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The $100,000 Pickup Truck

February 6, 2015
tags: , , ,

What marvel of technological improvements and comfort will command such a high price tag in 2025 for the common pickup truck?

Actually nothing new, just the same truck that’s being sold today for around $35,000.

Why the higher price in 2025?

Think about Corporate Average Fuel Economy (CAFE) mandates, or the miles per gallon that each auto manufacturer must achieve.

Fuel Standards

Manufacturers have two options under the law:

  1. Pay a fine for the amount they miss achieving the CAFE standards
  2. Reduce the number of high mileage vehicles sold

They will, of course, also try to build smaller vehicles, reduce the weight of vehicles, use smaller engines with less horsepower, or build electric or fuel cell vehicles.

Electric and fuel cell vehicles are zero emission vehicles (ZEV) that supposedly reduce CO2 emissions.

These actions either increase cost or lower the value proposition, i.e., less car for more money, all because of CAFE standards.

Consumers vote by buying the cars they want, and many consumers prefer larger, high horsepower vehicles, or pickup trucks and SUVs that get fewer miles per gallon.

This preference has been demonstrated whenever the price of gasoline has varied. With high priced gasoline consumers tend to buy smaller cars, but seem to always buy larger, so-called gas guzzlers, when the price of gasoline is low.

So what could happen in 2025?

Not wanting to pay the fine, and having no control over what consumers want to buy, manufacturers can be certain to avoid paying the fine by reducing the number of pickup trucks they build.

According to economics 101, the lower supply of pickup tricks will result in a higher price for pickup trucks. The increased margin from this very high price will partially satisfy the manufacturers’ need for profits, though the price of smaller cars will also have to increase for manufacturers to remain profitable.

It will also increase the resale value of pickup trucks sold in prior years.

But why are we pursuing such an absurd increase in CAFE standards?

When CAFE standards were first established, shortly after the Arab oil embargo, their intent was to reduce oil imports.

Today, the United States has enough oil to begin exporting it, and there is no need for any law requiring Americans to cut their usage of oil.

Market forces alone will achieve the proper balance between small and large vehicles.

The only possible reason for reducing oil usage is to cut CO2 emissions.

CAFE standards once again demonstrate how extreme environmentalists are imposing their view on all Americans, when it’s very doubtful that CO2 emissions are the primary cause of global warming.

Why not eliminate CAFE standards, allow those who want to buy small cars to do so, while allowing other Americans to buy whatever type of car that best suits their needs?

Let’s avoid the $100,000 pickup truck.

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Small Modular Reactors

February 3, 2015

Small Modular Reactors (SMRs) have been seen as possibly rescuing the U.S. nuclear power industry.

B&W, NuScale and others have sought grants from the Department of Energy for developing SMRs. SMRs were a hot concept three years ago as possible alternatives for large nuclear power plants, but interest in SMRs in the United States has cooled.

It’s very likely that all existing nuclear reactors in the United States will be shut down by the end of this century, and many people thought SMRs could take their place. See U.S. Nuclear Demise Amid Increases Elsewhere.

Most U.S. reactors are rated around 1,000 MW, while SMRs would range in size from 25 MW to 300 MW.

SMRs have the advantage of being installed underground and located near where power is needed. They would also be built in factories in modular units to reduce construction time and help lower cost.

NuScale SMR

NuScale SMR

It now appears as though their cost, at $6,000 per KW, will be no better than the cost of building new large reactors, such as the four being built in Georgia and South Carolina.

A major advantage of SMRs may be their ability to obtain funding because their smaller size results in lower total cost for building each reactor.

Giorgio Locatelli, University of Lincoln, United Kingdom, has studied SMRs and concluded they are best suited for use in developing countries.

Smaller size suits the initially smaller demand for electricity in dispersed areas in developing countries, coupled with the ability to secure international funding with less money needed to build each SMR.

SMRs are being built in several countries.

Argentina is building a 25 MW SMR, about 60 miles north of Buenos Aires, at a cost of over $400 million, which equates to around $17,000 per KW, a huge sum, but justified because of its being the first unit, experimental in nature.

China is building two experimental SMRs. Russia is continuing to pursue SMRs, and was an early adopter. Russia has an SMR on a barge that can be moved to where power is needed, and also an SMR powering an ice breaker.

