The Interior Department has placed polar bears on the list of threatened species under the Endangered Species Act. [Link] The bears depend on the Arctic sea ice and global warming is causing a decline in the amount of sea ice. This threatens their habitat and could cause a drastic decline in their population if they can’ adapt.

Usually when an endangered animal is threatened with the loss of habitat, the cause is some type of development project like building commercial structures. Typically the development project is challenged and halted, thus preserving the animal’s habitat.

The challenge with the bears is different. The bear’s habitat is threatened not by encroaching commercial development, but by the burning of fossil fuel all over the planet. Some environmentalists might use this as an excuse to prohibit drilling in the Arctic National Wildlife Refuge. The proximity of the drilling is irrelevant to the global warming problem. Could environmentalists use this as an excuse to challenge any energy project in the United States? Could the construction of a new electric generating plant fueled with either coal or natural gas be challenged on the basis of protecting the bears?

If reasonable energy development is stopped in this country, it would have a serious negative effect on our economy. That may have the perverse effect of actually making the global warming problem worse. Let’s say we can’t develop energy in this country and it drives industry off-shore to a country like China. We not only loose the jobs and investment in our economy, but the production may be much less energy efficient in China. That would result in a worsening of global greenhouse gas emissions and be counter-productive to saving the bears.

What the bears really need is a national energy policy that reduces greenhouse gas emissions over time that also projects our economy. We should start by reducing the use of those fuels, like coal, that produce the most greenhouse gas emissions. A long term national energy plan may call for the development of fossil fuel energy resources like oil to replace coal in the short term. Closing off oil development in the Arctic National Wildlife Refuge may actually hurt the bears.

John McCain presented his plan to combat global warming as he stumps through the Pacific Northwest. He is presenting his plan as relying on market forces to decrease greenhouse gases. He notes that for the last century we have achieved tremendous benefits from our use of oil and gas, but the costs in environmental damage were not taken into consideration. (Link) 

His plan is to cap greenhouse gas emissions and set up a cap and trades system of carbon credits that businesses could buy from ‘those who find a cleaner way of doing business’. There are some serious problems if this is all he has to his global warming plan.

Let’s start with how he is going to award credits. Are they awarded to current polluters based on how much you pollute determining how many credits you receive? How many credits do I get as an individual? I certainly would want my share of credits that I could trade to make some money.

How do you determine what credits you can buy? Can I plant a bunch of trees on my property and sell a carbon credit to a big utility? What happens when I decide to chop the trees down for fire wood? Do I have to buy my credits back? What happens if the tree just gets old and dies? Do I become liable for damages to the environment?

Some of the cap and trade programs like the ones in Europe allow companies to create credits by helping other companies become more efficient. A company may go to a Chinese company and make their production process more energy efficient. The Chinese company gets new equipment that consumes less energy and the European company gets the carbon credits to offset their emissions. I have a little trouble understanding how this really cuts down on greenhouse gases. The European company hasn’t cut down, the Chinese company can increase production and maybe produce more pollution, and the Europeans have increased the efficiency of a country that competes with them. If China grows faster because of this increased economic support, doesn’t that create even more pollution?

I could see cap and trade used in more a limited context. Lets say we wanted to reduce greenhouse gases by closing all of our coal-fired power plants over the next 40 years. We could issue credits each year to the existing plants based on their current emissions. Each year we reduce the number of credits so that emissions are reduced by 2.5% each year. Each plant could reduce that amount of coal it burns each year or a few plants could shut down and sell their credits to other plants. The market would determine the most efficient way to eventually close all of the plants. Sort of like a game of musical chairs. Cap and Trade systems that allow the creation of new credits (‘new chairs’) would not be effective.

A better solution would be a carbon tax. A carbon tax would add the cost of pollution to the cost of the product. This could be put on both fossil fuels and products made from fossil fuel energy where the fuel source was not originally taxed; ie imports. You can’t put a carbon tax on fuel only in this country because it would drive manufacturing off-shore to avoid the tax. For example, if you taxed natural gas used to produce fertilizer, but didn’t have a tax on imported fertilizer; you would drive a lot of production off-shore.

Providing cash credits for alternative energy would help increase the amount of emission free energy. Providing credits for solar and wind energy will eventually drive down the price to the point where they also become economical. A small carbon tax would make these sources economical sooner. Maybe use the money from the carbon tax to supplement alternative energy.

The government should support all forms of clean energy. We are going to need a lot of it to replace all of our fossil fuels.  Nuclear energy should be part of our solution. We currently generate 20% of our electricity from nuclear. France generates over 80% of its power from nuclear. McCain does support nuclear power. He acknowledges that there are “drawbacks” including transporting and storing nuclear waste. I would like to here more on his plans for getting new nuclear plants built in this country.

