World CO2 Emissions and Durban

More than 10,000 ministers, officials, activists and scientists from 194 countries are meeting in Durban in what appears to be a last ditch attempt to extend the Koyoto treaty and to try and to try to tax all the developed nations to pay for climate impacts on poorer nations through the Green Fund for climate assistance. Durban, the 17th annual Conference of the Parties (COP17) to be held since the United Nations' first began to coordinate an attempt to control global warming through carbon dioxide control has reached the final stretch. At this point it appears that the conference will close without any agreement. The European Union refuses to extend without the United States and China committing and neither country appears likely to make any legally binding commitment. The Climate Change movement has lost its urgency. The failure to get any binding international agreement in Durban may be caused by the global economic problems or by the failure of the Global Warming/ Climate Change models to predict temperatures. Levels of greenhouse gases are higher than the worst-case scenario outlined by climate experts just four years ago, but temperatures have not risen as projected by the climate models.

The 1997 Kyoto Protocol bound developed countries to cuts of about 5-6% from 1990 levels in global emissions of greenhouse gases as represented by carbon dioxide by 2012. President George W. Bush rejected Kyoto in 2001, saying it did not impose emissions limits on emerging industrialized nations – chiefly China and India, and now China has surpassed the United States as the world largest emitter of greenhouse gases. China (6.9 billons tons in 2009), the United States (5.2 billion tons 2009), India, the Russian Federation (1.5 billion tons in 2009) and the European Union (3.0 billion tons in 2009) were the largest contributors to global emissions growth to a total of almost 30 billion tons of CO2 in 2009 (the specific breakout for 2010 was unavailable from the International Energy Agency, IEA, but the increase worldwide was about 6% 2010). Canada, who signed the Koyoto pact blew through their CO2 levels exceeding their 2000 levels and joined the United States as among the highest per capita emitters on the planet. Canada had agreed to cut emissions 6% below 1990 levels by 2012 as part of the Kyoto Protocol, but Canada’s emissions (0.7 billion tons in 2009) are now 17 % above 1990 levels, largely because of increased emissions related to the development of the Canadian oil industry. Canada failed to meet its Kyoto targets because they refused to take the large economic hit necessary for a big, cold, northern, sparsely populated, oil and natural gas producing nation to achieve them. There are no meaningful penalties for missing a Kyoto emission target. Even the most cooperative countries are missing their Kyoto targets.

However, Japan has been faithful to their word. Japan's Trade Ministry said on Tuesday emissions of CO2 fell 5.6 % to 1.075 billion tons in the year ended March 2010, bringing the Japanese below their Kyoto goal of 1.186 billion tons a year, when taking into account the volumes of carbon offsets Japan has bought from abroad. However, Japan announced that they are reconsidering plans to cut carbon-dioxide emissions by 25% by 2020 due to closing of a significant portion of its nuclear power generation, and the costs of the carbon-credit programs that cost the county almost $11 billion to purchase the carbon offsets by investing in carbon abatement programs in other countries.

The failure to get a binding international agreement in Durban has the Climate Model believers in a frenzy as CO2 emissions are up 6%, to over 30 billion tons, in 2010 40% above the 1990 level. This level of CO2 is higher than the worst-case scenario outlined by climate experts just four years ago. Securing a commitment from major polluters such as China and India to sign up to a Kyoto II in the future – a move spearheaded by the British and European Union Energy Secretaries appear doomed to failure. The failure to get a binding international agreement in Durban may be caused by the continuing steep rises in annual global CO2 emissions without an accompanying significant rise in global temperatures. Levels of greenhouse gases are higher than the worst-case scenario outlined by climate experts just four years ago, but temperatures have not risen as projected by the climate models. The relationship of climate change to worldwide CO2 levels may not be the one assumed in the climate models. In addition, the difficulty in reducing CO2 levels worldwide can be seen in the diagram above. Canada, Russia, and Japan withdrawing from the Koyoto Treaty and the United States not making a binding commitment despite President Obama’s commitment in Copenhagen to reduce United States emissions of CO2 17% by 2020 has doomed Durban.

Fracking in Ohio

The U.S. Forest Service has withdrawn more than 3,200 acres of forest land from a federal oil and gas lease sale scheduled for Wednesday, December 7, 2011. The acreage in Athens, Gallia, and Perry counties was to be included in a broader sale of leases for 20,949 acres of federal land in Ohio, Mississippi and Louisiana. This land was to be auctioned for Hydraulic Fracturing. The Buckeye Forest Council, an environmental coalition, opposed the sale stating that the environmental statement was outdated because it did not mention hydraulic fracturing. In addition, they feel that Ohio does not have the regulatory framework to deal safely with fracking. The auction plan is on hold pending the review of the environmental impact statement which could take up to six months and lead to required revisions in the 2006 environmental impact statement which could delay the auction further. The 3,200 acres currently have nearly 1,300 shallow gas wells.

