Senate finance committee chairman Max Baucus, a man who made plain in the health-care fight that he knows how to count to 60, said a couple of interesting things today in his panel’s hearing on the job impacts of energy legislation.

First, he said in his opening statement, “I’m going to work to pass climate-change legislation that is both meaningful and that can muster enough votes to become law.” Since a bevvy of Democratic senators said the bill must include carbon tariffs or some form of trade protection for U.S. industry, we can guess what that means.

He went on to say, according to Reuters, “We must push our trading partners to do their part to curb harmful emissions and we must devise a border measure, consistent with our international obligations, to prevent the carbon leakage that would occur if US manufacturing shifts to countries without effective climate change programs.”

So here’s the thing: The Obama administration wanted the Senate to act on climate change before the big Copenhagen climate summit, so it would have more leverage with developing countries such as China and India.

Now, not only has the Senate pushed back final action on the bill until next year, what little consensus there is seems to be building around a policy—carbon tariffs—that has already drawn the explicit ire of leaders in both India and China, not to mention the White House, Europe, and the United Nations. None of that can bode well for hopes of a global climate deal in Copenhagen.

And that should only make President Obama’s Asian tour—including a trip to China—even more interesting, especially since climate change and trade are at the top of the bilateral agenda.

A new study by Deloitte, the global consultants, says the average U.S. soldier in Iraq and Afghanistan consumes 22 gallons of gasoline and diesel per day – nearly three times more than grunts in Vietnam some 40 years ago.

The increase in fuel consumption per capita – which is expected to grow 1.5% a year through 2017 – has been driven mostly by the amount of increased use of four-wheeled vehicles and heavier gear in contemporary warfare. Improvements in fuel efficiency and the widespread use of nuclear energy – in aircraft carriers and submarines – have helped cut fuel consumption. But increase reliance on unmanned drones and “up-armored” Humvees have more than offset those savings.

In addition, the complicated task of carrying fuel all the way to the frontlines increases the cost of fuel to about $15 per gallon. That doesn’t even include the cost of protecting fuel convoys which results in “fully burdened” cost closer to $45 a gallon.

No wonder the armed forces are so keen on trying out alternative fuels based on algae and canola – if they’re paying that much for gas and diesel, even cellulosic ethanol and algae fuel could seem economic.

The long and costly supply lines are not only bad for the government’s pocketbook – they’re dangerous. Improvised explosive devices and roadside bombs have been especially effective at hampering the energy supplies of Allied forces in Iraq and Afghanistan, the Deloitte study says. Between July 2003 and May 2009, improvised explosive devices accounted for 43% of U.S. casualties in Iraq – and fuel convoys represent a substantial target of these assaults, the report says.

The report suggests that the Army reduce the need for fuel convoys by using aggressive conservation techniques, renewable energy resources, electrical vehicles and other state-of-the-art technology. And who knows - perhaps the solution to a battlefield challenge could reap benefits in peace, and a game-changer that would solve the world’s energy problems could emerge from the armed forces’ skunk works.

The International Energy Agency says in its annual outlook, published Tuesday, that a glut of natural gas is looming. The boom in North American shale gas and a demand-depressing recession mean there will be a giant amount of unused pipelines and liquefied gas terminals, enough to move 200 billion cubic meters, or 7.06 trillion cubic feet, by 2012. That’s more than enough for all of Africa or Latin America.

Here’s where the trouble begins for OAO Gazprom, which supplies a quarter of Europe’s gas. The IEA says the oversupply could have “far-reaching consequences for the structure of gas markets and for the way gas is priced in Europe and Asia-Pacific.”

The problem is a growing divergence in price on either side of the Atlantic. In Europe and Asia, most marketers buy natural gas under long-term contracts where the price is indexed to oil. That means gas prices will tend to rise, tailing crude’s upward trajectory. On the other side of the pond, there’s no such link and so gas will stay relatively cheap regardless of where oil goes.

The consequences of that have already been felt on the European spot market. LNG exporters, discouraged from selling into the U.S. market, are increasingly offloading their cargoes in Europe and Asia, depressing spot prices.

That, the IEA says, “could increase the pressure on gas exporters and marketers in Europe and Asia-Pacific to move away from, or to adjust, the formal linkage between gas and oil prices in long-term contracts.” More uncontracted supplies being released to the spot market could push down prices and boost demand, especially in power generation, it says, which would soak up the supply glut.

In addition to Gazprom, other big European suppliers such as Statoil ASA and Algeria’s Sonatrach could feel the impact of lower prices. And if cheap gas finds its way into power generation, that could spell trouble for competiting renewable-energy projects.

The IEA’s argument isn’t new. All this year, European gas industry executives have been bemoaning the oil link, saying they’re forcing buyers to take volumes at much higher prices than competitors.

Gazprom’s counter-argument is simple: how else do you calculate the price? You can’t link it to the spot price because spot markets for gas – such as the UK’s National Balancing Point – are so primitive and small. “If we used the NBP it would be like the tail wagging the dog,” one Gazprom official says.

