Cape Wind and the high cost of fossil fuels

Boston Herald business reporter Jay Fitzgerald today has the latest in his series of reports on the cost of Cape Wind. Fitzgerald finds that the high price of Cape Wind energy will be borne mainly by those who live and work a long way from the offshore turbines.

Meanwhile, Boston Globe environmental reporter Beth Daley yesterday delved into the planning process behind Cape Wind, which grew out of then-candidate Deval Patrick’s support for the project in 2006. It seems clear from Daley’s reporting that state officials either could have done more to keep the costs down or were taken by surprise.

Good journalism? Absolutely. Yet both stories skip over a crucial fact. The cost of fossil fuel is heavily subsidized. The oil, gas and coal industries do not have to pay for the pollution they dump into the environment, especially the massive carbon-dioxide emissions that already appear to be causing significant climate change. And that’s just the beginning, as Cape Wind activists Barbara Hill and Matthew Pawa observe in this commentary.

It’s similar to the cost of cheap food — factor in the cost of pollution from factory farms and from the medical costs of eating highly processed industrial food, and it doesn’t look so cheap anymore.

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13 thoughts on “Cape Wind and the high cost of fossil fuels

  1. Bill Peregoy

    Thanks for making the point about them missing the true cost of fossil fuels. I was thinking the same thing as I read this yesterday.

    Until people really start to consider the whole life costs of our natural resources, we’ll end up making decisions that make sense in the short-term but will cost us much more in the long run.

  2. Mike LaBonte

    Hill and Pawa focused on environmental costs, with only a quick mention of the tax breaks for drilling. In some years those tax breaks have amounted to about $20 billion. But many countries do the same, because the intention is to keep oil production domestic and reduce imports. I still don’t like it.

    One of the larger subsidies is funding the U.S. military at a level that has 5% of the world population paying for 50% of world military expenditure. Some portion of that is to keep oil flowing and available around the world. This is studied in http://www.icta.org/doc/Real%20Price%20of%20Gasoline.pdf :

    “Beyond program subsidies, governments, and thus taxpayers, subsidize a large portion of the protection services required by petroleum producers and users. Foremost among these is the cost of military protection for oil-rich regions of the world. US Defense Department spending allocated to safeguard the worlds’ petroleum resources total some $55 to $96.3 billion per year.”

    However, for the most part oil and electricity live in quite separate ecosystems, oil being confined mostly to heating and transportation. The fossil fuels that affect electricity, and therefore compete with wind farms, are mostly coal, natural gas, and uranium. But to some degree we use our military budget for those too. Recent unexplainable talk about developing new nuclear weapons was most likely to free up the old warheads to be reprocessed for nuclear reactor use, to drive down the price of uranium, now that Russia is running out of nukes to dismantle. Our relatively unchallenged military budget probably subsidizes many U.S. industries.

  3. Mike Benedict

    The subsidies for fossil fuel aren’t the only costs the Globe missed. What about the hundreds of billions the US has spent over the past decade alone to ensure a steady supply of oil from the Middle East? Take away dependence on foreign oil (and natural gas), and we eliminate the funding for most of those who wish to harm us.

    Any story that ignores these very real costs is incomplete.

  4. Michael Wyatt

    Yes, there are external costs. But at the height of the runup in 2008 (the great oil price rigging), my NStar bill topped at 12.5 cents per KWH for fuel costs; currently around 8-9 cents. Cape Wind initially threw out 21.5 cents pKWH with a 3.5% escalator 3 years from now, then backtracked to 18 cents. I do remember Gordon on with Finneran on WRKO 2 years ago and the essence was that CW would come in at 12 cents, roughly comparable. There’s going to have to be an end of the world runup in oil prices to have CW be competitive in 3 years. We’re talking 200-250 per barrel and some terrorist attack blowing up our natural gas fields to get to that level in 3 years.

    I was a supporter of CW initially, but rethinking that position given these completely out of whack costs. Did start googling around to see what other wind farms are delivering; ran into one controversial article in Iowa where they were grousing that the WF would come in at 8 cents. So clearly CW falls in the Big Dig category of prices. Do we really want to go forward with what is Version 1.0 of alternate energy at these unrealistic costs?

