4,868 19,169 235
14 3,000 1,077 958 5,036 20,480 243
15 3,000 1,185 1,024 5,209 21,840 252
16 3,000 1,296 1,092 5,388 23,340 260
17 3,000 1,403 1,167 5,570 24,987 269
18 3,000 1,504 1,249 5,753 26,788 278
19 3,000 1,599 1,339 5,938 28,752 288
20 3,000 1,687 1,438 6,124 30,890 297
21 0 1,767 1,545 3,312 30,211 306
22 0 1,839 1,511 3,349 32,276 166
23 0 1,797 1,614 3,410 34,437 167
24 0 1,750 1,722 3,472 36,664 171
25 0 1,699 1,833 3,533 38,961 174
26 0 1,645 1,948 3,593 41,328 177
27 0 1,587 2,066 3,654 43,769 180
28 0 1,525 2,188 3,713 46,283 183
29 0 1,459 2,314 3,773 48,871 186
30 0 1,388 2,444 3,832 51,534 189
31 0 1,313 2,577 3,890 54,272 192
32 0 1,234 2,714 3,947 55,960 194
33 0 1,254 2,798 4,052 57,715 197
34 0 1,274 2,886 4,160 59,508 203
35 0 1,297 2,975 4,272 61,337 208
36 0 1,320 3,067 4,387 63,205 214
37 0 1,346 3,160 4,506 65,110 219
38 0 1,374 3,255 4,629 67,053 225
39 0 1,403 3,353 4,756 69,035 231
40 0 1,435 3,452 4,886 71,056 238
Resrch Total
and Project Not Project Project
Pilot Awards Awarded Amount Dispos.
(M$) (M$) (M$) (M$) (M$) Year
0 0 3,000 0 0 1
300 1,200 1,050 1,200 0 2
315 1,260 1,103 2,460 0 3
328 1,312 1,148 3,772 0 4
342 1,366 1,196 5,139 0 5
356 1,601 1,067 6,739 0 6
370 1,852 926 8,591 0 7
386 2,121 771 10,712 0 8
401 2,409 602 13,121 0 9
418 2,716 418 15,837 0 10
435 3,043 217 18,880 0 11
452 3,392 0 21,072 600 12
470 3,529 0 23,341 630 13
487 3,651 0 25,680 656 14
504 3,777 0 28,090 683 15
521 3,907 0 30,396 800 16
539 4,041 0 32,586 926 17
557 4,177 0 34,642 1,061 18
575 4,315 0 36,548 1,204 19
594 4,454 0 38,286 1,358 20
612 4,593 0 39,836 1,522 21
331 2,484 0 38,928 1,696 22
335 2,512 0 37,911 1,764 23
341 2,558 0 36,818 1,825 24
347 2,604 0 35,645 1,888 25
353 2,649 0 34,387 1,953 26
359 2,695 0 33,041 2,021 27
365 2,740 0 31,603 2,089 28
371 2,785 0 30,074 2,157 29
377 2,830 0 28,449 2,227 30
383 2,874 0 26,730 2,297 31
389 2,917 0 27,163 1,242 32
395 2,960 0 27,612 1,256 33
405 3,039 0 28,093 1,279 34
416 3,120 0 28,609 1,302 35
427 3,204 0 29,164 1,325 36
439 3,290 0 29,759 1,347 37
451 3,380 0 30,399 1,370 38
463 3,472 0 31,086 1,393 39
476 3,567 0 31,823 1,415 40
Cost/benefit at 40 year planning horizon:
Total Fund Balance 71,056
Total Research and Pilots 16,386
Total Current Projects 31,823
Total Sold Project Value 41,286
==========
Total benefit 160,551
Total tax cost 60,000
Cost/Benefit 0.37371
Such a plan could should not be considered a business plan in that the
energy generation is initially subsidized. Additional utility type
regulation, both for project proposal winners and for utilities in general
may be required to avoid abuses. It is intended, however, that the
financial incentives to the proposers be significant and that those awarded
grants be extremely profitable, almost to the extent of a windfall, and
that performance after initial construction be comparatively risk free.
If agency profitability goals are not met, the most likely down side
scenario is that the excise taxes need continue longer, and that may not be
such a bad thing in that event, in that the abuse of energy is discouraged.
If foreign bidders or projects are to be allowed, this perhaps should be
via a separate entity or agency, as the expected quantified benefits to the
taxpayer will not be forthcoming. However, the plan might easily be
adopted by foreign entities, or cooperative agreements reached.
The disruption to research and pilot funding at year 20 can be smoothed
over using a separate long term fund for that purpose.