South Korea is probably the farthest ahead in developing SMRs for commercial use, and are nearly ready to export their design to other countries.

SMRs, of course, were first developed for use in submarines, so SMRs are actually not a new concept.

While nuclear power will likely grow in China, India and elsewhere, it’s very likely that growth of nuclear power in the United States will be nonexistent, with decline already setting in.

Environmental organizations have generated an irrational fear of radiation and have been against nuclear power of any kind, even though it emits zero CO2.

It makes little sense to be against nuclear power if global warming is an existential threat to mankind, but this contradiction persists. See Destruction of America’s Nuclear Industry.

This contradiction now manifests itself in Europe where cutting CO2 emissions has been institutionalized, and where Germany is eliminating nuclear power and France is beginning to cut its growth.

This contradiction has important implications.

Billions of people lack adequate access to electricity, such as these:

  • India: Average consumption 600 kilowatt-hours per year (kWh/year)
  • Indonesia: Average consumption 629 kWh/year
  • Central African Republic: Average consumption 29 kWh/year
  • Chad: Average consumption 8 kWh/year.

Energy access is defined by the International Energy Agency (IEA) as 250 kWh/year and 500 kWh/year, for rural and urban areas respectively.

For comparison, the average American consumes over 14,000 kWh/year.

If nuclear power, using MSRs, is not acceptable to environmental organizations, such as Greenpeace, the alternative for supplying the world’s poor with electricity is coal, but these same groups also oppose coal.

Preventing billions of people from having access to electricity must be a crime against humanity.

In the United States, SMRs are not likely to be coming to a city near you, but could be an important factor for producing electricity in developing countries if it weren’t for those who oppose nuclear power.

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The Big Untruth

January 30, 2015

(Untruth is more politically correct than lie.)

Nothing succeeds more, or is harder to fight, than the Big Untruth.

The Big Untruth is so large that people say it must be true. The Big Untruth is so large it’s difficult to undo, piece by piece, with facts.

The Big Untruth has been used successfully throughout history, including by Fascist and Communist governments over the past 100 years.

Small untruths, such as “fracking contaminates aquifers” can easily be shown to be untrue.

Perhaps the biggest untruth with respect to energy is that fossil fuels receive huge subsidies, while clean energy, such as wind and solar, receive few subsidies.

Even if true, which it isn’t, fossil fuel subsidies, to the extent they exist, are for increasing the availability of energy, which benefits Americans, while clean energy subsidies harm Americans with higher taxes and higher costs for electricity and gasoline.

While this infers there are good and bad subsidies, there probably are few, if any, good subsidies since they distort free markets.

One of the components of this Big Untruth is that the United Sates spends $10 to $500 billion annually to defend oil interests overseas. Or as the web site Oil Change International says, “Political destabilization and lives lost due to military force in the [Mideast] region – casualties of the insatiable U.S. thirst for oil.”

This is obviously a political statement rather than an objective one, so let’s ignore it for the time being, though it does lend emotional support, not credence, to the Big Untruth.

Besides, we are producing more of the oil we use, and in combination with Canada, can probably produce all the oil we need.

But what are fossil fuel subsidies?

The IEA says, “[Our] latest estimates indicate that fossil-fuel consumption subsidies worldwide amounted to $409 billion in 2010.”

Fossil fuel consumption subsides are discounts given by oil producing countries, in the form of discounted gasoline prices, to their citizens.

These are not subsidies helping oil companies.

IEA Chart. Red: Subsidy over 50%, Orange: 20% to 50%, Pink: Below 20%

IEA Chart. Red: Subsidy over 50%, Orange: 20% to 50%, Pink: Below 20%

So far, we have seen military costs in the Mideast called subsidies, and we have seen where the IEA has called discounts on gasoline as subsidies, but so far, we have seen nothing about subsidies given to fossil fuel companies, or for that matter, to wind and solar companies.

So, what about subsidies for fossil fuel companies? Or for renewables?

A report providing data on subsidies was produced by the Congressional Budget Office on March 13, 2013.

Testimony given to the House of Representatives included the following figure that provides a clearer picture of where tax preferences, i.e., subsidies, are applied: Fossil fuels 20%, renewable energy 45%.

