By Michael F. Smith
This article originally appeared in Pennsylvania Heritage Magazine
Volume XXXV, Number 2 - Spring 2009
Pennsylvania's "Energy Czar" Daniel J. Desmond (above, left) speaks to interviewer Michael F. Smith about the history -and future-of energy and comments on both traditional and new, renewable sources. For years, the Keystone State's farmers relied on wind power to grind grain and pump water. The Commonwealth is witnessing the re-harnessing of wind power as large wind turbines are beginning to spring up on mountain ridges.
Pennsylvania news writers have crowned him Pennsylvania's Energy Czar and legions of admirers look to him as the Keystone State's energy guru. And it's little wonder why. Daniel J. Desmond served the Commonwealth for nearly two decades and helped guide the growth of Pennsylvania's renewable energy industry. He joined the Pennsylvania Energy Office in 1983 and served as its executive director until its merger with the Pennsylvania Department of Environmental Protection (DEP) in 1995. From April 1995 until his appointment as DEP deputy secretary for energy and technology deployment in 2003, he chaired the Pennsylvania Energy Resources Center, an advocacy and public education initiative to secure funding for renewable energy in the aftermath of utility deregulation. He also served as president of Sustainable Systems Research, a Lancaster-based firm specializing in the development and commercialization of environmentally beneficial technology. In his position as DEP deputy secretary, Desmond was responsible for fostering the deployment and use of innovative environmental and advanced energy technologies, including renewable energy. DEP's Office of Energy and Technology Deployment works with citizens groups, businesses, trade organizations, local governments, and communities to help them understand and adopt pollution prevention and energy efficient practices.
Desmond played a leading role in crafting Pennsylvania's ambitious Alternative Energy Portfolio Standards Act, signed into law by Governor Edward G. Rendell on November 30, 2004, which requires that at least 18 percent of all retail electricity sold in the Commonwealth by 2021 be derived from advanced energy sources. Along with the Commonwealth's strategic investments in the industry, the law has helped drive more than one billion dollars in private investment in Pennsylvania projects that have created three thousand jobs. Pennsylvania was the seventeenth state to enact such legislation.
A rare circa 1870 photograph of Cornwall Iron Furnace, Lebanon County, administered by PHMC, which required acres of charcoal daily to produce iron.
Desmond's work was integral to helping Governor Rendell establish Energy Harvest, a grants program that provides financial assistance for alternative energy projects involving clean, alternative fuels for transportation, solar energy, wind power, low-impact hydropower, geothermal, biologically derived methane gas, fuel cells, and waste coal, among others. Energy Harvest has invested $26 million and leveraged $66 million in private investment since its inception in 2003. He also helped the governor expand the Alternative Fuel Incentive Grant program to support energy security by investing in companies that produce and market homegrown biofuels and consumers that purchase hybrid vehicles.
A popular public speaker, Desmond discusses a wide range of topics, including economic growth and cost-savings associated with local investment in communitybased renewable energy; shortand long-term markets for renewable technologies; and the potential role that renewable energy technologies and practices can play in revitalizing the job market and spurring the economy.
Upon his retirement from Commonwealth service in 2008, DEP Secretary Kathleen A. McGinty described Desmond as "a visionary when it comes to developing a cleaner, greener, more sustainable Pennsylvania. He has a passion for energy issues and his breadth of knowledge on the subject, which is apparent if you've spent any length of time with him, has been incredibly invaluable." McGinty characterized him as "an extraordinary public servant, an exceptional leader in making clean technology a reality instead of a pipedream."
Shortly before leaving office, Desmond appeared before the Appropriations Committee's Subcommittee on Fiscal Policy of the Pennsylvania House of Representatives to address the economic importance of investing in clean technology and renewable energy industries. "The emerging and rapidly growing renewable energy industry offers the potential for thousands of jobs in the Commonwealth alone," he said. "These technologies require advanced research and development work, skilled manufacturers and maintenance personnel, and a dependable infrastructure to deliver services. A great number of positions associated with these skill sets and job functions are possible in Pennsylvania if we are willing to continue investing in this promising industry." He cited a number of success stories involving public-private partnerships but cautioned that "we must take steps now to ensure we can meet our future energy needs using clean, renewable technologies, as well as readily abundant, indigenous sources."
Dan Desmond lives in central Pennsylvania and is a founding partner and president of Peregrine Technology Partners LLC, a firm specializing in the commercialization of resource efficient technologies. This interview was conducted on November 24, 2008, at his offices in Camp Hill, Cumberland County.
