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Stranded assets: leaving carbon underground

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by Len Bahr, Ph.D.

The net energy of fossil fuel reserves 

Fig. 4.

The ERoI and its coastal implication for Louisiana

Coal, crude petroleum and natural gas, the three basic forms of fossil fuel, each has a variable market-based economic value, based on two potential end uses: (1) its combustion potential for generating electricity and/or powering ships, planes and SUVs; and (2) its chemical composition, the organic constituents used in the production of pharmaceuticals, fertilizers, pesticides, and explosives, for example. The latter use is currently eclipsed by the value of the combustion of fossil carbon as a source of free energy, which is reflected, for example, by the price at the pump of a gallon of gasoline.

The real energy value of in the ground fossil carbon must also take into account, however, the rising energy cost to produce, refine and distribute the raw resource from increasingly remote locations into its combustible form. The calculation of the net energy potential of untapped fossil fuel is known as the Energy Return on Investment (ERoI), which is independent of the free market. As shown in the accompanying graphic, ERoI declines as fossil fuel reserves become more difficult and costly to extract from underground.

ERoI is totally independent of the economic value of the final product, which varies with the stock market. When increasingly costly production techniques, such as land-based fracking and ever deeper ocean drilling, are taken into account it becomes obvious that projections of known reserves are overly optimistic. Global production of fossil fuel is inexorably approaching the point at which it costs as much free energy to extract fossil fuel from underground as can be generated by its combustion.  The declining value of oil and gas reserves is unlikely to be discussed with company stockholders, however, whose retirement portfolios depend on the perpetual growth of energy futures. Speaking of energy futures, today’s (Nov. 2, 2017) prices for shares of Exxon-Mobil and Royal Dutch Shell stock are respectively in the $83 and $63 range.

Unburnable carbon — stranded assets

An article in The New Yorker by Carolyn Kormann on October 19 describes another serious thermodynamic dilemma in which society currently finds itself. Here’s a quote:

…a 2011 report by the Carbon Tracker Initiative…looked at the planet’s known fossil-fuel reserves—its savings account, basically—and calculated how much carbon would be released if they were burned. The resulting figure, 2.8 trillion tons, was five times greater than Earth’s carbon budget for the next forty years. If civilization as we knew it were to survive, as much as eighty per cent of all remaining oil, gas, and coal needed to stay in the ground as “unburnable carbon.”

Another term for this concept of off-limits fossil fuel is “Stranded assets,” a definition of which from Wikipedia reads as follows:

Stranded assets is a financial term that describes something that has become obsolete or nonperforming well ahead of its useful life, and must be recorded on a company’s balance sheet as a loss of profit.

Implications for Louisiana

The concept of unburnable carbon, or stranded assets is antithetical, both to the POTUS and to his appointed energy officials, including Rick Perry, former Texas governor and currently clueless secretary of energy. According to Heather Dockray of Mashable.com, Perry said recently that oil-generated electricity will prevent sexual abuse of women in poor countries in Africa by giving them more light to read by. The implication of this sentiment is that the energy generated from renewable sources would not work.

On October 24 TheAdvocate.com reported that the political ambitious Scott Angelle, former Louisiana public service commissioner, DNR secretary under Bobby Jindal, unsuccessful gubernatorial and senatorial aspirant and current member of the Trump administration* was quoted in a speech to the Louisiana oil and gas industry players as follows:

The Obama rules (on geographic restrictions on oil and gas drilling) were poorly written, he said, and “didn’t recognize the value of the proven reserves in the ground to offset some of the liabilities.”

Scott Angelle is a classic proponent of pursuing carbon at all costs, the same notion endorsed by Eric Smith at Tulane, in an October 2 op/ed in Nola.com | theTimes-Picayune.

Bob Mann of the LSU Manship School of Journalism should be applauded for his recent column on the culpability of the oil and gas industry for Louisiana coastal land loss on a local scale, in addition to its fundamental role in global warming. Nevertheless, a letter to the editor of Nola.com | TheTimes-Picayune by Melissa Landry, executive director of Louisiana Lawsuit Abuse Watch, berates Mann for his views.

Bob Marshall authored an opinion piece for the Times-Pic on October 8 calling for the industry to own up and to ante up in terms of its blameworthiness for the coastal crisis. As with her pejorative opinion of Bob Mann, Marshal’s thoughtful column must likewise have raised poor Ms. Landry’s blood pressure.