DOE Chart Distribution of Subsidies

DOE Chart Distribution of Subsidies

This isn’t the entire picture however, because it doesn’t include loans and grants, such as the one given to Solyndra. The report says, “[Direct support and loan guarantees] amounted to $3.4 billion in both 2012 and 2013. About half of that support is directed toward energy efficiency and renewable energy in 2013.”

The report also provides data on fossil fuel and renewable energy subsidies from 1977 to 2013.

  • Between 1977 through 1987, following the 1973 oil embargo, tax preferences averaged around $9 billion per year, with fossil fuels receiving most of them.
  • From 1988 though 2005, average tax preferences were reduced to around $4 billion annually, with one-third going to renewables.
  • Tax preferences increased substantially beginning in 2006, continuing through 2013, averaging around $17 billion annually, of which only $3 billion was for fossil fuels, or 20% (see above chart).

The full report is available at http://www.cbo.gov/sites/default/files/03-12-EnergyTechnologies.pdf

The report provides a breakdown, which shows that some benefits to both fossil fuel and wind and solar industries are from accepted accounting principles, for example, accelerated depreciation.

Some extremists seek to include other items as subsidies, or they want the accounting practices changed to favor renewables.

Generally accepted accounting principles (GAAP) are in place to provide accurate and consistent information to investors and others, and to prevent the unscrupulous from distorting the facts.

A good example is the depletion allowance. The depletion allowance provides funds for exploration and development of new resources to replace those being removed by drilling or mining. This is analogous to depreciation that provides funds to replace equipment that wears out.

Table 1 attempts to place some of these arguments in perspective, but the testimony by the Congressional Budget Office provides a more complete analysis.

Table 1

Tax Preference

Fossil Fuel Company

Wind Energy Company

Depreciation of equipment, buildings and structures

Yes

Yes

Depletion

Yes & No1

No

Production tax credit

No

Yes

Expensing drilling costs

Yes

No

Foreign Tax credit

Yes

No2

1. Not available to large, integrated companies.

2. Only if domestic company operated internationally.

 

The testimony to Congress accounts for actual subsidies, not for what some extremists call subsidies, such as the cost of military operations in the Mideast and the IEAs consumption subsidies.

The Big Untruth says fossil fuels receive huge subsidies, while poor little ol wind and solar get few.

But the chart from the Congressional Budget Office shows a different story: Fossil fuels 20%, renewable energy 45%.

Those who believe the Big Untruth may not agree otherwise because doing so would undermine their agenda, but, hopefully, the average person can see it really is a Big Lie, oops, Big Untruth.

The facts show that renewables are currently getting twice the subsidies of fossil fuels.

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Disappointing Year for EVs and PHEVs

January 27, 2015

A disappointing year for those who see PHEVs and EVs as the future for the automobile industry.

The motivation, of course, is to cut CO2 emissions, but not much is happening in that regard with disappointing sales, and where most of the electricity for charging batteries is generated using fossil fuels.

The question should be asked: How low would PHEV and EV sales be without subsidies, paid for by taxpayer dollars?

Here are total PHEV and EV sales for all of 2014.

US Sales of Electric Vehicles, Including HEVs 2014
Month

Hybrid (HEVs)

PHEVs & Extended Range Vehicles

Battery (BEVs)

Totals

Total PHEV & EV

January

27,085

2,934

2,971

32,990

5,905

February

30,561

3,721

3,324

37,606

7,045

March

43,790

4,594

4,578

52,962

9,172

April

39,430

4,718

4,187

48,335

8,905

May

52,227

6,651

5,802

64,680

12,453

June

39,225

6,511

4,982

50,718

11,493

July

44,488

5,740

5,693

55,921

11,433

August

48,208

5,920

6,483

60,611

12,403

September

31,385

3,357

5,983

40,725

9,340

October

30,892

3,735

5,818

40,445

9,553

November

31,109

3,609

6,176

40,894

9,785

December

33,302

3,867

7,419

44,588

11,286

Totals

451,702

55,357

63,416

570,475

118,773

% YOY Increase

-9.0%

13.0%

33.0%

 

 

Total U.S. vehicle sales in 2014 were 16,435,286 vehicles.