We're looking back at the history of energy in Pennsylvania. Could you elaborate on the evolution of energy in the Commonwealth? What have been our most relied upon resources in past years and what are we most dependent upon now?
Shoaff's Mill, in Little Buffalo State Park, Perry County, is a popular visitor destination. The historic granary's water wheel is one of the largest metal wheels east of the Mississippi River.
There are aspects of reality and perception in that answer. We have been-since virtually the beginning of the American Industrial Revolution- an important coal state. In addition to that, many people are unaware that we are an important producer of natural gas. In the modern era, we had the country's first commercial nuclear reactor prototype at Shippingport [see "'Atoms for Peace' in Pennsylvania" by Willis L. Shirk Jr. in this edition]. And, while we were not the first to have a wind turbine, we have become a national leader on the eastern seaboard in developing utility-scale wind power. More recently, we have seen the establishment of new solar-electric, or photovoltaic, manufacturing and marketing companies in Pennsylvania.
Regarding the importance of traditional energy resources to our economy, many people would like to believe that because coal has been and remains an important energy fuel, particularly for the generation of electric power, that somehow it's integral to the state's economy. But past isn't always prologue, and there is a distinction between what is important and economically significant.
For example, our state has a gross product of nearly a half-trillion dollars, but mining contributes directly only about 1 percent of that figure. The one wild card few understand is what will happen to our coal reserves if exports continue to increase as they have this past year. That's because countries like China are now for the first time net importers of coal, and their appetite for U.S. and other global coal resources is vast. That could send the price of coal soaring in the future and may well cut by half or more the future years of reserves we have for our own needs.
So, you couldn't say historic and traditional energy resources are integral to our present and future economic wellbeing, but you could say that they will remain an important asset for Pennsylvania and the United States. When these traditional resources are deployed in an environmentally responsible way, it keeps energy dollars at home where they can re-circulate and become a force multiplier rather than simply continuing the export of dollars abroad. This helps us to understand the context of energy in Pennsylvania a lot better.
And even though coal is not likely to disappear from the scene, the recent discovery of vast new natural gas deposits-like the Marcellus Shale reserves-means that we'll have cleaner alternatives available to us and perhaps in greater abundance than previously thought possible. That's not to say we can rest easy and pull back on planning for a renewable energy future, but to point out that we have a cleaner fossil energy bridge to take us there.
I can't emphasize enough the importance of keeping energy dollars inside our domestic economy. It isn't just about energy security; the extent to which you export dollars out of your economy becomes an index for lost capital investment and the jobs it would create at home. It is a reality that has been cynically neglected by policy makers at the national level who have just been in a race to the bottom, chasing the cheapest foreign energy resource. The new administration in Washington is going to have to focus on this as never before. It is absolutely fundamental to creating more jobs and rebuilding our economy.
In Pennsylvania, there is a geographic difference in the energy resources we have. There are some similarities over large swaths of land: anthracite in the east versus bituminous coal in the west, and oil in the northwest. Can you talk about the impact of these resources?
In Pennsylvania's densely forested regions, woodcutters (below) labored long hours to meet the demand for kindling wood.
I don't think the geographical locale of an energy resource has impacted the whole state, but it certainly impacted the culture, the politics, and the worldview of those in regions that are resource-rich. But, of course, any time you have a monoculture-where you only have steel or you only have coal- and then something happens to the detriment of that business, it can devastate the local community in a way that wouldn't have happened if the economy had become more diversified. I think that even though you want to encourage economic success wherever it is, you don't want to encourage monoculture or gigantism.
Look at the current fate of giant global banks and other businesses that have become "too-big-to-fail." Literally overnight we're seeing what was thought to be an economic powerhouse become a long term societal liability. Gigantism-and the virtual monopoly that comes along with it-always generates the seeds of its own destruction. Nothing in the known universe grows without limits. In the rest of nature, growth is simply a transport mechanism to move from inception to the attainment of optimal form and size. In a healthy, sustainable economy, you want to encourage as much economic diversity as possible, and among enterprises that can thrive or fail without massive taxpayer bailouts or threatening the survival of the rest of the business community if their business model is not successful. You don't just want to only build automobiles or only mine coal or only grow corn, because then you end up viewing the world through such a narrow part of the economic spectrum that nearly all of our political and public policy considerations become subordinate to that limitation. Democracy and our free market economy work best when people have plenty of choices and where business diversity abounds.
