Interview with Rob Godby

October 26, 2016

 

Dr. Rob Godby shared his views with JHCGA on the current state of energy in Wyoming and beyond.  Dr. Godby’s views are his own, not representative for the University of Wyoming, where he is part of the faculty.

 

Tell us about and your background vis a vis energy in Wyoming.

 

I’ve lived in Wyoming since 1997, when I moved here from Canada.  For three years I’ve been the Director for the Center of Economics, Energy and Public Policy at the University of Wyoming.  I’ve been involved in environmental economics, resource economics and energy economics for my entire career.

 

Part 1 - Expert Index Questions:  The first section of the Interview Series is a standard set of questions posed to experts in Wyoming and outside. It is part of an ongoing effort which, when there is sufficient input, will result in an energy index.  Interviewees indicate if they strongly agree, agree, are neutral, disagree, or strongly disagree with the statement.

 

Wyoming’s Economy

 

The Wyoming coal industry will rebound.

 

Disagree.

 

I believe that the coal industry in Wyoming will reflect the coal industry in the country. While it will still be significant, and in Wyoming large for some time, the recent challenges that coal has faced are indicative of long term challenges that will not be going away. Specifically, new technologies in natural gas production, and ongoing climate concerns, coupled with the cost of capturing technologies that might mitigate climate concerns all mean that coal will be very challenged in the marketplace going forward.

 

Wind power should be part of Wyoming’s future.

 

Strongly agree. We have a great opportunity in this area.

 

Carbon capture and storage (CCS) technologies should be part of Wyoming’s future.

 

Neutral.

 

I do believe that the state’s involvement in CCS is important to protect its own resources and I’m supportive of the state having a role.  However, I don’t think that Wyoming alone can do nearly enough to mitigate current cost challenges of CCS and I do believe that, given the national benefit, if such breakthroughs were to occur, it is something that the federal government should be heavily involved in and sponsoring as opposed to single states – particularly when a state like Wyoming is revenue challenged by the current energy downturn.  The national government should be leading this effort and Wyoming shouldn’t be making a significant investment relative to the federal government.  The fact is, the $15 million that Wyoming has put towards CCS is a drop in the bucket relative to the overall effort that would be necessary to make CCS a viable technology that could effectively change how we use energy in the future.  I certainly don’t think Wyoming should throw everything and the kitchen sink at CCS because Wyoming is simultaneously suffering from revenue challenges and doing so would take away from other services that the state needs to provide.

 

Wyoming’s economy is overly dependent on energy production.

 

Neutral.

 

I don’t think Wyoming has any other choice.  The energy sector is the largest private sector in the state.  Should it be?  That’s a normative question.  Do I wish it were different? Absolutely, it would make our economy more resilient to energy downturns like the one we are in now.  But I’m neutral about it because I don’t think we can do anything about it.

 

Wyoming should try to diversify beyond energy and tourism in the years to come.

 

Strongly Agree.
 

BUT, the state has already been making efforts in that area for years.  Wyoming has several major challenges with respect to diversifying its economy. It has a small market. It has a small population which is split between two population centers, making the markets even smaller.  We are far away from major markets.  And we kind of live in a tough neighborhood.  If you were to look to locate a company in this part of the country, we have some pretty strong competitors: the Salt Lake basin to the west, the Denver front-range to the south, even the Rapid City region area to the east and Billings to the North.  So I’m realistic.  I do think every effort should be made to diversify the economy away from the traditional sectors.  That would create great benefits.  But the state has been trying to do that for years and the fact that our diversification is not where some people wish it might be really reflects how difficult that kind of economic development is.

 

The Nation’s Energy Landscape

 

Within 5 years in the U.S., CCS technologies will start coming on-line through demonstration projects, bringing the costs of these technologies down, and proving the technology.

 

Disagree.