Congress is busy debating how to solve our energy problem. (Link) Put a windfall profits tax on oil companies? That would probably result in less production. Force oil companies to invest in alternative energy programs? What expertise does ExxonMobil have in alternative energy?

I think ExxonMobil is correct returning its capital to its shareholders by buying back stock. It is a form of economic recycling. When these shares are bought by ExxonMobil, the government will share in the profits through our current tax code. The shareholders are then free to find other investments including alternative energy projects.

An alternative energy that ExxonMobil might pursue is the production and marketing of hydrogen. Hydrogen is the most abundant element in the universe. It is the ultimate in clean fuel as it combines with oxygen to produce water. The problem is that all of the hydrogen available to us is bound up with other elements, water being the best example. It takes a lot of energy to break the bonds and free the hydrogen.

Hydrogen is used today both as a fuel and as a feedstock for many industrial processes. It can be used to manufacture fertilizer. It can be used in an oil refinery to upgrade heavy crude to lighter fuels.

Hydrogen can be produced by the electrolysis of water into hydrogen and oxygen. Electrolysis is an environmentally clean cycle, assuming the electricity is produced from an environmentally clean source. This is an old and widely understood process for creating hydrogen, but requires a tremendous amount of electricity.

Hydrogen is mostly produced from natural gas where the hydrogen is split from the carbon and the carbon is released into the atmosphere as carbon dioxide gas. This is not environmentally clean. It is better to just use the natural gas as a fuel then to produce hydrogen from natural gas, so most hydrogen produced this way is used as a feedstock.

There is one way to produce hydrogen that is environmentally clean and produces huge amounts at potentially low cost. That is to use nuclear power. The government recognizes the potential for using hydrogen as fuel in the transportation sector through its Nuclear Hydrogen Initiative (Link). 

There are designs for nuclear reactors that can have a thermal efficiency of up to 45% for producing hydrogen using high-temperature electrolysis and up to 60% (combined cycle also producing electricity) using thermo-chemical production. (Link)

A 3,000 M Watt thermal reactor (at 60%) should produce about 46,000 Kg/hr of hydrogen. This is the equivalent energy to 29,000 barrels of diesel fuel per day. That’s 1.2 million gallons worth over $5 million per day retail or $1.83 billion per year. Seems like that type of return would justify a pretty large investment in plant and equipment considering the raw material input to the process is only water. (Nuclear fuel and fuel disposal are additional costs).

Question for ExxonMobil, are these types of numbers in alternative fuel interesting to you? This type of project seems like it would be in your area of expertise. Building and running this type of production facility seems similar to building and running an oil refinery, your area of strength and competitive advantage. You then have to store and distribute the fuel, probably to large commercial customers like railroads, bus operators, heavy equipment operators, and maybe even truck operators.

Pursuing hydrogen from nuclear could also have political benefits. It gives you something constructive that you are pursuing in your area of expertise to reduce greenhouse gas emissions, clean up or environment, and reduce our dependence on foreign oil.

I believe that fossil fuels will eventually be phased out for cleaner technologies. This is an opportunity to be on the leading edge of a new age in energy production. The development of cheap hydrogen fuel could spawn the development of new transportation technologies like supersonic jets, much in the same way that producing cheap oil products facilitated the development of our automotive industry. What do you think John D. Rockefeller would do?

The amount of money to develop nuclear hydrogen technology and gain a competitive advantage in what could be a huge industry is very small compared to the massive amount of cash you are generating each year. I am a small [sic] shareholder and in a reasoned and measured way, I say go for it!

In my last article I talked about ExxonMobil’s declining oil production. (I'm using ExxonMobil as being representative of all the major oil companies). They are also buying back large amounts of stock to return their capital to their shareholders. There are some people, including a group representing the Rockefeller Family that feel ExxonMobil should use this money to invest in alternative energy projects.

My own feeling is that they should stick to their area of expertise which is the production and distribution of oil and gas. That is what they know how to do and what they are very good at doing. There are plenty of other companies that are developing the expertise for solar, wind, ocean current, geothermal, bio fuels, etc. It is more efficient for them to give their capital back to their shareholders and let their shareholders invest the money in these new companies. Tax avoidance, one of the reasons given by the Rockefeller Family for ExxonMobil to make these investments directly, is not a good reason for them to pursue ventures they are not comfortable with.

There are calls for ‘forcing’ oil companies to invest in Alternative Energy. I am not even sure how you could force them to do that. Does this include only American Oil Companies or would you also try to force foreign companies to make these investments? How would you define what would be considered an Alternative Energy Investment? Build a bunch of windmills somewhere? Do they have to be built in this country? Would planting a bunch of trees to offset carbon emissions count?