Some of the resources we've discussed- coal, natural gas, oil, and timber-are industries in and of themselves. How have these industries shaped other industries or other activities in our economy?
The UGI Company operated a large state-of-the-art plant in the Point Breeze section of Philadelphia for the production of coal gas, often called town gas, used in heating and lighting.
So much of our economic success, ironically, has been grounded in the premise that we've acted as if resources were inexhaustible and were always going to be cheap, and that we could always discover new energy resources, and that there would never be any consequences to using them. Those are the signals that the marketplace sends to other businesses: that if energy is perceived to be cheap and super-abundant, then it can cause rates of growth and expansion that are unsustainable, particularly in developing countries.
The high energy prices of the last several years have been a contributing factor to the current economic downturn. Some of that has been driven by ravenous growth in the developing world. In other words, up until the turn of the current century, it could be said that the United States' use of energy was really the global driver that helped determine price and supply. But with the emergence of China and India and other developing nations taking a stronger role in the global economy and what were called the BRIC nations -Brazil, Russia, India, and China- those nations collectively are now the larger consumer of energy resources over the United States. And it is their growth and the dynamic expansion of their economies that have been the principal reason that energy prices have soared so dramatically in recent years.
Because we continue to use nearly a quarter of the world's energy resources in the U.S., if we invest just a modest amount in conservation and efficiency, if we embed conservation and efficiency as a permanent aspect of national character and put the price-driven energy policies of the past behind us, then everything can change for the better.
The irony is that in the current global economic downturn, falling energy prices send the entirely wrong signal. There is the belief that when the economy recovers that we'll simply go back to energy business as usual. In reality, we will find that the continuing underinvestment in energy infrastructure, including refineries, pipelines, power plants, and distribution systems, will make it very difficult to return to where we were before the economy fell-at least not without planning and investing now in these assets.
You cited conservation and efficiency as some of the surest measures to control energy prices. We've all heard of the things we can do at home, but what about businesses? Is conservation and efficiency easier for service-oriented businesses as opposed to large industrial operations such as steelmaking?
Long lines at gasoline stations in the 1970s caused by fuel shortages warned against over-dependence on fossil fuels.
The more energy intensive businesses have already invested greatly in both energy conservation technology and the personnel to monitor and maintain energy efficiency at the facility level. The greater opportunity remains in the small- to medium-sized businesses that have never really focused on energy or environmental design in their companies. For example, in many commercial buildings, lighting alone is half of the energy bill and advanced lighting technology can cut those costs in half.
The problem is that many industries have a very high hurdle rate. Their internal rate of return for manufacturing their "widget" may be so high that even when there's a quick payback for an investment or lighting or energy controls, there is an institutionalized reluctance to make it, even though it would pay back from then on simply because they're making even more money, return on investment, making their widget.
If the new administration in Washington would send a signal through the federal tax code that there's an incentive to have a permanent conservation and efficiency policy associated with your business and to make those investments, then it would make quite a bit of difference.
Tax policy and, for that matter, bringing the accounting and tax professionals into the discussion could shed a lot of light on the problem. For example, most businesses-including government and non-profit enterprises -have a policy barrier between operating expenditures and capital investments. It seems we always find the money to pay the energy bill, but can never find the funds to invest in short payback energy capital investments. Rethinking both internal accounting practices, as well as what federal and state incentives might change those habits, would make a lot more money available to invest in conservation and efficiency. That money is in the future stream of cash flows that will be used to pay energy bills. If we had better incentives to borrow forward-literally from ourselves-to make long-term investments in conservation and efficiency, then we could redirect the savings back into the core business rather than ever-escalating energy bills.
Is this another example of a sustainable policy?
Absolutely. And things like green building. One of the things that comes along with this investment, though, is again people are wont to believe that conservation and efficiency is simply saving money on your energy bill. But if you look at it holistically, what you can do if you green up a building, if you improve the lighting and you improve the air quality, you reduce absenteeism and healthcare claims. We've seen this most dramatically in green school design, where even the test scores improve when the learning environment is healthier. Investments in conservation and efficiency can have a force multiplier well beyond the apparent return on investing in energy [see "Pennsylvania History Goes Green" by Barry A. Loveland in this edition].
Given the situation we find ourselves in now-a period of high prices and high demand followed by declining prices-should we not be students of history? We've been down this track before.
Anthracite stripping operations near Shenandoah, Schuylkill County, denuded expansive tracts of land and overburdened the area with enormous culm (or waste coal) banks.
