Rep. Edward Markey (D-Mass.), chair of the House Subcommittee on Energy and Environment, along with Rep. Todd Platts (R-Pa.), has introduced legislation calling for 25 percent of U.S. electricity to come from clean energy by 2025. What will such legislation do to electricity costs?

Most pundits assume the current system is optimal, and thus claim that any mandate to change this “best of all possible worlds” will raise the price of delivered electricity. It is hilarious to think the protected and regulated electric system is optimal, but depressing to realize no one is laughing. Consider two questions:

1. Do market forces drive electricity suppliers to lowest-delivered-cost solutions?
2. What is the delivered cost of clean energy from various generation options?

What market forces? All electricity distribution systems and many generation plants enjoy monopoly protection. Subsidies abound. Profits are guaranteed. Old plants can legally emit up to 100 times the pollution of a new plant. A century of rules reward and protect yesterday’s approaches and the resulting vested interests.

Congressman Markey has never seen current generation as optimal, and now that he chairs the relevant subcommittee, he proposes to mandate cleaner and, in our view, cheaper electricity generation. Yes, we said cheaper. Anyone interested in some facts?

The chart below depicts a comprehensive analysis of the delivered cost of a megawatt-hour from old coal plants and from 12 cleaner options. The bottom bar depicts societal delivered cost from an old coal plant that has been retrofitted with pollution controls to meet 2015 EPA standards. This coal generation, the dominant form of U.S. generation, emits 1.05 to 1.25 tons of CO2 per delivered MWh. The other bars depict the cost of delivered power from 12 generation options with reduced or no CO2 emissions. The costs include capital amortization for generation, transmission and distribution and backup generation, plus fuel and operating costs and line losses, all spread over each technology’s likely operating hours per year. The costs also exclude all subsidies and thus depict full societal costs for each generation option.

Source: Internal analysis of Recycled Energy Development LLC.

The three lowest cost sources of clean energy cost less or the same as power from the dominant old coal plant generation, but these carbon-free and low-carbon options supply only 7.5 percent of U.S. generation. Instead, 56 percent of U.S. power comes from more expensive and dirtier old coal.

Every passing month sees more power industry requests to regulators and states to approve investment (i.e., guarantee returns) in integrated coal gasification plants, nuclear plants, and experimental coal plants that will attempt to sequester some of the CO2 emissions. These central generation options the power industry favors will cost the public between $127 and $212 per delivered MWh, which is three to five times the cost of power from the cheapest clean option — recycled waste energy. Sadly, some state governments are drinking this power industry Kool-Aid. Illinois just passed a law requiring distribution utilities to pay $210 per MWh (21 cents/kWh), plus delivery, for power from a new coal plant that hopes to sequester half of its CO2.

Many environmentalists lobby for a pure renewable energy portfolio standard, excluding the cheaper clean options. This mandate would effectively induce wind power, given the high cost of solar. New wind generation can deliver power at a lower cost than nuclear or coal with sequestration. What is surprising is that new wind is less expensive than delivered power from natural gas combined cycle plants. Yet the power industry has deployed 120,000 MW of new natural gas generation capacity since 1995. Capital costs for new gas turbine plants are less than half the cost of new wind capacity, but natural gas is so expensive that the plants operate less than 25 percent of the time. The capital recovery is spread over relatively few MWh. Our analysis assumed 30 percent per year load factor and still found natural gas more expensive than any technology but solar.

So much for the myth that “market forces” work in the electricity space.

Could government unleash market forces in the electricity space? Sure, but look at the changes required and then count votes:

1. End all subsidies of petroleum, coal, nuclear, wind, biomass, and solar energy
2. Repeal all electric distribution monopoly protection and allow anyone to install private wires
3. Repeal all generation monopoly protection
4. Privatize all federal power agencies, rural electric cooperatives, and rural utility service, exposing these customers to the cost of private capital
5. Remove all rate making assurances of return on utility investment in generation, transmission, and distribution
6. Remove all grandfathered permit status from all existing electricity and thermal generation plants and replace with output-based allowances that decline over time, forcing all generators to bear the cost of pollution
7. Add carbon dioxide to the list of regulated pollutants and apply the same rules as above, thus sending price signals on the cost of pollution

What is the probability of the above changes to laws and regulations? Precisely zero!

Reps. Markey and Platts propose the next best thing, forcing the deeply protected power industry to move towards cleaner (and overall cheaper) generation options.

Note: This first appeared on Grist.