Our ability to recover natural gas buried a mile or more beneath the earth has increased. Advances in horizontal drilling which allows a vertically drilled well to turn and run thousands of feet laterally through the earth combined with advances in hydraulic fracking, the pumping of millions of gallons of water and laced with thousands of gallons of chemicals into shale at high pressure have increased our ability to recover natural gas from shale. Hydraulic fracking is a technology that was unknown 60 years ago. Until recently there was no economically feasible way to extract this gas.

Thought industry executives say fracking has been widely used for decades without problems, hydraulic fracturing has changed, the type of hydraulic fracturing the industry executives are talking about is coal bed formation fracturing. The volume of water needed for hydraulic fracturing varies by site and type of formation. Fifty thousand to 350,000 gallons of water may be required to fracture one well in a coal bed formation while two to five million gallons of water may be necessary to fracture one horizontal well in a shale formation. Water used for fracturing fluids is acquired from surface water or groundwater in the local area. Wastewaters from the hydraulic fracturing process must be disposed of and several ways have been used. Several of the techniques tried have been to dispose of the water underground using injection wells, discharged to surface waters after treatment in a waste water treatment plant designed to remove only solids and biological contaminants, or applied to land surfaces where it can seep into the water table.

The millions of gallons of water used for fracking shale contain up to 15,000 gallons of chemical additives. The chemicals serve to increases the viscosity of the water to a gel-like consistency so that it can carry the propping agent (typically sand) into the fractures to hold them open so that the gas can flow. Determining the proper methods for the safe disposal of the large quantities of this fracking fluid that may also contain contaminants from the geological formation including brines, heavy metals, radionuclides and organic contaminants is essential. The deep well injection of the waste in Texas is believed by scientists to have triggered the earthquakes near the Dallas airport. The impact of so much waste water on our water resources must be measured and monitored. Finally, care must be taken to avoid degradation of watersheds and streams from the industry itself as large quantities of heavy equipment and supplies are moved on rural roads and placed on concrete pads.

There are many possible routes to contamination from fracking. Errors in natural gas well construction or spills during injection can occur and lead to drinking water contamination. Drinking water wells contaminated by methane and potassium chloride have been reported. In Pennsylvania, flammable levels of methane in drinking water wells and potassium chloride levels high enough to salinize a drinking water aquifer have been reported in the vicinity of some gas wells. Fracking fluids can spill before they are injected and fluids recovered from fracturing can contaminate surface waters. The EPA estimates that 15-80% of the volume of fracking fluids injected will be recovered. The amount of fluid recovered depends on the site geology. Additionally, drilling into the subsurface through the water table can create pathways for fracking fluids or natural gas to find its way into water supplies and wells, if grouting isn’t properly done and the gas well properly constructed. The horizontal sections of the wells are not cased in cement and, introduce a potential point where fracking fluids can reach the outside of the grouting during flowback.

Hydraulic fracturing should continue slowly. A limited number of wells should be installed with careful monitoring of local and regional groundwater supplies as well as verification of proper well construction and wastewater recycling. Limiting fracking to a small area of the federal and state forest lands would allow the development of experience, knowledge and data, and could ensure careful restoration of the area. Instead of leaving unwary homeowners to the “land men” and their leases written entirely to favor and protect the drilling and gas companies, allow the state governments to develop standard language for the gas leases and the federal government to collect real time data in a secluded area away from residential impact.

Currently, the US Environmental Protection Agency (EPA) is studying the impact of hydraulic fracturing on water resources, but they are only focusing on the potential to directly pollute the drinking aquifer, not looking at potential changes in the groundwater hydrology. The geological impact of Hydraulic Fracturing should be examined by the U.S. Geological Survey. No one has ever looked at what the long term implications are for the hydraulic balance when fracking occurs. The removal of millions of gallons of water, the fracturing of the geological formations, and the injection of contaminants even at low concentrations into the subsurface could cause significant changes in groundwater flow and quality.

The current regulatory framework concerning hydraulic fracturing has a number of gaps that need to be addressed before unlimited fracking takes place. There were several recommendations made in the report of the Shale Gas Subcommittee of the Secretary of Energy Advisory Board. The report had a rational approach to regulation recommending disclosure, testing, evaluation and modification of regulation and practices based on the information and data obtained. It assumes information and data will be gathered and analyzed. That is not yet being done. The data needs to be collected on a state level and provided to the US Geological Survey and US EPA to consolidate on a national level.

In the past decade the advances in drilling and fracking technology have been adapted to exploit gas in the Barnett shale in the Fort Worth Basin in Texas and applied to a series of major shale gas deposits that could not have been viable without the advances in drilling and fracking. The Fayetteville shale, the Haynesville shale, the Marcellus shale reserves all in the United States and the Horn River shale reserves in Canada are now accessible. At the current rate of natural gas consumption North America is reported to have a 100-year supply of proven, producible reserves and even with expanded use of natural gas, there is more than a generation of currently accessible reserves. We need to treat both the earth and its resources with respect.