The PHEV and EV sales were less than one percent of total U.S. sales, or 0.72%.

Do PHEVs and EVs really deserve taxpayer funded subsidies?

When these vehicles were introduced, it was expected that there would be 1,000,000 sold by the end of 2015. This was the forecast made by President Obama.

Total cumulative sales since these vehicles were introduced in 2011 are:

  • PHEVs = 150,620
  • EVs = 135,425
  • Total EVs and PHEVs, 2011 – 2014 = 286,045

A far cry from 1,000,000.

Volt and Leaf

Volt and Leaf

 

It also brings into question whether Tesla’s proposed $5 billion dollar battery factory will be a sound investment, or a good use of tax payer subsidies with perhaps $1.5 billion in subsidies from Nevada alone.

The factory is being built to support the sale of 500,000 EVs per year, by 2020.

It’s important to recognize that HEVs, such as the Prius, are not the same as EVs and PHEVs. They do not recharge their batteries from the grid and have no effect on the grid.

HEVs use electric motors to improve the overall efficiency of a vehicle powered by an internal combustion engine. HEVs use gasoline, or diesel fuel, as the source of energy for propelling the vehicle.

HEVs are different from EVs, which are designed to use only batteries and eliminate the use of gasoline, and PHEVs, which are intended to use battery power for commuting distances. EVs have a range of around 100 miles, while PHEVs have a range of around 35 miles on battery power, and use an auxiliary internal combustion engine to allow the PHEV to travel longer distances.

Some commentators mistakenly combine HEVs, EVs and PHEVs when describing electric vehicles. This distorts the actual market penetration of cars that rely on battery power, either exclusively, such as the Tesla, an EV, or for commuting distances, such as the GM Volt, a PHEV.

Tax payer subsidies are also helping to fund the installation of battery charging stations.

So far, EVs and PHEVs have been toys for the rich and famous, with middle class families subsidizing these purchases with tax payer dollars.

Based on the evidence thus far, it would seem that tax payer money is being wasted on this effort to build and sell PHEVs and EVs, and to install battery charging stations.

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Carbon Morality

January 23, 2015

When a CEO of a major utility talks about controlling CO2 emissions, it’s clear America’s standard of living is under attack.

David Crane, CEO of NRG Energy, in his article in EnergyBiz, titled Carbon Morality, claims that those who argue against solar and wind will “lose the hearts and minds of future generations of Americans”.

His assumption being that CO2 is causing global warming. He states, “The issue [the utility industry] owns is climate change.”

EnergyBiz Magazine Cover

EnergyBiz Magazine Cover

The battle lines are clearly drawn. Those who believe CO2 is the cause of global warming versus those who believe natural forces are the cause.

See The Great Divide.

The absurdity of attempting to cut CO2 emissions to prevent catastrophic global warming, or climate change, is obvious, once the effect of the required cuts is understood.

The IPCC, and president Obama, claim that CO2 emissions must be cut 80% in the United States by 2050 to avoid a climate catastrophe. Worldwide they must be cut 50%.

What does this mean for Americans?

Today’s CO2 emissions are 16.5 tons per person in the United States.

Cutting them 80% by 2050 requires cutting them to 2.3 tons per person. See IPCC CO2 Reductions.

The last time per capita CO2 emissions were this low in the United States was in 1900.

There were few automobiles, trucks or airplanes in 1900. There were no TVs, refrigerators or air-conditioning in 1900. Electric lights were few and far between in 1900.

In short, cutting CO2 emissions 80% would require Americans to eliminate all modern conveniences, and reduce their standard of living to a primitive level.

This is what David Crane is advocating, even though he may not understand it.

Even Google realizes so-called clean energy, as advocated by Crane, won’t stop climate change.

Specifically, Google scientists Ross Koningstein and David Fork admit renewables won’t save the world from global warming. See Finally the Truth About Renewables.

Another article in EnergyBiz describes how utilities can move assets into stock market darlings, similar to MLPs, called Yieldcos. Yieldcos hold clean energy assets, primarily wind and solar, in a limited partnership, where the LP pays high dividends. Yieldcos are described as the future for raising capital for wind and solar ventures.