I offer several comments:

Ken and many others, refer to “Clean Tech” as a synonym for renewable energy and/or for new technologies like fuel cells. This is a needlessly restrictive definition that obscures the real reasons we deploy so little Clean Energy. The most cost effective clean energy plants use proven technologies to recycle otherwise wasted energy. Like wind and solar, these energy recycling plants burn no incremental fossil fuel and emit no incremental pollutants of any kind. The discussion of clean energy would benefit from including all of the clean energy options.

1. Fuel cells produce slightly less NOx than modern gas turbines, but only the molten carbonate versions currently offer electric-only efficiencies as good as gas turbines and reciprocating engines. The real clean energy value comes from locating the prime mover—turbine or fuel cell—near a thermal load and doubling the net electric efficiency by displacing boiler fuel with otherwise wasted heat.

Clean energy is held back by much more than current credit issues, and neither the 2007 or 2008 rate of constructing clean energy plants begins to optimize our 33% fossil efficient electric system. Here are a few of the problems, all of which stem from flawed regulatory approaches, which regulations could be fixed to enable and induce profitable clean energy deployment.

1. Environmental regulations provide no carrot for building plants that produce less than average emissions of any particular pollutant per megawatt-hour of delivered electricity or thermal energy. An output allowance system that gave every plant an allowance of the average emissions/MWh and then required all plants to secure allowances equal to actual output would allow clean energy plants to earn added revenue selling allowances, and could largely replace the herky-jerky system of annual production tax credit extension to congressionally favored technologies (that are a subset of total clean technology approaches.
2. With no carbon policy, there is no credit to clean energy plants for delivering power with reduced greenhouse gas emissions per MWh. Moving to a four pollutant output allowance system that included CO2 emissions would allow clean energy plants to earn more of the value those plants create.
3. PURPA, which was designed to encourage higher efficiency, was premised on taking business away from utilities, earning unanimous utility opposition. In today’s world of distribution only utilities, we could encourage deployment of highly efficient combined heat and power and wasted energy recycling with legislation that offers long term contracts from the ISO or from the distribution utilities, but keeps the retail load with the utility.
4. Prior to deregulation, electric users bore the risk of all generation, once a plant was accepted as prudent and put in rate base. This enabled a relatively low cost of capital for generation plants with high leverage and “widows and orphans” equity certainty. Deregulation has thrown the baby out with the bath water, offering no long term contracts for any power. Banks were willing to loan money against non-contracted gas turbine plants in the late 1990′s, but then lost their shirts in 2002-3 when natural gas prices quadrupled. Banks and other lenders now demand power sales contracts that are three years longer than the debt repayment term. As a result, very little new capacity has been built in the past five years. The independent power industry continues to operate inefficient plants at a profit, largely because no one is building enough new and more efficient plants to destroy the value proposition of converting fossil fuel to electricity at 30 to 45% efficiency. Electric users bear the cost of the regulatory system failure to devise mechanisms to offer long term contracts for Clean Energy.
5. The New Source Review section of the Clean Air Act has effectively prevented investments in energy productivity at any existing electric or thermal plant for the past 38 years. If a plant owner invests in more efficiency, which reduces CO2 and criteria pollutant emissions per MWh, EPA can void the plant’s operating permit unless it adds enough pollution control to meet current Best Available Control Technology or BACT emission levels, which is typically prohibitively expensive. Again, moving to an output allowance system applied equally to all delivered MWh could replace NSR and allow investments in efficiency.

In short, the failure to deploy profitable clean energy is caused by flawed regulations, which were designed for yesterday’s issues and constrained by yesterday’s technology. These regulations create massive vested interests in preserving the fossil inefficiency of the U.S. heat and power system. We essentially force our citizens to pay to warm the planet. As the great philosopher Pogo once said, “We have met the enemy and he is us.”

The disarray of the clean energy community is partially to blame:

