The last of the lectures at the Cambridge Energy Research Associates’ annual conference at the Westin Galleria in Houston ended two weeks ago. But travel and other obligations have diverted my attention. And now that I have a few minutes, herewith, a few notes from the three days I spent at CERAWeek.

Perhaps the most compelling lecture was delivered on February 11, by Juan Enriquez, an authority on genetic engineering. The founder of Synthetic Genomics and the author of As The Future Catches You, Enriquez gave his view on what he sees as the looming revolution in synthetic life forms that will have a big impact on the energy sector. “Life sciences is going to be one of the biggest drivers in your business in the coming years,” he said. Enriquez believes that the energy sector is overdue for a dramatic change in how it thinks about, prospects for, and delivers energy. He cited the Green Revolution, which was ignited by Texas A&M agromonist and Nobel Laureate Norman Borlaug, as the template for what should happen in the energy business. “Oil is biologic and it’s organic. And therefore the rules of biology, not just the rules of chemical engineering, apply to oil and energy.”

One of Enriquez’s slides showed a group of microscopic worms that were snacking on a small piece of coal. And just like a baby that eats beans, the worms, said Enriquez, are releasing a lot of methane. By genetically engineering those small animals, Enriquez said, “We can increase the amount of gas that comes out of coal by 10 or 20 or 30 fold. And we are scaling that.” He went on saying that through genetic manipulation, “We can program cells for various functions and we are going to program them to take methane out of coal. And we are going to program them to make chemicals. And we are going to program them to make octane.And we are going to take the energy out of the sun, stick it into life forms, and consume carbon dioxide and make octane.”

He continued, “In the same way the computer is programmable, life is becoming programmable. And that is going to fundamentally change your business. Among other things, two-thirds of the energy we bring out of the ground today is left behind to rot.

And as we begin to treat hydrocarbons as organic life, the rules are going to change. Because it’s not just going to be the chemical engineers and the mechanical engineers. It’s going to be the biologists coming at your business…. This is the single biggest change to the global economy going forward. And your business is going to get hit a lot faster than the pharmaceutical industry.”

After his speech, Enriquez delivered my favorite quote of the conference. Asked about biofuels and corn ethanol, Enriquez replied: “Growing corn to make fuel is galactically stupid.”

• This year, CERAWeek included several panels on the coal industry. And although the coal industry is being attacked by numerous interest groups, the general agreement among the participants was that coal will be around for a while longer. Leading most of the coal discussions was Gerald McCloskey, the chairman of the McCloskey Group, a British company that publishes McCloskey’s Coal Report. In late 2007, the McCloskey Group was purchased by IHS, the Colorado-based company that owns CERA. During a brief chat between sessions, Gerald McCloskey told me that regardless of what happens with carbon taxes or cap-and-trade schemes, coal will continue to be a primary source of energy for years to come “because it’s cheap. And that means jobs. And right now jobs mean more than ever.” He went on to add that one of coal’s key advantages is that “it’s not part of a cartel” and that coal deposits are widely distributed around the world.

Other interesting segments from the coal presentations came from various coal-focused utilities, including Duke Energy and AEP. For instance, Nicholas Akins, the executive vice president for power generation at AEP, explained that his company consumes some 76 million tons of coal per year as part of its business supplying electricity to 5.2 million customers spread across 11 states. Akins said that AEP has high hopes for carbon capture and sequestration in coal-fired power plants because he says the U.S. “will need baseload generation and that will have to be either coal or nuclear.” Akins went on to say that “Solar and wind have lower installed per kilowatt costs, but higher overall costs because of their intermittency.”

AEP’s goal, he said, is “to make coal with IGCC (integrated gasification combined cycle coal plants) comparable to nuclear in terms of costs.” Regarding carbon sequestration, Akins said the company is now working on a 20-megawatt demonstration plant in West Virginia which it hopes will prove the viability of capturing carbon dioxide. The project will use technology developed by Alstom.