 

I do think it’s likely that some new projects could come on-line - it will depend on the investment environment, etc.  But I don’t think current efforts are such that in 5 years these costs will come down dramatically because of the expansion of CCS activities, which I think is a reflection of the current market.  CCS is very expensive and with natural gas at current prices and prices expected, it is very difficult to justify that kind of expenditure.  But I would also add that this could change if the federal government made a significant shift towards CCS, which is possible.  For example, I think investment tax credits and others could incentivize additional development and so my answer is conditional given the current lack of any incentives like this.  You can’t deny that there are significant Department of Energy efforts already ongoing, but they are not expanding and are kind of locked up in a few very large projects.  I would love to see CCS and those efforts expand as part of an all-of-the-above energy future, but the current efforts being put into it now would not lead to that outcome.  However, with policy changes it could certainly happen, and I would be in favor that policy change.

 

Within 5 years, California will be using Wyoming generated wind-power.

 

Agree.

 

It’s not that I’m skeptical but the only way we could see this happen directly would be through the Chokecherry Sierra Madre project coming on-line.  And I say agree instead of strongly agree because that’s a multi-billion dollar project and they have barely broken ground on it.  As such, a five-year window is probably when we’d see major output if it stayed on schedule.  Anything that costs that much faces potential uncertainties and anything that large, requiring an 800-mile transmission line, means that a five-year window might be tight. 

 

The national regulations set forth by the Clean Power Plan will be repealed, or abate in some manner. 

 

As it stands right now there is a strong possibility that the Clean Power Plan might be changed due to political and more importantly, judicial decisions, though I am not sure whether these are likely.  Currently, the CPP is likely to be in court until probably sometime in 2018 given it is currently in the lower court level and any decision made there probably won’t be made until 2017.  From there it’s practically certain that any decision made there will be appealed to the Supreme Court.  So currently, the CPP has certain levels of uncertainty and I don’t rule out that some parts of the CPP may be changed.

 

Other coal producing regions of the U.S. will rebound and successfully diversify their economies beyond coal dependence.

 

Strongly disagree (at least for some areas).

 

… Particularly in Appalachia.  The unfortunate thing about coal in Appalachia is that it was having trouble hanging on even without climate change regulation because as the country moves away towards cheaper sources of energy such as natural gas and wind, Appalachia is on the front line.  I think that, by definition, as their coal sectors become smaller, the rest of their economies become more important and they look like they are more diversified because coal is a smaller sector, but in reality, I think states in Appalachia are going to continue to see challenges.

 

I do think that in the Midwest though, places like Illinois, south of the great lakes, those regions could become a larger share of U.S. coal production, primarily because of technological changes that have made mining in those areas much more cost effective, particularly long-wall mining.  This is already eating into the Powder River Basin’s market share in some areas.  The second reason is that recent emissions standards like the mercury and air toxic standards – MATS, have required a lot of power plants to install scrubbers.  That has reduced the need to use low sulphur coal from the Powder River Basin, therefore making coal from that part of the country more competitive.  So overall, I see other places in the US possibly increasing coal output, especially in the Midwest, but in Appalachia I think the decline of coal production will be difficult to replace. 

 

Also – I should note that other smaller coal-producing areas like in Colorado or the southwest are also likely to see significant declines in coal production, and I am not sure that there is a lot of alternative economic activity that will be developed in these areas either.  It is a tough challenge to overcome. 

 

The Global Energy Landscape

 

Within 5 years, CCS technologies will start coming on-line globally through demonstration projects, bringing the costs of these technologies down and proving the technology.  

 

Neutral.


It depends on various efforts in countries to incentivize those activities.  Five years is a short time frame to build a major industrial facility such as a carbon capture power plant.  For that to happen, it would already have to be on the drawing board and moving towards construction now, and I don’t know of many that are.  Given that there are very few, the second part of the question is hard to imagine, that there will be an effect in lowering costs.


I do think existing demonstration projects will incrementally reduce the cost of CCS through learning by doing but I’m not sure there will be large-scale additional construction of new demonstration projects.  I wish that were different but I think that’s where we are.

 

Within 5 years, renewable energy will reach price parity with fossil fuel energy, creating a global renewable energy explosion.