In truth we have no viable option to hydrocarbon fuel. When the oil and gas is gone it will be a poorer future without airplanes, freighters and trucks. Sailing ships will not transport raw materials and finished goods around the earth. Solar and wind power will produce unreliable power supplies and mankind will adapt (not happily) or discover new sources of fuel. Before that future world arrives, the shale gas and oil sands and whatever else is discovered will be exploited. There is no urgency, but you cannot permanently stop that trend. These deposits will become more valuable over time as the world becomes more desperate for energy. Now is the time to carefully develop and study the methods to exploit these resources without destroying or further damaging the earth.

United Nations Climate Summit and More Emails from East Anglia

United Nations Climate summit in Durban, South Africa began on Monday, November 28, 2011 and will run until December 9th 2011. The Durban meeting is the 17th conference of the parties to the United Nations convention on climate change or COP17. This international meeting may have been entirely ignored by the general public given the economic turmoil in Europe and the United States, but for the release last week of a new batch of emails reported to have been stolen from the servers at the University of East Anglia.

I spent couple of hours randomly reading emails and did not find any new insights. This appears to be another group of emails very much overlapping the 2009 hacked emails from the University of East Anglia's Climate Research Unit (CRU) a collaborator with the U.N.'s Intergovernmental Panel on Climate Change. The released emails revealed some researchers willingness to suppress or massage data and use the peer-review process to control the publication of scholarly work and suppress the publication of dissenting points of view. The hacked emails have shown some of the weaknesses in the climate data and models used to forecast global warming, as well as some rather questionable behavior by scientists in controlling information provided to the public even to the extent of reviewing and approving the BBC reports. There really does not appear to be much that is new in this latest group of emails, though the new emphasis on BBC’s lack of objective reporting seemed new to me.

After the first release of emails, the Intergovernmental Panel on Climate Change (IPCC) investigated the claims of scientific wrongdoing. In its report in August 2010, it recommended improvements in the management structure of the IPCC, ensuring that the data included in its reports had been properly published in the scientific literature, and finally that the full range of scientific opinion should be reflected in the reports. Nonetheless, IPCC confirmed their conclusions that the earth is warming and that activities of mankind have caused this warming. Berkeley Earth Surface Temperature Study finished their analysis of global temperature studies this past fall and confirmed global warming since the industrial revolution. EPA Administrator, Lisa Jackson, never wavered from the EPA’s full acceptance of findings reached by outside groups, including the Intergovernmental Panel on Climate Change that Administrator Jackson explained "relied on decades of sound, peer-reviewed, extensively evaluated scientific data that the combined emissions of …greenhouse gases in the atmosphere threaten the public health and welfare of current and future generations." The EPA has proceeded to create a number of new regulations including 2025 targets for auto mileage and power plant emissions standards on mercury after putting the direct greenhouse gas regulation of power plants on hold this past fall.

This month the Department of Energy, DOE, reported that in 2009-2010 the world pumped out almost 6% more carbon dioxide than during the previous year. According to the DOE on their Carbon Dioxide Information Analysis Center web site the increase is due to increased emissions from the People's Republic of China. Since 2001 global carbon dioxide emissions worldwide have increased 33%. During this same period; however, U.S. carbon dioxide emissions have not increased, our national impact has become less relevant. From 2001-2010 global temperatures have not increased, but remain approximately 1.13°F warmer than the average global surface temperature from 1951 to 1980. To measure climate change, scientists look at long-term trends. The temperature trend, including data from 2010, shows the climate has warmed by approximately 0.36°F per decade since the late 1970s. Carbon dioxide has shown a less direct relationship to global temperatures than the climate models had predicted.

The U.S. never ratified Kyoto, arguing it should contain 2012 goals for emerging economies and would cost U.S. jobs. The U.S. has also failed to adopt a comprehensive domestic program for reducing its own greenhouse gas emissions, despite recent regulatory activity by the EPA and DOE funding of billions of dollars of solar projects disguised as a loan guarantee program. Nonetheless, the American Clean Energy and Security Act,” also known as the Waxman-Markley energy bill, failed to pass the senate in 2010 and is seen as dead. Thought, the California Air Resources Board unanimously voted to adopt the nation's first state-administered cap-and-trade regulations for greenhouse gases in 2011. Cap-and-trade is the centerpiece of AB 32, the Global Warming Solutions Act of 2006 a California law that is designed to achieve quantifiable, reductions of greenhouse gases. At the Copenhagen meeting in 2010 President Obama pledged to reduce U.S greenhouse gas emissions to 17% below the 2005 levels by 2020. Due to the recent drop in industrial production and electricity usage, we have already cut U.S. emissions by 6%; the Administration is well on its way to achieving this goal. The California Cap and Trade program requirements will help the current crop of California renewable energy projects funded under the DOE program to reduce power consumption in California by increasing the cost of electricity by at least 15% above the cost of using natural gas according to the Division of Ratepayer Advocates at the California PUC.