At some point in our near future the cold, objective thermodynamic decision to restrict the unlimited pursuit of fossil fuel will prevail, even in Louisiana. This decision will be based either on growing concerns about climate change and/or on a far more mundane market based rationale. In either case our flood-vulnerable coast will reap the benefits.

*Stephanie Grace reported in TheAdvocate.com on November 2 that “The president named him director of the U.S. Bureau of Safety and Environmental Enforcement, basically the chief regulator of offshore oil and gas drilling. A Wall Street Journal profile published earlier this week cast him as an unabashed industry ally who sees his job as not only to ensure safety but also “drive performance” in the industry. The story describes an open-door approach in which Angelle offers warm, open access to the companies he regulates.

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  1. Editor’s note:
    I wanted to share this message to the CPRA policy folks that’s relevant to this post:
    To Whom It May Concern:
    On November 8 I received this official email message from the Coastal Protection and Restoration Authority (CPRA) that brags profusely about what is described as a nearly completed $28 million marsh creation project on the North rim of Lake Pontchartrain. This project is described as being administered under the Coastal Wetlands Planning, Protection and Restoration Act (CWPPRA) with the CPRA as state cost-sharing co-sponsor and the U.S. Fish and Wildlife Service as the federal co-sponsor. As pointed out in the message, the feds are responsible for funding 85% of all CWPPRA projects and the state 15%. 
    This raises three questions:
    1. Is the FWS funding 85% of $28 million, or $23.8 million, with CPRA paying $4.2 million?
    2. Alternatively, is the total project cost $187 million, with CPRA funding $28 milion and the FWS $159 milion?
    3. Finally, are CPRA heads Johnny Bradberry and Mike Ellis aware that such marsh creation projects are unsustainable?
    Recreating lost coastal wetlands and barrier islands by dredging and pumping sediments is increasingly expensive in terms of direct diesel fuel cost, the decreasing Energy Return on Investment (ERoI) ratio, the environmental cost of combusting the fuel in terms of greenhouse gas emissions, and the predicted accelerating sea level rise that will dramatically increase the coastwide sediment deficit. 
    Respectfully,
    Len Bahr, Ph.D.

  2. Anonymous says:

    Is your thermodynamics near critical mass. It seems so. You’re retired, so enjoy your free time with friends and family. The tide is only rising a few millimeters per year. Your feet will not get wet during your lifetime. Be not afraid and love thy neighbor.

  3. Editor’s note: My very smart son-in-lawyer sent me the following link to a scholarly article by Chad Stone that advocates a carbon tax to advance the effective reduction of carbon emissions. https://3c-bs.gmx.com/mail/client/attachment/download/tatt0_1—tmai14f4d19fc92071a3/;jsessionid=0E1549ACDBEC9D443FE682C005C61FCE-n1.bs07a.
    Here’s a quote:
    The cost of the environmental and economic damages from an incremental ton of carbon dioxide emissions is known as the social cost of carbon, which is relatively low if emissions and greenhouse gas concentrations in the atmosphere are modest but is much higher at more dangerous levels of emissions and greenhouse gas concentrations. Adding the social cost of carbon to the price of fossil fuels creates incentives for businesses and households to change their behavior in ways that reduce fossil fuel use and emissions to the economically efficient point where the incremental benefit from the energy produced equals the full incremental costs (including the social cost of carbon) of producing that energy.
    In practice, calculating the social cost of carbon is not only a task fraught with scientific and techno- logical uncertainty but also one that raises ethical conundrums about tradeoffs between our current well- being and that of future generations and whether the risk of truly catastrophic environmental outcomes can even be meaningfully monetized. Whatever target level of emissions policymakers set, however, a carbon-pricing policy is likely to be more cost-effective (i.e., achieve its target at a lower economic cost) than traditional command-and-control government regulation because of the greater scope it affords businesses and households to find ways of reducing emissions.

  4. Editor’s note. As implied by this November 4 article by Umair Irfan in Vox.com https://www.vox.com/energy-and-environment/2017/11/3/16602764/alaska-climate-change-oil-anwr the one state more conflicted than Louisiana by the impacts of climate change and economic dependence on fossil fuel production is Alaska.

  5. Editor’s note: Check out this article by Darius Dixon and Eric Wolff from politico.com on November 6: https://www.politico.com/story/2017/11/06/trumps-coal-backers-energy-power-rick-perry-244535 about the push by DOE secretary Rick Perry for a proposed subsidy to certain Appalachian coal companies owned by Trump-backer Bob Murray. This proposal would totally ignore free market influence on energy policy.

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