  5. Mike LaBonte

    I don’t completely understand the argument that oil prices need to remain low for Cape Wind to succeed. Is the idea that low oil price improves the economy, increasing demand for electricity and raising the price of electric power to match Cape Wind?

  6. Michael Wyatt

    Mike L.: don’t think that is the argument at all that Ian Bowles is pushing, rather that we know that CW’s pricing is ridiculously over the market at this point, but just wait, oil (and by extension natural gas) prices are going to be doubling or tripling in the next three years so that CW will seem a bargain. Not sure I buy that one.

    Now, Iran and Venezuala may wish for oil to go to $200bbl, but wishing doesn’t make it so. At least the Saudis figured that out in the 80s. Surprised people haven’t looked a little more skeptically at the 2008 runup with a little more jaundiced eye…

  7. C.E. Stead

    DK – I’ve been a supporter of Cape Wind since before it was CALLED Cape Wind when Gordon purchased the project about 8 years ago, and write about it a couple of times a year. Your observation about oil price is spot on, but here’s another – is HydroQuebec and other renewable projects that are touted as wind farm replacement strategies providing a binding fifteen year cost? Nobody seems to get that the CW price is for that time frame – and after the rupture of the natural gas pipeline in Michigan, the BP disaster, etc., can ANY fossil fuel vendor match that price guarantee?

    Also, I have to wonder – how much of the opposition is based on the project being privately funded and built? Unlike the government-run HydroQuebec and some other entities, there will not BE government jobs but private sector ones when Cape Wind is built. There is a lot of criticism of Gordon for taking ‘tax breaks’ – some of which would be available as routine if he were building nothing but a Seven-11 – and ‘profit’ but since he is taking the risk and putting up the GINORMOUS aount of money that the public sector can ill afford, why SHOULDN’T he make a profit?

  8. Michael Wyatt

    CE: was a supporter as well, but this pricing point has pushed beyond feasable. That 18.5 cents for 15 years with a fixed 3.5% escalator pushes to 31 cents at the end. Not doable. Might be worthwhile to see what other wind farms are pricing their output at – renewable is all well and good, but are we being taken to the cleaners (and especially for a Version 1.0 project)?

  9. Mike LaBonte

    One of the pluses for wind and solar power is that the price remains flat, or even goes down over time. It doesn’t go up, maybe not until we run out of silicon.

    The Great Recession is by far the main reason the price and production rate of oil have been fairly flat. Since 1963 there has been more oil extracted than discovered each year, and the current huge effort to drill new wells merely replaces the decline of existing wells.

    Investment keeps that going, but the profits are declining because production costs keep rising as all the growth is in expensive areas like deepwater drilling. Ending all subsidies today would bring the future where oil is just as expensive as renewable power right up to our doorstep.

    I highly recommend http://theoildrum.com/

  10. C.E. Stead

    Mr. Wyatt – I challange any utility to cost out for fifteen years. I’m betting the price is more. Compare the cost to the new nuclear trial balloon – AFTER ten years of protest, what will THAT cost the PUBLIC sector to build?

    Of course, the high cost is due to the obstructionism of Ted Kennedy, Bill Delahunt and other MA Nimbycrats. If the project could have been built five years out instead of ten, what would the fifteen year price have been then?

  11. Michael Wyatt

    CE, I’m not against wind power; I am concerned when in the course of 2 years costs have increased over 50%, and from what I can gather online are grossly higher than other wind farm projects in the Midwest or Quebec.

    All I’m saying, let’s not get jobbed here. This state has an unfortunate history (Big Dig anyone) of not minding the hen house.

  12. peter kenney

    I would hardly call the Globe’s nine year rant in support of Cape Wind good reporting. Cape Wind has never been honest about costs or other matters. Doing our own research into Cape Wind would be a lot more effective, and far better journalism, than simply quoting Cape Wind supporters.
    The Globe should ask Jim Gordon how his original claim of saving every electric customer in New England money every month has become added cost due solely to Cape Wind.

  13. Chris VanHaight

    Relying on any one energy source (such as fossil fuels) leaves a country (like us) vulnerable to unforseen disruptions in supply (see the 1970s). Wind and solar power will never meet all our energy needs but they are part of the overall package.

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