 

Part of the problem of the premise of this question is that with respect to new energy development, it already has.  Unsubsidized wind generation on a levelized cost basis is already cheaper than natural gas by a significant margin - if you reference the Lazard cost estimates done every year and considered the industry standard.  The levelized cost of utility scale wind on the low end is about $32 per megawatt hour.  Gas is about $50.  Even if you add the additional cost to incorporate wind into the grid such as providing back-up power, it only adds about a maximum of $10 (and less by most estimates), still leaving it below the cheapest opportunities for natural gas, so it already has reached parity.

 

I think that between the fact that costs are falling dramatically in the solar sector and given the fact the investment tax credits for solar and production tax credits for wind are scheduled through 2021, I foresee a significant increase in renewable energy generation in the U.S. and around the world.  However, even if it explodes, that doesn’t mean that the share of electricity produced by renewable energy will become the majority of energy produced.  Right now the U.S. produces about 8% from renewables excluding hydro – that’s our total accumulated outcome of developing renewables for 30 years.  Even if that doubled, we’d still only be at 16%.  So, while I do think that there will be a significant amount of renewable energy production that comes online in the future, given the fact that renewables still play a very small part of the total energy mix, it will be a significant period of time – more than 5 years, before new renewables produce more than a minority amount of production.

 

India is the next frontier for CCS technologies.

 

Agree.

 

It’s the 2nd largest national population in the world, projected to be the largest.  So I think it is critical for their own energy security and climate change goals that CCS is adopted.  India is really challenged with respect to energy generation and coal provides them an opportunity to generate that electricity cheaply.  So for the good of the world, I think CCS in India, and to a lesser extent China, and the developing world, could really make a difference.  That’s why in the previous questions I have said I’m strongly in favor of CCS development.  I think it’s a big part of any solution, not just in the U.S.  The real benefits would come from the developing world, not in the US.

 

The world’s largest economies, the USA and China, should be cooperating with each other in developing and scaling clean energy projects.

 

Agree.

 

There are some issues and each country has to respect the others sovereignty and fairness in climate agreements, but the fact is that China is the 2nd largest economy in the world and they have a responsibility as the world’s largest greenhouse gas emitter.  My concern, if any, is in developing and scaling clean energy projects.  I not sure that cooperation is necessary.  I strongly agree that development includes allowing firms to operate in both countries towards the goal of further developing clean energy.  However, historically there has been some concern that intellectual property issues make that difficult sometimes.

 

Part 2 - Short Answer Questions:

 

Wyoming’s Economy


What steps do you think Wyoming should implement to combat layoffs in the coal industry?

 

I honestly don’t think Wyoming can do much to combat the job loss.  They can help with job training and make economic development efforts to keep Wyoming residents in Wyoming but it’s not clear to me that Wyoming can do a lot to offset the job loss.

 

Should Wyoming work to reemploy such workers in the coal industry or work to create employment for former coal industry workers in other fields, including renewable industries? If so, how could this be done?

 

The only opportunity here is to try to approach economic development such that you have a workforce that can work in other industries.  Certainly renewables could be one of them.  If we were looking at major transmission or wind energy production sites then clearly that would create a lot of short term opportunities in terms of construction and some longer term opportunities in terms of operations although these sources operate with far fewer people than the coal sector does.  So how can Wyoming facilitate this?  I would argue that in addition to supporting retraining programs in the community colleges this requires a significant effort to support the renewable energy sector and particularly building transmission.  Without transmission, we are not going to see a very significant expansion of renewables.  Not every renewable project is of the scale where building its own transmission line is a viable outcome.  So I think we should be doing everything we can to encourage transmission development.

 

In your opinion, can state or federal legislative solutions play a role in solving Wyoming’s current economic situation?  If so, what are some of those legislative solutions?

 

We mentioned some of them earlier – the state can increase their involvement in alternative energy development and support, in particular through transmission.  At the federal level, efforts to develop CCS can also play role.  In the short term though, I don’t see either of those off-setting Wyoming’s revenue issues.

 

What is a higher priority for Wyoming, developing energy (coal, wind) on Wyoming’s federal land, or protecting it?

 

I think you can do both, there is more than enough land in Wyoming.  I think those are complementary activities, it is more an issue of planning and siting.

 

Is there a state that has successfully implemented state legislative policies that Wyoming could replicate?