1. Enviros banded together in 2001 to stop the Democratic-led Senate Energy Panel from introducing a bill that would mandate clean energy, including recycled energy. We worked to cut a deal with Billy Tauzin, then Republican head of the House Commerce Committee, who had insisted that an RPS would be ‘Dead on Arrival’ at the House until we showed him that Louisiana, although short on good solar or wind prospects, had lots of waste heat that could be recycled and lots of CHP opportunities. The collective group of environmentalists, stupidly seeing energy recycling and CHP as the enemy, persuaded Senator Jeffords to threaten to pull his support for the Senate energy bill if it included all forms of clean energy. No bill. Aaargh!
2. We worked to build a coalition to get the best possible bill through the House last year, given our good luck at having a real friend of and believer in clean energy in the general counsel position to the Subcommittee on Energy and ended up with fights within USCHA, with EPA, and with the Renewable advocates. We are collectively the Edison Electric Dream Team for an opposition. Engine and turbine manufacturers feared using the term ‘recycled energy’ because they only were interested in legislation that helped create a market for their machines. EPA feared they would lose a line item on their budget if we strayed away from CHP. The climate change leader of one of the major environmental organizations told the others he could not wait for the ‘bastards to get out of the process’ referring to those of us seeking to broaden the clean energy definition to include CHP and industrial waste recycling. In the end, we lacked the cohesion and the economic arguments to gain enough Republican defections. We ended up with no clean energy standard provision (Called RPS) and no tax package.
3. The ethanol community takes serious criticism for net fossil fuel reduction, but ignores the fact that good CHP could raise the net fossil gain from 16,000 Btu per gallon to 51,000 Btu’s per gallon.

Do we unite and promote all clean energy, or do we keep fighting over who shares the few scraps not covered by monopoly protected generation?

We, who produce or promote clean energy, with any method, need each other.

• Renewables: Solar and wind are easy to understand as clean and have broad public sex appeal. Seven windy states and sunny southwestern states are supportive, but the rust belt states see added costs and wealth transfer to windy states. Geothermal has friends in good resource states, but offers little in the way of electric power in a majority of the states. As long as clean energy only includes renewables, clean energy legislation is vulnerable to some powerful arguments including cost for everyone and load factor for wind and solar. Yeah, there are technical dreams but we need votes now.
• CHP is less sexy, not as obviously clean, since it often starts burning fossil fuel, but has very wide applicability and is competitive against today’s average retail prices. It avoids half of the CO2, eases wire congestion, and helps balance load with wind. It seldom receives much over half of the value it creates and thus has not boomed. But the CHP community, with a concerted effort, could round up a vast amount of support from the industrial states, from educational and medical institutions and from beleaguered manufacturing facilities that are being squeezed by high energy costs, and who, nearly to a person, fear renewables impact on their electric prices. These folks vote.
• Recycling industrial waste energy is the sleeper. It faces the most severe resource limitations – perhaps a maximum of 65,000 megawatts with current technology – but has no incremental carbon, no incremental wires, and pencils at the lowest current cost per kWh. Bundle recycled energy with CHP and other renewables in a national clean energy portfolio standard and we can at least neutralize the chamber of commerce and manufacturing associations, and get some of them to weigh in with support. There is nothing to object to about extracting energy from industrial waste streams, but the public is unaware of the benefits and there is no clear manufacturing community that benefits from deployment, as is the case with all other clean energy. The climate does not have time to wait for us to educate everyone about this form of clean energy.

So I suggest we assemble the clean energy leaders from all three sectors and seek agreement on a goal of total clean energy, form a council, and then make a united attack on every regulation that prevents clean energy or promotes more forced warming of our climate. Perhaps the Climate Institute could provide adult supervision. Recycled Energy and CHP could swing their weight on the economics of clean energy, Renewables could swing their weight on the sex appeal of clean energy and the long term promise of a carbon free world, and we attack the load factor argument with the robustness of a grid with multiple local generators. We all concentrate on removing the regulatory barriers and extracting more of the value we create. Grants, tax credits or subsidies have to be renewed again and again, but once barriers are gone, they stay gone. We work together to make sure the emerging carbon emission rules allocate allowances based on delivered electricity and thermal output. We make job one the mitigation of climate change and stop blocking good ideas because they might help nuclear, which does help reduce carbon. We ask for an output based allowance standard for all six criteria pollutants and for CO2 to replace the present system of individual operating permits and NSPS. Let every plant invest in efficiency without losing its operating permit, but give everyone an allowance of each pollutant for every MWh they deliver that is equal to the average pollution for all MWh in the country, and then schedule reduced allowances. Let the dirty plants purchase the allowances they need from the clean energy folks. As we start receiving more of the value we create, we will lose our reliance on annually renewing subsidies and all of the clean energy industries will boom.

This alliance could deliver a huge message and transform the climate change debate. We enlist all of the grass-roots environmental organizations to gain support by explaining the benefits of deploying all possible clean energy. We enlist manufacturing support by explaining how the regulations prevent them from capturing value from their waste streams, or from benefiting from local CHP. We enlist help from all who manufacture any component used in clean energy production. We work together with a clear understanding that the enemy is anyone who produces dirty energy.

Consider the alternative. If the clean energy community cannot get together and compromise, how can we ever expect intelligent national clean energy legislation?