We have indeed. The 1970s were much like the time we find ourselves in now and very, very different in an important way. Much alike in that we had been conditioned to believe that energy resources would always be superabundant and cheap. Under President Jimmy Carter there was the beginning of a national strategy or policy to move to alternative fuels, and the suppliers of those alternative fuels, not wanting to lose market share, began to super-produce against market demand and drove the price down. That made for decades of discouragement afterwards to invest in alternatives, because people reasoned both cynically and correctly that as long as the OPEC countries had a spigot, they could always make it unprofitable for private investment in renewables or alternatives by super-producing against global market demand.
Unfortunately, that belief persisted up through the beginning of this decade when, in fact, it was no longer true. The OPEC nations' only remaining power is to voluntarily curtail production, but it has been demon- strated over and over again they no longer have the power to super-produce against demand. So, they don't have a spigot that can be opened much wider. All they have left is an "off switch" and even recent efforts to curtail their production haven't had much of an impact on global energy prices.
Not all stakeholders in our energy economy understand this well. To a commodity trader on Wall Street, demand destruction looks exactly like increased supply. If you look at the actual oil production for the planet, it is still near a record high of nearly eightyseven million barrels a day [see "Barbara T. Zolli on A Drop of Oil" by Kenneth C. Wolensky in this edition]. Even though there's been a global economic downturn, all these new oil wells and rigs that were invested in the last seven or eight years are just now coming online and they're producing every day. It's not that global oil production is slacking off proportional to the economy; it is that demand destruction is making it look like there is an abundance of supply simply because there is a significant destruction in demand.
When the economy recovers, people will be surprised to see that we go right back to the oil price spikes we've experienced in the last couple of years, because there won't be much in the way of net new supply that is affordable. And while we were distracted with other cares, we won't have noticed that the old, so-called super-giant fields-about 1 percent of the fields from which we get about 50 percent of the world's oil- have continued to decline and all that's left is very deep, very sour, very hard to get at, and very expensive to bring to market. It is a trap for the unwary and we'll go right back to where we were if we don't have the discipline and the vision to change direction while there is still time.
During the campaign, [President] Barrack Obama talked about the new jobs that could be associated with renewable energy, like wind and solar. Now would be the time to refocus both government investment and government policy, but in a sustained manner and not just as an outcome of whoever is in the White House at any given time. We need not only a much larger budget for energy investments; we need a total focus on domestic energy policy and objectives. This is going to be extra difficult when such a large portion of our federal energy budget-better than 40 percent in recent years-has been dedicated to the production and maintenance of nuclear weapons.
The administration needs an energy department that is dedicated not just to energy policy, but coupled to a coherent industrial and resource policy for the United States. On a smaller scale, that's exactly what we've done here in Pennsylvania. Over a five and a half year period, we brought into the state economy about a billion dollars in new market capitalization and thousands of new green energy jobs for our state.
We need to do that for the nation, but it can't be a "sometimes" thing. We need what the late historian Barbara Tuchman meant when she wrote about quality work. She said that invariably, quality was characterized by one, honesty of purpose, and two, sustained effort.
While our security is based on reliable infrastructure and distribution, energy also plays an enormous role.
Wind turbine farms, including the Casselman Wind Power Project in Somerset County, are becoming an important source of electricity for Pennsylvanians.
Absolutely, but it isn't just about new or alternative energy technology-it's about how we deploy and use energy. The old, fossil fuel economy was based on a highly centralized production and distribution system. In the future, we've got to move to a distributed energy plan and not simply try to replicate the giant, centralized systems of the past.
We've started doing that, for example, with biofuel plants. Biofuel plants-and there are many-can move products to market through relatively short chains of supply, whereas conventional fuels, such as gasoline and diesel, come from a handful of central refineries and are thoroughly dependent on an aging, underground World War II-era pipeline distribution system.
In the future, we also need what we call community wind investment, not just the big turbines that are connected to the grid. We need smaller scale residential and business site generators that are connected to the local distribution lines. We need rooftop solar that is connected in similar fashion, because that's the way the natural world works. The natural world does not work by having all of the energy in one part of the planet and then the plants and trees and animals functioning at some far distant locale. Energy is distributed in the natural world, and that's why the natural world goes on for millions of years without running out of it. In a modern industrial society, we tend to over-concentrate it in very few places and under the ownership of relatively few companies. The energy economy of the future needs to be vastly greater number of players participating in a distributed grid and supply network.