It’s also another tentacle entangling investment firms and individual investors who are attracted to the high yields.

The growth of Yieldcos is predicated on the growth of wind and solar, which is based on subsidies and mandates requiring the use of high cost electricity.

The web being spun by global warming activists is designed to entangle as many people and institutions as possible, to make it ever more difficult for the activists to be stopped.

EnergyBiz seems to be the poster child for those advocating for the cutting of CO2 emissions in the utility industry, specifically with such programs as clean energy, smart meters, demand response and smart cities.

Nowhere does EnergyBiz examine how cutting CO2 emissions 80% will affect American’s standard of living.

If cutting CO2 emissions 80% will cause great harm to Americans, which is indisputable, and if so-called clean energy can’t stop climate change, which Google scientists have established, what are the motives of the people behind EnergyBiz?

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What is Saudi Arabia’s Game Plan for Oil?

January 20, 2015

The Saudis seem to have decided to maintain their output of oil, while allowing the price to fall, so as to maintain market share.

But why?

Why haven’t they cut production to maintain the price of oil?

The following ideas have been put forth by various pundits to establish why the Saudi’s have maintained output:

  • To curtail or shut down U.S. shale oil production
  • To harm the Russian economy, and deter Russia’s actions in the Mideast
  • To harm Iran’s economy
  • To limit ISIS’ ability to obtain funding from selling high priced oil
  • To force other OPEC members to agree to making cuts
A History of Saudi Arabia, The Kingdom, by Robert Lacey.

A History of Saudi Arabia, The Kingdom, by Robert Lacey.

The following analysis attempts to discern whether the Saudi’s have maintained output in an effort to force the U.S. to cut its shale oil production.

U.S. shale oil production reached around 5.2 million bbl per day (mb/d) in 2014.

The decline rate during the first year of a new shale oil well’s production varies from 40% to 60%, so that, if drilling were to stop today, oil output would gradually decline during 2015, until output was reduced by 40% or more, or by approximately 2.5 mb/d.

This cut in supply would likely result in a balance between supply and demand.

But drilling isn’t going to stop immediately, and may not decline enough to significantly cut U.S. output.

The average number of rigs in operation in the U.S. during 2014 were approximately 1,850, of which around 350 were drilling for natural gas.

By one calculation, the rig count would have to drop to below 1,400 in 2015 to begin to cause a reduction in U.S. oil output, assuming the number of gas rigs remains unchanged.

Rig counts are readily available from Baker Hughes, and can be monitored during the year.

When breakevens for new wells are around $60 or $70, and the price of oil is around $40, new wells wouldn’t be drilled.

But many areas in the various shale plays have breakevens of $30 or $40 per bbl, which would work against drastically cutting the number of rigs.

If the U.S. rig count remains above 1,400, and if Saudi Arabia doesn’t cut output, and barring any unusual event, such as a war stopping production somewhere in the world, oil supply will remain unchanged, or possibly increase.

If oil supply remains unchanged, the price of oil will remain low until demand increases.

This implies low oil prices for an extended period, perhaps into 2017, depending on the growth in demand.

Another important factor is that it only takes a month, or so, to drill a new shale oil well. This means the U.S. could quickly ramp up supply, and take share away from the Saudi’s.

The factor that could work against drilling new shale oil wells during 2015 is the availability of bank loans to fund drilling, but there may be enough capex available to drill enough wells to keep output from declining significantly.

If this analysis is correct, it could mean the Saudi’s have made a miscalculation, or they have a different motive.

It should be noted that the lower oil price means the Saudis have less income, and must use their reserves to meet their other commitments, not the least of which is keeping their population satisfied. It’s estimated that the Saudis have enough financial reserves to last for a few years, so there is no immediate urgency for them to change course.

They also have spare capacity that could allow them to increase production by 1 to 2.5 mb/d.

If the Saudis have targeted U.S. shale oil production, they can confirm this by increasing output themselves, which would drive the price even lower, perhaps to around $20 per bbl. This would definitely curtail US production … at least for a while.

It may be six months before we have confirmation of whether U.S. production has decreased. It may take even longer before we can determine whether worldwide demand for oil is increasing.