The newest release of hacked emails serves to turn our attention to the proceedings in Durban more than anything else. The Kyoto Protocol, which committed developed nations to cut their emissions, is set to expire in 2012. After both the Copenhagen (2009) and Cancun (2010) Climate summits failed to produce a legally binding climate treaty, delegates to the Durban talks are under immense pressure to produce some kind of deal that will be acceptable to both rich and developing nations. However, it is reported that cap-and-trade concept is losing support among the previous signers of the Kyoto treaty. Canada, Japan and Russia have stated that they will not agree to an extension of Kyoto unless China, India and Brazil who are now major producers of greenhouse gas become subject to the requirements.

The “emerging nations,” including China, India and Brazil want an extension of Kyoto, which required the industrialized nations to cut greenhouse gas emissions by 5.2% below 1990 levels from 2008-12. The world's two largest greenhouse gas emitters are China and the United States. China because of concern about employment and a slowing international demand for their products have no interest in having any climate treaty apply to their nation. China’s economy appears to be slowing down significantly based on the falling global demand for oil and copper. China was exempted as an emerging economy, and though it is now the largest greenhouse gas emitter on earth, it wants to remain exempted from reducing or even stabilizing greenhouse gas emissions under any new agreement. In September India announced that it would not accept any legally binding limits on greenhouse gas emission, and Japan announced that they are reconsidering plans to cut carbon-dioxide emissions by 25% by 2020 due to closing of a significant portion of its nuclear power generation, and the costs of the carbon-credit programs that required the spending of almost $11 billion on carbon abatement programs in other countries during a decade long economic malaise.

Overall, expectations for the future of the Kyoto Protocol are low and some doubt whether if a second commitment period is feasible with only support from EU which accounts only around 11% of the world’s greenhouse gas emissions and is itself reconsidering its nuclear power generation after the Fukushima Daiichi nuclear reactors were damaged after the recent earthquake. If nuclear reactors are going to be phased out as low greenhouse gas emission power generation there is no way to achieve carbon reductions without reducing the size of the economy, the standard of living or the size of the population. During her opening remarks to the conference, Executive Secretary of the UN Framework Conventions on Climate Change Christiana Figueres said countries can take two major steps in Durban to address climate change. The first is completing a comprehensive package to help developing countries adapt to climate change and limit the growth of their greenhouse gas emissions, and the second relates to how governments can work together to limit the global temperature rise and thus prevent further natural disasters. This seems to be a stepping away from the more rigorous stance of previous conferences.

Fracking in New York

Last year, New York placed a moratorium on drilling in the Marcellus Shale while it assessed the effects of fracking. New York Department of Environmental Conservation’s draft environmental impact statement (EIS) on drilling was released almost three months ago and recommends that drilling be permitted, but with conditions. The comment period ends on December 12, 2011 and most likely the ban on hydro fracking in New York will end with it despite several groups’ attempts to extend the comment period three more months.

The EIS places restrictions on drillers to address groundwater concerns. EIS mandates that drillers must not drill within a certain distance of watersheds or aquifers and more stringent well construction standards be met. These recommendations are in line with the recommendations issued by the Shale Gas Subcommittee of the Secretary of Energy Advisory Board this past spring. The report had a rational approach to regulation recommending disclosure, testing, evaluation and modification of regulation and practices based on the information and data obtained. The report is to some extent a collection of the best regulatory framework among the states and covers little new ground overlooking some of the significant questions. This was a subcommittee at the Department of Energy that reports to the Secretary of Energy. However, EPA will be the regulatory agency and is currently engaged in a multi-year study of hydraulic fracturing. There is not enough data to fully understand the full impacts of fracking.

There is tremendous pressure to lift the moratorium on fracking. A large swath of New York sits atop the Marcellus Shale, which is the third-largest natural gas field currently known in the world. The Marcellus Shale alone is estimated to be 500-trillion-cubic-feet of gas reserve. This resource could heat our homes for a generation or more, and power our electrical generating plants, even fuel cars either directly or through plug in hybrids. The possible impacts to our economy and environment are far reaching. The potential risks are also far reaching.

Our ability to recover natural gas buried a mile or more beneath the earth has increased. Advances in horizontal drilling which allows a vertically drilled well to turn and run thousands of feet laterally through the earth combined with advances in hydraulic fracking, the pumping of millions of gallons of chemicals and water into shale at high pressure have increased our ability to recover natural gas from shale. Hydraulic fracking is a technology that was unknown 60 years ago and advances in the past 15 years have made it possible to economically access this gas. Our knowledge of the impacts from fracking has lagged behind our ability to access the gas.