 

Yes, there are several.  With respect to renewable energy, since we are part of the western grid, most of the 11 states are competitive in attracting renewable energy – more so than Wyoming.  Some things really wouldn’t make much of a difference, for example a renewable portfolio standard in Wyoming, really wouldn’t change much with respect to renewable generation because of our small electricity demand. But it could send a signal that we are open to renewables, which could help development.

 

However, I do think we need to do more to encourage energy development and to facilitate it.  Not because I think our future relies on energy, but because we have some opportunities.  In some respects, we were late to the game, had we tried to promote wind energy five years ago or before, it may have been that we would have some major wind generation manufacturing facilities in Wyoming.  It was also a problem that we eliminated our sales tax exemption.  When you build wind generation sales tax is a big deal because it is so capital intensive. And, of course, our only-one-of-its-kind tax on wind generation is not helpful in promoting such development.

 

What are currently Wyoming’s most important clean energy R&D priorities?  Coal conversion?  Carbon capture, utilization, and storage?  Hydrogen production and utilization?  Energy storage?  How should this research be financed?

 

All of the above.  I’m not going to put all of my eggs in one basket.  Clearly CCS, CCUS coal conversion and all of those activities would add value to a resource that could end up being stranded.  I think there are issues with basic research and applied research, it depends on what area you are looking at.  In terms of coal conversion, we are looking at more basic research.  In terms of things like CCUS, it is applied research – we know how to do it, we just need to do it more cheaply.  Hydrogen production is in between.  Energy storage is something I don’t think we can do much about, unless it is some form of compressed air from wind generation.  We certainly do not have the base of research now to develop battery storage for example – that will happen elsewhere. So I think that the first three are worth Wyoming looking at.

 

How should it be financed?  That’s tricky, we don’t have a lot of money in the bank right now and what we do have we need to think about with respect to state services.  I think we need to keep doing what we are already doing – try to look for partners.

 

Grid modernization is a term that we hear again and again but it is unclear what that looks like.  Wyoming could be at the center of grid modernization because of our role as an energy producer.  What sort of grid infrastructure can Wyoming invest in to be at the forefront of grid modernization?

 

Number one is transmission.  With that you can look at control technologies that actually improve the productivity of transmission infrastructure.  If we are talking about things like the smart grid – that will develop organically across the country.  So for grid modernization in Wyoming, it is not so much a technology issue as an infrastructure and expansion issue.  So I would basically argue that the modernization we need is new transmission and siting, and then development.

 

What is the international market for coal, oil, or natural gas produced in the U.S.?  Should Wyoming be in the business of developing these markets?

 

With respect to developing those markets, I think it would be very difficult and we don’t have the resources to do it, particularly given the energy downturn.  I do think there is great potential for natural gas exports.Oil exports have always been tricky given federal laws.  I don’t really see a future market for coal exports in a significant way. I’ve looked them and I know the volume could be highly lucrative theoretically, and in some ways offset the losses we are seeing domestically.  But I don’t see the economic case for coal exports – excepting some dramatic change in the coal market. Prices are just not high enough internationally to justify it. And I certainly don’t think we should throw state money into it given market conditions.  If private money won’t invest in those things, then Wyoming shouldn’t be either.

 

How much of a global market do you think there is for coal-based industrial chemicals and other end-products of coal conversion?

 

I think there is potentially a very large market, but it is entirely dependent on our ability to learn how to do those activities (make products from coal) in a competitive way.  There are two challenges with using coal as a feedstock vs. oil or natural gas.  First, oil and natural gas are very cheap right now and it looks like significant changes have occurred in those markets such that there will continue to be lower prices in these commodities than there have been historically.  Secondly, the technology does not really exist right now to use coal in the same way we use oil and gas to produce higher value products - basically breaking down hydrocarbons.  That’s an area of future research and until that becomes a viable (e.g. cost-effective) process, I don’t think there is much of a global market, because we can’t do it competitively using current technology. Again, this is an area where basic and applied research could really make a difference, but the possible day when such processes make a difference is a long way off.

 

 

 

 

 

 

 

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