This plan is not intended to interfere with other energy related policies
and legislation, like the Renewable Portfolio Standards (RPS), state
renewable energy funds, buy down programs, tax incentives, a Cap and Trade
System for greenhouse gas credit trading, etc., but rather it is intended
that all these things mutually dovetail and benefit each other. However,
technological developments from programs like the Big Three U.S.
automakers' FreedomCAR Program to develop hydrogen-based cars, or major
fuel cell programs, could have a dramatic and positive effect on the
success of any renewable energy program, though possibly not sooner than 10
years. The principle missing technology is hydrogen storage, which now has
a potential to be provided using carbon nano-tube storage media. Though
the planning horizon for hydrogen is long, it still may be useful to give
special weight to projects which produce hydrogen, and to support hydrogen
storage, generation, transportation, and fuel cell research. Similar
consideration may be warranted for methods of methane production from
atmospheric carbon using renewable sources. If wind energy costs continue
to decline as in the past 20 years, hydrogen or methane producing wind
farms should be cost beneficial within 10 years. This makes feasible many
additional locations for major wind energy generation, like Alaska. With
sufficient research and appropriate legislation, Alaska alone has the
potential to provide the US energy growth needs for generations, though it
may take a commitment similar to that of going to the moon to realize it.
The principle objection to this legacy plan seems to be ideological, the
notion that government can not do anything competently. The principle role
of the agency as defined by this plan is generating requests for proposals
and performing contract and fund management. This is a role at which
government agencies have significant proven abilities. We went to the moon
using many components supplied by the lowest qualified bidders. Those who
say this kind of thing can not be done will ultimately have to confront the
fact it can.
This plan has a somewhat surprising resiliency to change. The final
numbers change comparatively little with various significantly changing
scenarios. However, it does benefit significantly if the price of energy
soars. The corresponding negative damage due to a downturn in price is
somewhat reduced due to the fact the RFP evaluation is based on
profitability, and therefore money that might have gone into projects,
during low energy cost times, goes directly into the permanent fund, thus
positively affecting later years.
US oil consumption in 2000 was about 7.2 billion barrels. If the entire 3
billion dollar a year tax were simply levied against oil, without any
rebates to industry, the price of oil would increase less than 42 cents a
barrel. We are, in December of 2002, paying a 5 to 10 dollar a barrel
premium for some minor disruptions to supply. This could become much worse
if an oil embargo should occur due to political conditions. Further, if
the plan quantified 3 for 1 payback is achieved, even without the much
additional but unquantified payback due to economic multipliers and
intangibles, the tax should not be a burden on the taxpayer, but rather a
carrier of the taxpayer's burden.
The plan as proposed is very modest, and in fact far too timid for our
significant needs. The numbers provided are considered a minimal
implementation of the concept. Presently, instead of charging the
environmental cost of non-renewable energy sources, we are subsidizing them
at amounts that have exceeded 30 billion dollars a year. This plan might
be funded in full, without excise taxes, by simply channeling 10 percent of
existing energy subsidies to the proposed agency. Alternatively, funding
could have occurred in full with a one time payment from the trillion
dollar surplus which has now unfortunately disappeared.
BENEFITS OF THE PLAN
The principle benefits derived are long term and to the nation as a whole
and are not readily quantified in the plan. The permanent nature of the
plan and its fund is designed to achieve independence from political
cycles. This aspect of the plan is critical to its success and is a
distinguishing benefit of the plan. The long term stability offered by
this plan is intended to reduce the destabilizing effects of the
continually changing national financial, regulatory, and market conditions
which have so plagued the renewable energy industry.
The principle reliable benefit of the plan is that the nation gets all the
tax money back in the form of direct economic stimulation, reduced energy
cost, and eventually in the form of funding for energy production and
conservation efforts produced without taxation. In addition, the
capitalization of the fund helps drive the stock market and capitalizes
industry in general, while the fund interest supports the energy industry
directly with low risk and potentially windfall profits, helps drive the
economy through financing, and increases general tax revenue. Ultimately,
energy prices will be driven lower than they would be otherwise, and low
energy prices should be a major factor in driving the economic productivity
and in keeping inflation low. There is also the potential of major
technological breakthroughs achieved through the plan that will permanently
free us from energy worries.
This plan may not do as much as hoped to solve world energy problems unless
a similar program is adopted on a large scale by other significant
economies. However, if the USA becomes largely renewable energy driven,
and the rest of the world does not, our energy exports should have a
dramatically increased value, and this is good for the balance of trade.
In addition to all the above unquantified benefits, the quantified
estimates indicate an about 3 for 1 return on investment to the nation at
the 40 year horizon if the plan becomes self funding at the 20 year
horizon. If foreign firms are permitted to bid, then the cost/benefit for
the quantified values drops to about half that, though the full value of
the project energy production is still achieved. Over 150 billion dollars
in energy production facilities is produced in 40 years, at the nominal tax
rate suggested, but the economic multiplier for this benefit should be very
large, with a measurable economic benefit possibly closer to a trillion
dollars. The suggested taxation rate can not achieve all the benefits for
which there is a defined need nation wide, but could be significantly
scaled up if or when desired, with a corresponding increase in expected
benefits, both quantified and unquantified. This plan thus provides the
potential to leave a meaningful or even crucial legacy to future
generations.
This plan is public domain, without copyright. Publishing, distribution,
correction or enhancement by any means is encouraged by the author.
Regards,
Horace Heffner