In hydraulic fracking on average 2-3 million gallons of chemicals and water is pumped into the shale formation at 9,000 pounds per square inch and literally cracks the shale or breaks open existing cracks and allows the trapped natural gas to flow. While geologists and engineers believe that there is little risk that the fracking “water,” a mix chemicals and water, will somehow infiltrate groundwater reserves though a fissure created by the fracking there are other routes of contamination and impact. It is believed that the intervening layers of rock would prevent a fissure from extending thousands of feet to the water table; there are other risks in how we build wells and fracture the shale that the EIS attempts to address.

There have been documented cases of seepage into drinking water wells through improperly sealed or abandoned drilling wells. An ongoing monitoring and data collection program needs to be part of the permitting process. Potential impacts to our water supply from hydraulic fracking needs to be studied over time and regulations modified to better protect our water supplies and natural resources as fracking expands in the region. Drilling requires large amounts of water to create a circulating mud that cools the bit and carries the rock cuttings out of the borehole. After drilling, the shale formation is then stimulated by hydraulic fracking, using up to 3 million gallons of water.

Data needs to be gathered on the impact to water resources of supplying water for the construction of thousands of wells per year. For gas to flow out of the shale, nearly all of the water injected into the well during fracking must be recovered and disposed of. Though less than 0.5% by volume, the proprietary chemicals can account for 15,000 gallons in the waste from a hydro fracking job. The chemicals serve to increases the viscosity of the water to a gel-like consistency so that it can carry the propping agent (typically sand) into the fractures to hold them open so that the gas can flow. Determining the proper methods for the safe disposal of the large quantities of this fracking fluid that may also contain contaminants from the geological formation including brines, heavy metals, radionuclides and organic contaminants and monitoring the impact from this disposal must also be done. The impact of so much waste water on our water resources must be measured and monitored. Finally, care must be taken to avoid degradation of watersheds and streams from the industry itself as large quantities of heavy equipment and supplies are moved on rural roads and placed on concrete pads. The watersheds must be monitored and permitting should not exceed our ability to monitor the impacts.

Who will Control your Water

Fresh water supply poses a real and looming environmental risk. Regional shortages of water will drive decisions that will impact our future.

According to the US Census Bureau there are 312 million people in the United States. The water that exists on the planet is finite, but always moving as part of the water cycle or hydrologic cycle, on, above, and below the surface of the Earth. The good news about water is that “on average” the United States uses less than 8% of the water that falls as precipitation within our borders annually. Unfortunately, precipitation varies from that average significantly on a regional basis and over time, and our need for water is often greatest where there is the least precipitation because of the need for irrigation. In addition, only the cities on the great lakes have adequate precipitation and water storage to supply their population’s water needs, so our urban center have become very used to thinking of appropriating water from nearby regions to the cities.

As population rises, the demand for fresh water for drinking, domestic use, for industry (especially power generation) and for agriculture increases. The demand for food and the water that is essential to produce food grows with population and wealth. Globally, farming is estimated to account for 60% -70% of fresh water use. Irrigated agricultural consumes over 75% of the water in California, which produces 17.6 % of U.S. crops, and 7 % of the U.S. livestock and livestock products. California produces about half of U.S. grown fruits, nuts, and vegetables. Several of these crops are currently produced only in California. In the United States we have used the various complicated, layered and hidden subsidies within the various “farm bills” and subsidized water to complicate the business of farming and obscure the true costs of food in America.

This past spring, even as the Mississippi River basin was inundated with water, large portions of the arid west were struggling with drought. Farmers in the west pumped groundwater (unsustainably) to produce their crops. Regional water supply and allocation of that water is a growing problem especially in the western states which are arid, dependent on irrigation and have multi-state water right compacts. One of the best known of these Compacts is the 1922 Colorado River Compact, negotiated by the seven basin states (Colorado, Nevada, Utah, New Mexico, Wyoming, Arizona, California, ) divided the Colorado River basin into upper and lower portions, allotted consumptive use of the Colorado’s water on the basis of territory rather than prior appropriation. Before this agreement was negotiated allocation of water rights (ownership) was based on historic use, first to use the water owned it in perpetuity. In a land where water was wealth and all water was diverted from its natural location, this was how it was done. The allocation of water rights based on territory allowed development to proceed in the lower basin (essentially California) while safeguarding supplies for the upper basin. Then, as now, California's growth and demand for water was viewed with concern by her neighbors.