In the current political debate on Energy Policy, many people are calling for windfall profit taxes on oil companies. These taxes would be counter-productive. Tax something and you generally get less of what you tax. We need more oil and gasoline in the short run, not less. How does a windfall profits tax put more gasoline in your gas tax? A windfall profits tax is more likely to lead to shortages and higher prices.

A more responsible program would be to open up more off-shore areas of this country to drilling. The government can write their own rules for developing these resources starting with selling the drilling rights through competitive. They could also put ‘windfall’ taxes on oil and gas developed from these properties. This would be stipulated up-front as part of the competitive bidding process. This type of program would put more gasoline in peoples cars, which would also help keep prices down.

Why, as a writer on Global Warming, am I proposing that we develop more fossil fuel resources in this country? It is really a matter of choosing between alternatives. We can’t just stop using fossil fuels abruptly without serious economic damage to our economy. We need a long term plan to develop alternatives and slowly switch to those alternative fuels. We will still need fossil fuels, probably for the next 40 or 50 years. Hopefully we will start the switch soon and we sill be using fossil fuels in diminishing quantities until we stop using them completely. The fossil fuels we should use in the interim should be the cleanest and cheapest fuels like natural gas and light oil. That is why we should allow drilling off our shores. The alternative is to develop tar sands, oil shale and coal to liquids, all of which would add more carbon to our atmosphere than allowing drilling off our shores. Economic benefits would be achieved from increasing the supply of domestic oil, increased federal taxes, increased American jobs and a reduced dependence on foreign oil.

ExxonMobil just recently reported they made over $10 billion in profits last quarter, over $40 billion last year. Their cash flow was even higher at $52 billion. So how can I say that they are going out of business?

They can’t find attractive new sites to drill for more oil. They bought back $32 billion of their own stock last year while spending $21 billion on capital expenditures. Their oil and gas production fell 5.6% (Link).  They are not alone among the big oil producers in being unable to find enough new reserves to maintain production. At the rate they are buying back stock, they will buy back all of their stock in about 15 years.

Foreign countries are restricting access to possible exploration areas or making it financially unattractive to take the risk of exploring for marginal fields. Most of the worlds large oil fields are being depleted and production is dropping. (Link) 

If Exxon does eventually stop being an oil producer, who are we going to buy our gasoline from? What will the price be?

This has become a political issue (Link).  Some of our politicians want to put windfall profit taxes on our oil companies. I don’t see how putting more taxes on our oil companies will put more gasoline in our cars. Maybe they should consider letting our big oil companies use their expertise to find and develop domestic oil sources by opening areas that are currently closed to exploration. 85% of our offshore areas are closed to exploration. When you are filling up your car, think about where your next tank of gasoline is going to come from and how much it is going to cost.

While I do not believe we are running out of hydrocarbons, the easy and accessible oil is running out. What should Exxon do?

The Rockefeller family, who are some of the original shareholders from the predecessor company Standard Oil from 1870, have called on ExxonMobil to make more investments in renewable energy:

Neva Rockefeller Goodwin Part 1:

Neva Rockefeller Goodwin Part 2:

I do not agree with them. They want the company to remain viable in the long term, but the capital could also be transferred to a new generation of companies with new products and a new vision. ExxonMobil is doing the right thing; returning cash to their shareholders. They have a lithium battery business (Link) that is trying to build batteries for electric cars, but it is a very small part of their business. The people who work at ExxonMobil are basically oil men. They know how to explore, develop, transport, refine and distribute petroleum products. Why should they invest in alternative energy when it is not their area of expertise? What about the return on investment to their shareholders? They should return the money they can’t invest to their shareholders and let their shareholders invest in alternative energy.

The situation with ExxonMobil not being able to replace their reserves is an indicator that we are entering a new energy age. The age of oil is coming to a close and the new energy age is emerging. Is ExxonMobil going to be part of the new energy future? I don’t know. It will really be up to their board of directors and shareholders to determine if they liquidate the company over time or make investments in new energy. They could make large investments in technologies like coal to diesel, but I don’t think that is the energy of the future because it releases tremendous amounts of CO2. Better that they just buy back stock. To take the risk out of future investments, we should have a national energy policy so they can make better decisions on funding new projects and delivering the fuel we need.

I am a small shareholder in ExxonMobil and would like to see the company invest in the new energy age. There is one fuel source that they should consider. It plays to their strengths of refining, transportation, distribution and would require large capital investment. It does not add carbon to our atmosphere so it is environmentally clean. What is it? More on it in the next article.