The elephant in the room, however, is the highly inefficient production of electricity and thermal energy. Only two of McKinsey’s 78 approaches address the efficiency of producing electricity and thermal energy. Today’s electric-only generation is wasteful and costly, and is needlessly forcing climate change. Energy waste, however, also represents an economic opportunity.

Everyone seems to know about electric plant waste. Television cartoon fans can picture how the nuclear plant employing Homer Simpson features cooling towers that reject enormous amounts of heat. At every real-life electric-only generation plant, two thirds of the fuel’s energy is vented to atmosphere. The electric industry apparently reached the thermodynamic limits of central generation efficiency in the 1950′s. Efficiency has not increased by one percentage point in 50 years.

Electric generation waste grows in importance as electricity replaces other energy forms. The percentage of CO2 emissions from electric generation rose from 11 percent to 42 percent since 1949.

The other large source of CO2 emission is thermal production. By 2005, 69 percent of U.S. fossil greenhouse gas emissions were from the generation of heat and power. Compare 69 percent to the 19 percent from automobiles, which were the main focus of the U.S. Energy Independence and Security Act of 2007. We are missing the elephant in the room.

We must reduce electric generation waste to mitigate climate change.

There is good news. We can do two jobs with one fire. Combined heat and power plants (CHP) near thermal loads achieve double efficiency by recycling the byproduct thermal energy to displace boiler fuel. Waste energy recycling plants convert industrial waste energy into heat and power with no additional fossil fuel, and create added revenue for manufacturers.

Consider the energy-recycling plant at a steel smelter located on the southern shore of Lake Michigan. In the past, 268 coke ovens, which bake metallurgical coal in order to produce blast furnace coke, vented the waste heat into the air. The energy-recycling facility captures and recycles that exhaust gas to produce 95 megawatts of electricity and up to 980,000 pounds of steam for the smelter. This power is pristine, as clean as any from renewable energy sources because it results without burning any additional fuel or emitting any additional pollutants or greenhouse gases. In fact, this single facility generates roughly the same amount of clean energy as is produced by all the grid-connected solar collectors throughout the world. Critical to the climate-change debate, this coke energy project earned a profit and sold power to the steel mill for 25 percent of average US retail electricity prices.

In another example, West Virginia Governor Joe Manchin recently announced Recycled Energy Development’s $60-million investment to recycle energy from a silicon manufacturer that is the life blood of Fayette County’s 48,000 residents. Capturing the waste heat from the plant’s furnaces will generate nearly a third of the factory’s 135 megawatts of electric demand, guarantee stable energy prices, and enable a 20-percent expansion of silicon production capacity. This project, as a result, will secure the facility’s existing 200 jobs, add 25 to 30 new manufacturing jobs, cut line losses, avoid 300,000 tons of carbon dioxide emissions per year, and take silicon production back from China. It demonstrates the profitable reduction of greenhouse gases.

There are many more examples. Companies I have led have developed and invested two billion dollars in 250 energy recycling plants that are all over North America. The worst is twice as efficient as the US electric system. Each year, these plants save over 60 trillion Btus of fossil fuel, avoid over 50 million tons of greenhouse gas emissions and save the industrial and commercial hosts nearly $400 million.

The United States and Canada, unfortunately, are international laggards when it comes to generation efficiency. Denmark over the past two decades raised cogeneration’s share of total electricity production to more than 50 percent. Netherlands, Finland, and Russia also have substantial combined heat and power applications, while several other developed countries — including Germany, Poland, Japan, and China — have rates more than twice the 8 percent in the United States.

We have identified opportunities to build $350 billion of energy recycling projects, using proven technology. These projects would reduce society’s cost of heat and power by $70 billion per year and double the 1.3 gigatons of profitable greenhouse reductions identified by the McKinsey study. This is a huge opportunity to profitably reduce greenhouse gas emissions.

This opportunity raises the obvious question: why does inefficiency prevail?

Our energy laws and regulations are outmoded, designed for an era before climate change was an issue. Changing those rules and regulations will not be easy because policy losers scream louder than the winners cheer.

Nowhere is the task more difficult than in the debate about the so-called costs of greenhouse gas reduction. Profitably lowering greenhouse gas emissions means burning less fossil fuel, which means we must increase the efficiency of converting fossil fuel into useful energy services. This will create massive economic gain… but with a wealth transfer from fossil fuel producers and inefficient energy converters to energy efficiency entrepreneurs and to energy consumers.

The good news is that the winners outnumber the losers. The economic and environmental health of the U.S. and Canada depends on how fast governments modernize energy regulations to give clean energy a chance to profitably reduce greenhouse gas emissions.