The problem is that the allocations promised were more than 100% of the water available and the demand for water has exceeded the supply. Specifically, the amount of water allocated under the Colorado Compact was based on an expectation that the river's average flow was 16.4 million acre feet per year. Subsequent tree ring studies, however, have concluded that the long-term average water flow of the Colorado is significantly less. According to the University of Arizona, a better estimate would have been 13.2 million acre feet at the time of the Colorado Compact and the records going back to paleolithic times (more than 10,000 years ago) indicates periods of mega-droughts in the distant past. During the drought of 2001-2006 the Colorado River flow was estimated at 11 million acre feet and hit a low of 6 million acre feet in 2002. The situation was critical bordering on regional rationing when the drought ended. More than 23 million people of the lower basin are at least partially dependent upon the water resources of the Colorado River. Almost 74% of them reside in the greater Los Angeles and San Diego areas. The deep snow pact and rain of last winter in northern California has taken has taken emergency rationing off the table- until the next drought.

Population growth, increased food production and increased power production all consume more and more water. The water available from the Colorado River has not increased with the increased demand and may even be falling. Even without climate change, paleoclimate records show a history of tremendous droughts in the region, and now more than 35 million people (in the upper and lower basins) depend upon the Colorado River’s waters for their water supply. The need for water is always growing. California is the most populous state in the nation and Nevada was identified as the fastest-growing state in the country in the 2010 census growing over 35% since 2000. Despite aggressive conservation activities the region simply does not have enough water to meet the projected demand. Las Vegas, was in the midst of a building boom when the drought hit. While adding 400,000 people they were able to reduce water use by a third by the implementation of draconian conservation measures. This was city and suburban consumption, not agricultural or power generation use of water which is much more difficult to cut.

The states of the Colorado Compact need more water. Overuse is killing the Colorado water basin which suffers from decimated aquatic ecosystems, overdrawn and irreparably damaged groundwater aquifers, and polluted agricultural and urban runoff. California has focused all its attention on developing a plan for reducing carbon dioxide emissions which is unlikely to prevent climate change, but they have failed to develop a workable water budget (or a balanced state budget for that matter). For two decades the Pacific Institute has called for a revamp of river management to protect endangered fish species and critical ecosystem elements, free up water for restoration of the Colorado River delta, and eliminate long-term groundwater overdraft throughout the basin. California and the other Colorado Compact states could not face the simple fact of a limited water supply and ignored the warnings, preferring to think about that tomorrow.

Even the conservation measures implemented in Las Vegas and throughout the region are not enough to ensure the long term water supply. The Southern Nevada Water Authority has requested to build a pipeline to transfer 65 billion gallons of water from northern Nevada to Las Vegas. The state will decide in January whether to proceed with that plan. The project has encountered stiff opposition from conservationists and rural communities against tapping northern groundwater to fuel more growth in southern Nevada. The pressure to push the project forward is off after the large snow pact of last winter inundated the area in the spring thaw and filled Lake Mead for the first time in a decade. Lake Meade sits on the Nevada-Arizona border and was formed in 1935 after the construction of Hoover Dam. Lake Mead and the upstream Lake Powell are the major water storage facilities in the Colorado Compact system. Roughly 96% of Lake Mead's water comes from melted snow in the upper Colorado River basin states: Colorado, Utah, New Mexico and Wyoming.

Las Vegas is only one small area of the Colorado Compact. Regional politics demands maintaining a vibrant agricultural sector, quenching the thirst of growing urban and suburban, growing economies that also demand water for power and industry, despite the limitations of the water supply. Politicians do not seem able to make the hard choices that will balance their water budgets. Instead the politicians came up with the idea to investigate the “Long-Term Augmentation of the Water Supply of the Colorado River System.” The study commissioned by the Colorado Compact states and the federal government identified 12 long-term augmentation options: desalination of both brackish water and ocean water, coalbed methane produced water, recharging groundwater from other surface sources, reduction of consumptive use of water for power generation, reservoir evaporation reduction, storm water storage, vegetation management, importing water via boat, water reuse, weather modification, and importation of water from the Midwest. Former Governor of New Mexico, Bill Richardson suggested “compacts” with the great lake states to import water to the drier western states under a federal water Czar. One of the ideas explored by the Southern Nevada Water Authority is to pipe 1,000 cubic feet of water per second from the Mississippi River 1,000 miles west to the Colorado River. They estimated that this aqueduct-pipeline would cost $11.4 billion to construct and an unknown amount of money to operate and maintain. Pat Mulroy, general manager of the Southern Nevada Water Authority, who is responsible for ensuring that the 2 million residents of Las Vegas have water argues that this plan could flood proof the Mississippi River Basin while recharging the depleted Ogallala Aquifer under the Great Plains and maintain and increase agriculture on the eastern side of the Colorado River. The plan is to remake nature with a modern era of big infrastructure projects rather than accept the limits of nature and locating large water use projects where water is plentiful. Water control and allocation would be another federal power under this water augmentation plan.