It may well be the Saudis are attempting to curtail U.S. production, but it will be awhile before we can begin to reach any conclusions.

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Storing Electricity as Hydrogen

January 16, 2015

Wind and solar advocates are constantly looking for ways to store electricity for use when the wind stops blowing or the sun stops shining.

Pumped storage is the traditional method for storing large amounts of energy that can be converted to electricity. Batteries and all the other methods are too expensive or can’t store and release the energy economically.

Periodically, a new method is touted as the answer.

The latest such proposal comes from the Netherlands and Germany, where EU policies are forcing the adoption of renewables, no matter what the cost and no matter how much they harm the economy and the standard of living of Europeans.

The latest proposal is termed Power to Gas, or PtG. It uses hydrolysis to convert unneeded electricity, from wind and solar, to hydrogen.

It has already been tried in Germany, where excess electricity was converted to hydrogen and injected into natural gas pipelines, but the PtG approach has a few new wrinkles.

There are several safety concerns with adding hydrogen to natural gas pipelines.

These concerns vary between countries, due to the composition and design of pipelines and appliances.

In the United States, there are three basic concerns over the concentration of hydrogen being transported or distributed by natural gas pipelines.

  • Concentration of hydrogen in natural gas that can safely be used by appliances.
  • Concentration of hydrogen that can safely be in transmission lines.
  • Concentration of hydrogen that can safely be in distribution and service lines.
Natural Gas Transmission Pipelines, from EIA

Natural Gas Transmission Pipelines, from EIA

The assessments referenced here are from The National Renewable Energy Laboratory (NREL) and apply to the United States. Conditions in Europe and elsewhere may vary.

Appliances

The effect of hydrogen mixed with natural gas varies with the age and type of home appliance. Acceptable concentrations of hydrogen for use by appliances have ranged between 5% and 20%.
For industrial applications, each installation will have to be evaluated separately.

Transmission Lines

Most transmission lines are made of steel and can usually accommodate hydrogen, though some lines may be susceptible to hydrogen embrittlement.

Mixing hydrogen would require a mandatory assessment of all U.S. transmission pipelines. Concentrations above 50% are ruled out.

Distribution and service lines

Safety concerns are magnified due to distribution lines being in close proximity to populated areas, and for service lines being inside buildings and homes.

All piping will have very small amounts of leakage, either through the wall of polymer piping or though the threads of black iron or other metal piping. Leakage of hydrogen is up to five times greater than with natural gas alone. Leakage of hydrogen can be especially dangerous in confined spaces in homes and other buildings.

Overall, the NREL report indicates that it’s reasonably safe to mix hydrogen with natural gas in pipelines, if the mixture contains less than 20% hydrogen, and if all the piping systems and appliances have been assessed as being of the types that can accept up to a 20% concentration of hydrogen.

The NREL report’s Appendix, prepared by the Gas Technology Institute (GTI), says the risk of using a 20% mixture of hydrogen in service lines is approximately 25% greater than for natural gas alone.

Adding hydrogen to natural gas pipelines, therefore, results in some added risk and increased cost.

There will be energy losses from converting electricity, generated by wind and solar, to hydrogen.

Not discussed here are the added costs of extracting hydrogen from the mixture of hydrogen and natural gas if the hydrogen is to be used for purposes other than burning in gas turbines to generate electricity.

Adding equipment to a wind farm to convert electricity to hydrogen, increases the total investment. The value of the hydrogen can’t be great since natural gas which the hydrogen is replacing, only costs $4 per million BTUs. ( Currently closer to $3 per million BTUs)

There are 30 PtG demonstration plants installed in the EU, mostly in Germany, with a few in surrounding countries. Concentrations of hydrogen have mostly been around 5%. These are experimental installations. One experiment is to make methane by combining hydrogen with CO2, referred to as eGas, which is far more expensive than natural gas in the United States.

While European countries must adopt expensive technologies to meet the CO2 reduction mandates established for Europe, PtG is inappropriate for the United States: PtG merely increases costs, making electricity generated by wind and solar even more expensive than it already is … which would further hurt American consumers and industry.

There is no valid reason to reduce safety and increase costs by adding hydrogen to natural gas pipelines, other than as part of a regimen for reducing CO2 emissions. See The Great Divide.

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