The Smart Money: The economics of energy policy

Posted Monday, July 21, 2014 in Analysis

The Smart Money: The economics of energy policy

by Gina Hamilton


A recent email from the Governor’s Energy Office states that they are looking for public input on a state energy policy to replace or amend the policy enacted in 2008. Anyone who is interested has until August 15 to submit ideas.

That policy was heavy on wind power.

Gov. Paul LePage has a strange aversion to wind power, which is probably what is driving this new push for a new energy policy, but setting that aside for a moment, some of the ideas put forth in a study by LaCapra Associates, paid for by the Energy Office to get people off oil aren’t bad, and are a little more realistic than the Baldacci ideas to encourage ridesharing.

Home heating

Home heating is a large driver of oil purchases for the state. Oil prices are high — as of this writing, about $3.33 per gallon, and that’s in the middle of summer when Ye Olde Economic Theory suggests they should be very low because of supply and demand issues. In reality, four things drive oil prices. Supply and demand is the most significant driver, but location of oil sources in so-called hazard zones play a role. So does the relative value of the U.S. dollar, in which oil is traded. Speculation, however, is causing recent price spikes. At $108 per barrel, speculators are hedging their bets that Ukrainian, Libyan, and Iraqi unrest will lead to higher prices worldwide.  The user price will only go up as winter approaches.

The average Maine household spends about $3,000 per year in home heating if they use oil. 

And although the study offers natural gas as one option, it also suggests — strongly — Maine sourced biomass, that is, wood and wood pellets.

A 1,500 square foot average home that heats with pellets can do so with about 4 tons of pellets per year. If purchased at the beginning of the heating season, the total cost would be about $900 per year. Even throwing in the cost of a brand new pellet stove (less than $2,000 if you install it yourself), pellet stoves are more economical than oil boilers. 

Pellet stoves also use an energy source that has, until recently, been growing and absorbing carbon, not being locked away from the carbon cycle for 200 million years, so they are a reasonably good choice for the environment, at the very least, they don’t add to fossil fuel carbon emissions. 

They become even more attractive if, as recommended, Efficiency Maine begins to give out rebates for this sort of system. Because the pellets are sourced in Maine, they’re good for Maine’s economy as well.

They are a bit of work, and there are those 40 pound sacks one must carry around, so they may not be a possible option for everyone. People who have their oil boiler hooked up to heat water will have to obtain a new hot water heater as well or invest in a pellet boiler. So there are a few issues that haven’t been fully looked at by the state’s report. But overall, pellets are a good, cheap, clean, earth-friendly approach to heating homes in Maine.


The study also strongly recommends a push to winterize or weatherize all of Maine’s aging housing stock. While this has been a priority at least since 2008, the process has been stymied by a few “process” issues that shouldn’t be a problem ... but are.

First, there was an effort back in 2008 to get everyone  “audited”.  Energy audits are useful things, and may be a good starting place for people who have no idea how their house really works. But most homes don’t really need an audit; they simply need to have a few low-hanging fruit issues addressed.

In short, the goal to winterization or weatherization is to plug up gaps that open the home to the elements, and most of us have more gaps than we’d care to think about.  Anywhere that opens to the outdoors is a gap, so making sure there are no gaps around windows and doors, no leaks around unused chimneys, putting in gaskets around switch plates and outlets, sealing up places where pipes go through walls, making dead air space between thin windows and your rooms by covering windows with plastic or reusable indoor or outdoor storm windows  is the first step for anyone, energy audit or not. 

The next step is to determine the amount of insulation in roofs, basements, and walls that are necessary to  keep the home comfortable. Insulating a cold basement’s ceiling — the floor of the living space — by a plastic vapor barrier on the warm side  and rolled fiberglass insulation on the cold side or rigid foam insulation on the cold side is a relatively cheap fix. Blown-in cellulose insulation into walls and roofs can increase the  R-value — the amount of thermal resistance the home has. An R-value of 1 means  there is very little resistance to heat flow. In Maine, roofs should have an R-value of 49 or more. Fortunately, this is neither difficult nor expensive to achieve with blown-in cellulose insulation, but if the household is paying a professional to tell them that instead of paying to get it done, the energy audit is little more than a curiosity.

While audits are still an important part of a large-scale renovation project, for basic weatherization, they’re mostly unnecessary as people are learning more about the way energy flows through their homes. A short 20 minute video on the Internet or a free pamphlet could address the issues for most do-it-yourselfers. Requiring a professional for most of the work simply causes a larger expenditure than is necessary.


Maine will use more oil in transportation than in home heating by mid-century, according the the study, but the news isn’t all bad. Most of us will be driving highly efficient vehicles by then; it is just large trucks that are likely to be an issue. One estimate shoes that long-haul trucks use ten times more diesel than all cars and buses combined. 

But fuel efficiency standards don’t apply to transport trucks, and there is no great push for natural gas based trucks.

Efficiency isn’t the only consideration. Energy usage in transporation is a function of vehicle miles traveled (VMT) rather than the output of the fuel (btus per gallon, for instance). While we should increase overall efficiency of vehicle fleets, we must also work toward reducing overall  VMT—through shifting of transportation modes that utilize alternative fuels or are more efficient in their passenger or freight mile delivery. These are the goals when considering oil reduction strategies.

To that end, for ordinary traffic, it is in the state’s best interest to do a few things: 

Improve the productivity for people who can work at home by better and more reliable internet service, reduce the need for people to travel to multiple places (for instance, by offering day care at large businesses or communally in industrial parks, open all hours), create a push for public transit using the most efficient means available, and make the existing public transportation system reliable and useful for most people. 

For example, Maine’s Concord Coach buses go to Portland, but don’t make an effort to get people to and from the Mid-coast on any kind of “rush hour” basis. Nor can the Downeaster be used as a commuter rail service for Portland. The local bus services in Brunswick and Bath should be able to communicate with one another. The Bath bus should be able to drop off passengers at, say, New Meadows Road, where they should be able to connect with the Brunswick bus to get to work. A system of water transportation ferries from the peninsulas and islands should be able to bring people to and from the major towns, at least in the summer months. In any case, public transit should be cheap, available, and plentiful.

A truly useful passenger, commuter, and freight railroad system is possible in Maine, and actually existed before and during World War II. Restoring it, largely on existing rail lines, would be much less expensive and much less of an energy waste than the long-haul trucking grid that currently exists. Connecting the trains to the ports makes them even more efficient. And it would take a lot of traffic off the roads, especially during the critical summer months.

Energy is a major expense in Maine, and even with wind, solar, and other alternatives, there will still be a need, albeit decreasing, for oil and gas. Getting smart about how we use oil and gas in our homes, vehicles, and in our electric power plants is the focus of the governor’s comprehensive energy plan, and deserves all of our attention.

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