Solyandra was a Loan Not a Venture Capital Investment

Thursday, Energy Secretary Steven Chu sat through more than five hours of questioning by the oversight panel of the House Energy and Commerce Committee about the failure of Solyndra. He deftly danced around charges of incompetence discussing Solyndra using such phrases such as “cash burn rate”, “start up” and “build up sales,” and said the White House has not lost faith in him. The committee and Secretary Chu seemed to have missed the point. This was a loan guarantee program. This was not a venture capital fund. This was not supposed to be a government investment in Solyndra or any other company (Beacon Power for example), but a loan guarantee program to aid viable projects in obtaining loans to build commercial scale projects.

The federal stimulus bill signed by President Obama expanded Title XVII of the Energy Policy Act of 2005 by adding Section 1705. DOE describes Title XVII Section 1705 as “ Provides loan guarantees to commercial-scale renewable energy projects, that begin construction prior to September 30, 2011 in Biomass, Hydrogen, Solar, Wind/Hydropower, Geothermal, Transmission, or any other renewable energy systems.” This was clearly a loan guarantee.

All loans typically have a primary and secondary source of repayment. The primary source of repayment is demonstrated or reliably projected cash flow. This is cash generated from the business or project. The secondary source of repayment is “conversion of the collateral,” that would be selling the assets of the company. Loan guarantees are necessary when either the primary or secondary source of repayment is impaired. Loans are made with borrowed funds, banks or other lenders borrow money in the financial markets and lend it to businesses at between 0.5% and 2.5% above their cost of funds.

The less risky the loan the less the lender’s spread. A government guarantee would essentially make a loan almost riskless and provide the secondary source of repayment, the U.S. taxpayer. A loan guarantee program provides a guarantee to reduce the interest rate charged and thus the borrowing costs. In order to protect the U.S. taxpayer from excessive losses in the DOE Title XVII Section 1705 loan program, it was essential to make sure the projects had a primary source of repayment, a sound source of cash flow.

The DOE program provided the loan guarantees for free. However, Secretary Chu, the entire administration, the House Energy and Commerce Committee and the press seem to have forgotten that the DOE Title XVII Section 1705 was a loan guarantee program not a venture capital fund. The Solyndra loan appears to have not primary source of repayment, was subject to regulatory and incentive risk and had limited secondary source or repayment. This was not a loan, yet $535 million of taxpayer money was at risk.

Venture capital is equity provided to early-stage, high-potential, high risk, start-up companies. The target return on Venture capital funds is typically 20%-35% and the venture capital investor is buying portions of companies. Venture capital is used to grow and develop companies with limited operating history that have not yet reached the point where they are able to obtain a bank or other type of loan by demonstrating the ability to make a profit. In exchange for the high risks that venture capitalists assume by investing in riskier companies, venture capitalists usually get significant control over company decisions, and a significant portion of the company's ownership (and consequently value). A venture capital fund makes money by selling the equity in the successful companies it invests in.

A Title XVII Section 1705 loan guarantee for $535 million loan guarantee given to Solyndra was not a venture capital investment by the DOE. The DOE took no ownership of the Solyndra, they simply guaranteed the company’s debt. Solyndra had no cash flow from their existing facility and were not profitable. Building a bigger and highly automated manufacturing facility was a wildly speculative attempt to build a market for a more expensive product. Title XVII Section 1705 was clearly a loan guarantee program being misused, not venture capital fund.

Keystone XL and Canadian Oil Sands

The Canadian oil sands have been known for decades. Until the recent protests against the Keystone XL pipeline that labeled these oil reserves “Canadian Oil Sands,” they had been variously known as unconventional oil or crude bitumen, the Canadians use oilsands as a single word. These oil sands had been surfaced mined in Canada with drag lines and power shovels since the late 1960’s, but until oil prices rose and technology improved these oil deposits were too expensive to exploit beyond the limited scope of surface mining. Advances in technology in both oil sand extraction and refining techniques and rising oil prices altered the economics and have made the extraction of oil sand possible.

The crude bitumen contained in the Canadian oil sands is a semi-solid or solid in natural deposits. It is a thick, sticky form of crude oil, so heavy and viscous that it will not flow unless heated or diluted with lighter hydrocarbons. Decades ago Canadian oil companies discovered that if they removed the sand filters from the well pumps and pumped as much sand as possible with the oil, production rates improved remarkably. This technique became known as Cold Heavy Oil Production with Sand (CHOPS). Pumping out sand opened "wormholes" in the sand formation which allowed more oil to reach the well improving production rates and recovery from around 6% to 10%. However, it produced large quantities of sand with oil residue that need to be disposed of, the recently used method has been to dispose of them in underground salt caverns.

More advances in drilling techniques and the use of steam injection have allowed the Canadians to expand their recoverable oil. In Cyclic Steam Stimulation (CSS) steam at extremely high temperature is injected into a well over a period of weeks to months; then, the well is allowed to rest while the heat to soaks into the formation. Finally, the hot oil is pumped out of the well for weeks or months until the production rate falls off. Once the production rate falls off, the well is put through another cycle of steam injection, rest and production. CSS and has a recovery rate around 20 to 25%; the disadvantage is that the cost to inject steam is high.