If we had policies that encouraged the growth of distributed power systems then, when it came time to say, well, do we need a new transmission line, which nobody wants? We don't need to invest so much money in transmission infrastructure that sends the pollution from power plants in your state to the benefit of people in other states. If we have better investment in distributed energy, we could minimize or even eliminate the need to build new power lines.
We could make it possible to stabilize electric prices, because as long as my solar panels are paid for and they're making electricity for free on the roof of my house, I can set the value of those electrons. I don't have to be on the receiving end of somebody else's notion of what the electrons are. Supposing there are tens of thousands of rooftops participating in free solar electricity coming into the grid, it will make it very, very hard for the utilities to claim that they have to raise prices. The way to avoid investment in transmission, new investment in power plants, and ever-rising prices of energy is to get lots and lots of it distributed, because that is real competition. If you have tens of thousands of rooftops who are competing into the grid, you've got tens of thousand of players and not just a handful of utilities who make all the rules and own all the assets.
[However,] sometimes the sun's shining in Philadelphia, and it's not shining here. Collectively and cumulatively, tens of thousands of small scale distributed energy, renewable energies, which could include wind, solar, and- on the farm-biomass and methane digesters could have our energy bills as close to zero as is imaginable because it's what happens on an annual basis and it's what happens collectively into the grid. If you have lots of people pumping the grid, even if some parts are cloudy and in some parts the wind isn't blowing, taken together, you could do very well.
I've recently seen presentations by European developers who say that if you put a high voltage DC transmission line coast to coast in the United States and if you put up enough wind turbines, you'd power most of the country with wind simply because in one part of the country, it would be blowing and with the right kind of technology, you could transmit it throughout the whole nation.
It's similar to the difference between the Internet and the old centralized computer mainframes. When all we had was a centralized knowledge-base, only a few people could benefit from owning or using computers. By the time we got personal computers and the Internet, instead of having just a few systems that were distributing information outwards like a central power plant, we got hundreds of millions of small-scale distributed computers that sent power from the outside into the grid known as the Internet. Look what that did for the global economy! Look what that did for businesses large and small, to say nothing of individual empowerment. Instead of having a central topology feeding out from a giant source, they have the distributive topology feeding in from many sources.
That's an analogy a lot of people will understand well.
For nearly two decades, students at the University of Pennsylvania have experimented with, built, and improved solar-powered cars as part of the Penn Electric Racing Team.
They would indeed. But remember back when the personal computers were first introduced, skeptics and opponents were in the majority. We face similar challenges in changing our energy economy. More than anything else, we need a fresh approach in Washington and throughout the nation. We have to get beyond the tired, ideological view that somehow to protect the environment is to the disadvantage of the economy. Frankly, we need an entire new generation of political leadership on both sides of the aisle who understand that ideology is not a substitute for ideas. If that happens, our economy will soar and will be grounded in the understanding that there are many more and enduring jobs to be had cleaning up the planet than there ever were in despoiling it.
Michael F. Smith is deputy director of the Governor's Office of Press and Communications. Before his appointment to that position, he served as communications director for the Pennsylvania Department of Environmental Protection, the state agency responsible for developing and promoting advanced energy technologies in the Commonwealth. A native of Indiana County, he earned his bachelor's degree in marketing and a master's degree in public affairs from Indiana University of Pennsylvania. The author and his wife Staci reside in the Harrisburg area.
Words for Readers
- a solid, liquid, or gas fuel derived from organic and biological material, such as crops, trees, and animal wastes; biofuels include ethanol, biodiesel, and methane.
- an acronym referring to the burgeoning economies of Brazil, Russia, India, and China, first coined and prominently used by Goldman Sachs, a global bank holding company, in 2001.
- fossil fuel
- an irreplaceable fuel derived from hydrocarbon deposits such as coal, oil, natural gas and, to some extent, peat.
- global economy
- international economic activity which includes the world-wide integration of markets for goods, services, labor, and capital.
- green building
- the practice of increasing the efficiency with which buildings use resources-energy, water, and materials-while reducing the impact on human health and the environment by better siting, design, construction, operation, and maintenance.
- Marcellus Shale
- a sedimentary rock found in eastern North America containing largely untapped natural gas reserves; its proximity to markets along the East Coast make it an attractive target for energy development.
- Organization of Petroleum Exporting Countries, a consortium founded in 1960 to manage exportation of crude oil to the rest of the world; because these countries possess the ability to adjust production levels, they exert a great deal of influence on the price of oil.