• Thursday morning at CERAWeek offered a session on batteries and energy storage. The best presentation came from Donald Sadoway, a professor of materials chemistry at Massachusetts Institute of Technology, who began his brief lecture by pointing out that there is no “Moore’s Law” for batteries, and that any advances in batteries were largely constrained by basic physics and chemistry. And while much of the rest of the battery world is flocking to embrace lithium as the basis for the next generation of batteries, Sadoway said “I don’t think it makes a lot of sense to go from reliance on imported petroleum to reliance on imported lithium.” Instead, he wants to find cheap, domestically abundant materials that can be used to make high capacity batteries. But the effort to improve batteries, he said, will require a concerted effort to “accelerate the rate of discovery…We need sustained effort, the brightest minds.”

• If CERAWeek had an award for equivocation on energy policy, then surely Fred Krupp, the head of the Environmental Defense Fund, would be the obvious winner. Krupp, who has long advocated a cap-and-trade approach to carbon dioxide emissions, gave a speech on Thursday during which he said it was essential to reduce carbon emissions. He said that he was “optimistic that China” would make huge concession on carbon emissions later this year when policymakers meet in Copenhagen to discuss a successor treaty to the Kyoto Protocol. He also said that the world needs “mass electrification with low-carbon output.” While that may be the case, the equivocation began when Krupp started fielding questions from Yergin about nuclear power. Krupp said that we must be “open-minded” about nuclear but then quickly added, “I’m not ready to call for a new wave of construction because there are some very legitimate concerns not only about costs but also about nuclear waste.”

• A panel on electric cars on Thursday afternoon gave some good indicators on Nissan’s future plans. Mark Perry, the automaker’s director of product planning and strategy, said his company sees “electrification of the transportation sector as our highest priority.” The company plans to have its first electric vehicle – which will use lithium-ion batteries – on the market next year. What about hybrid-electric vehicles? “We believe the end game is pure electric. We are putting all our efforts to go all-electric,” Perry said. He went on to say that Nissan, which is now producing about 1 million cars per year, will be building about 100,000 electric cars per year by 2020. And he said that Nissan believes it can produce a compact car big enough to carry five passengers with a 100-mile “real world range” that will carry a sticker price comparable to that of a standard internal combustion auto.

• Friday’s sessions offered some startling numbers. During a discussion of carbon dioxide emissions and how a cap-and-trade regime might affect prices, Lawrence Makovich, a CERA senior advisor on power generation, made it clear that “carbon pricing will not be free.” He went on, saying “If we want to make good progress on carbon dioxide, we need to get a good fix on what it will cost.” And that’s where things get difficult. According to CERA’s calculations, a $30-per-ton tax on carbon would result in an 11 percent increase in electricity costs, but only a 3 percent decrease in overall US carbon dioxide emissions. To be effective at drastically cutting US carbon dioxide emissions, Makovich said the effective carbon tax rate would have to be much higher, perhaps as much as $90 or $100 per ton. But doing so would mean a huge increase in electricity rates. And those increases would come on top of ongoing hikes in electricity costs. The latest data from the EIA shows that electricity prices in November 2008 were up 8.8 percent over year-earlier levels.

In 2008, electricity costs averaged about $0.0973 per kilowatt-hour, that’s nearly $0.03 higher than they were in 2000. Thus, since 2000, electricity prices in the US has increased by nearly 43 percent. And now Congress and the White House want to pass legislation that will make those increases even more dramatic.

Makovich said, any imposition of carbon taxes or carbon caps will not “be cheap and easy.” Alas, it appears that Makovich’s message has not been heard in Washington. During his State of the Union address, President Barack Obama said he wants to impose a carbon cap. But he made no mention of just how much such a program would cost individual consumers.

• The coal theme came back on Friday. And one of the last presentations of CERAWeek was done by Howard Herzog, a principal research engineer at the MIT Laboratory for Energy and the Environment. Coal, said Herzog, “is a survivor.” And he proved that point with a slide which showed the growth of coal versus the growth in wind power production. Between 1994 and 2008, U.S. wind power output increased by 832 percent, while electricity production from coal increased by just 20 percent. But the difference was in the total number of megawatt-hours of power delivered. Coal power generation increased by 329,878,000 MWh while wind output increased by 28,696,000 MWh. In other words, the absolute change in total electricity produced by coal was about 11.5 times greater than the increase in output from wind.

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