Steam Assisted Gravity Drainage (SAGD) was developed after improvements in directional drilling technology made it possible. In SAGD, two horizontal wells are drilled in the oil sands, one at the bottom of the formation and another about 15-20 feet above it. Groups of wells are typically drilled off a central pad and like fracking wells can extend for miles in all directions. This reduces surface disturbances of the land and the footprint of the area to be reclaimed under the environmental license (the Canadian version of a permit). In each well pair, steam is injected into the upper well melting the bitumen, which flows into the lower well and is pumped to the surface. SAGD was the breakthrough that has quadrupled recoverable oil reserves and moved Canada into second place in proved world oil reserves. SAGD is cheaper than CSS, allows very high oil production rates, and recovers up to 60% of the oil in place. There are refinements in the technology using in-situ hydrocarbon dilution under development that could reduce cost and energy used in mining even further, and could further reduce the cost of extracting oil sands. It is the SAGD method, however; that has created the need or desire for a pipeline to deliver the oil to the American markets.

Like all petroleum production, oil sands operations can adversely impact the environment. In the past open pit mining of oil sands projects have impacted the land when trees, brush and overburden have been removed for the mining site. As a condition of licensing, projects are required to implement a reclamation plan, but reclamation is a slow process. The mining industry asserts that the boreal forest will eventually recolonize the reclaimed lands. In addition, large amounts of water are used for oil sands operations for the steam in the current SAGD method. Despite recycling, most of the water ends up in tailings ponds. The Alberta provincial government limits how much water oil sands companies can remove from the Athabasca River to avoid impact and newer treatment methods have reduced the treatment and recovery time for tailing ponds. Still environmental regulations need to evolve with technology. Last winter the Canadian press reported that Wikileaks released a cable written by the U.S. Ambassador to Canadian Environment Minister in 2009 that revealed that the Obama administration had inquired about a possible moratorium on new oil sands development. Former environment minister Jim Prentice responded (in 2009) to the U.S. Ambassador that he was prepared to step in and impose tougher regulations on the oil sands if the industry damaged Canada's green reputation and said that if industry did not take voluntary measures and the provincial government did not set more stringent regulations, he would step in and press federal environmental legislation.

Recently, the current Canadian Environment Minister Peter Kent announced that Ottawa will introduce environmental regulations to address oil sands and reduce greenhouse gas emissions without implementing a cap-and-trade program. Canada has committed to reducing greenhouse gas emissions by 17% below 2005 levels by 2020, the same target that the United States has committed to. Environmentalists contend that emissions trends suggest the expansion of the oil sands will prevent Canada from hitting its targets, unless tougher environmental rules are put in place, and strongly oppose further development of oil sands until a stronger regulatory framework is in place . These groups are fighting to stop the Keystone pipelines to the United States and western Canadian ports as a method of stopping the expansion of oil sands production. The Pembina Institute in Alberta states: “Filling the proposed KXL pipeline with oil sands will result in nearly a 50% increase in oil sands production. Until environmental management of the oil sands is improved, KXL will cause significant environmental harm due to increased oil sands production.”

In June 2010 the first phase of the Keystone Pipeline System went into operation moving crude oil from Canada to market hubs in the U.S. Midwest. Keystone Cushing (Phase II of the pipeline) extending the pipeline went into service in February 2011, connecting the storage and distribution facilities at Cushing, to the Midwestern hubs. The proposed Keystone XL, is an approximate 1,660 mile, 36 inch crude oil pipeline that would begin in Alberta and extend southeast through Saskatchewan, Montana, South Dakota and Nebraska continuing through Oklahoma to an existing terminal not far from Port Arthur, Texas. The oil would arrive at the Texas refineries and ports for American market and export. The U.S. State Department is the lead handling the issue because the pipeline crosses national boundaries, but President Obama has made it clear he will make the final decision on whether to approve the pipeline.

Recently, the Canadian Prime Minister Harper told reporters the project would create a vast number of jobs in Canada and the United States, and he fully supported the project. President Obama has said environmental issues would weigh just as heavily in any decision as job creation and energy security. The pipeline was originally planned to run through the Osgallala aquifer in Nebraska, a very important water source to mid-west agriculture. On Monday in response to U.S. State Department indications that the pipeline needed to avoid the Osgallala aquifer and the Sand Hills area, TransCanada (the pipeline owner) announced it had reached a tentative deal with Nebraska officials to move the proposed route of its Keystone XL pipeline away from Osgallala aquifer. After the announcement the U.S. State Department made it clear that another environmental assessment would be necessary and would take 12 to 18 months, pushing the decision to 2013. A decision should never be made too soon or too late.