But the fact the questioning of the oil link is now moving from the boardrooms of E.ON AG and GDF Suez SA to the IEA itself suggests it is gaining traction.

For Gazprom, that’s scary: it needs to spend billions of dollars over the next few years to develop huge new gas deposits in the Yamal Peninsula and Barents Sea. How, it argues, can it make such long-term investments on the basis of a spot price that is low right now and could stay that way for years?

The question is just how to meet that rising demand: Business as usual, or a global shift toward energy policies geared to combat global warming? Those are the IEA’s two visions of the future.

First, the IEA’s base-case outlook. Primary energy demand—that means power for electricity, transport, and everything else—is projected to rise about 40% by 2030 compared to 2007 levels. And most of that increase will come in developing countries. The total, global bill for meeting that energy demand? $26 trillion, the IEA says.

Global oil demand, after suffering two years of setbacks thanks to the economic meltdown, will resume growth and increase 24% over the period the IEA says, to 105 million barrels a day in 2030. That’s sharply down from the IEA’s 2007 forecast of 116 million barrels a day in 2030 but still higher than what many peak-oilers figure the world can produce.

Electricity demand will grow even faster—by 76% by 2030. That will require the addition of nearly 5,000 gigawatts of new power plants. That’s five times the generation capacity of the U.S. today.

And that means coal will become more important—not less important—in the global energy mix. The IEA expects global coal consumption to grow 53% by 2030 in its reference scenario. Natural gas will also become more important, with demand growing 41% over the period—but gas supplies are “are easily large enough to cover any conceivable rate of demand increase through to 2030 and well beyond,” the IEA says.

The problem isn’t just finding a way to pay for all that. The problem, contends the IEA, is that such an energy path portends “catastrophic consequences” from global warming. To stave off the worst, the world needs to limit carbon-dioxide concentrations in the atmosphere to 450 parts-per-million, versus about 387 ppm today.

That would require a cocktail of “cap-and-trade systems, sectoral agreements and national measures,” like the ones that are making such progress in Congress and overseas, to make sure that energy-related emissions peak in 2020 and then decline over the next decade.

That will require an additional $10.5 trillion in energy-related investments, but that will be “more than offset” by cheaper fuel bills, the IEA says. The tricky part is that much of that investment needs to be carried out in developing countries, which under the business-as-usual case would account for “all the projected increase in energy-related CO2 emissions” through 2030, but much of the money will have to come from rich countries. That is a “matter for negotiation,” the IEA drily notes.

Just what energy technologies would make that emissions-reduction possible? Energy efficiency is by far the most important, accounting for more than half the emissions reductions. Renewable energy will chip in another 20%. Clean coal and nuclear power will each shave 10% off emissions. Biofuels won’t do much—just a 3% savings through 2030.

Between 4:30 and 6 a.m., Spanish wind turbines took advantage of a particluarly windy day to generate 53% of the electricity coursing through the grid. Spain had never gotten more than 43% of its juice from wind power before. It suddenly had so much wind power, it had to export some electricity.

Yes, that’s an amazing feat. For years, one of the knocks against wind power is that it can only provide a certain part of a country’s electricity—25% or so—because wind power is too variable. So Spain’s windy Sunday seems to make U.S. visions of generating 20% of the country’s electricity from wind power sound a little less far-fetched.

However, Spain’s record also shows exactly why wind power still thrives at the edges—not the center—of the energy debate.

The record was set in pre-dawn hours, a time the electricity grid operator describes as “minimum demand.” For the whole day, wind power’s contribution slipped to a (still-impressive) 39%. For the whole year, wind power provides just over 12% of Spain’s electricity.

That Sunday was genuinely the high-water mark for Spanish wind-power production, and its 18 megawatts gigawatts of installed turbines produced a little over 11 megawatts gigawatts of electricity. That’s about 60%. That means that in the absolute best-case scenario, two out of every five megawatts of wind power are essentially sitting idle.

The fact that wind power works hardest just when people need the least power is, clearly, one of the things that sets it apart from traditional power sources and even solar power, which works best right during times of peak afternoon demand.

That mismatch, Spanish power authorities say, creates a few new opportunities: Energy storage and electric cars. Listen to Luis Atienza, the head of the Spanish grid:

The risk that on these very windy mornings there isn’t enough demand to offload all the wind production, a risk that will increase in step with installed wind capacity, should be alleviated by increasing energy storage capacity and export capacity. Furthermore, it would be covenient to shift part of the electricity demand to those off-peak hours. In that sense, electric cars, since they can recharge over night, seem destined to facilitate the integration of more renewables into the electricity system.

In any event, Spain’s big push in wind power hasn’t enabled it to clean up its economy and meet all of its obligations under the Kyoto Protocol; the country has one of the worst compliance records in Europe. On Monday, Spain agreed to buy Poland’s excess greenhouse-gas emissions permits for $37 million.

The combination of the recession and coming climate policies will reduce the world’s thirst for oil, the International Energy Agency says. The new forecast expects global demand of 91 million barrels a day in 2030, only a little more than today and much less than the IEA expected a few years ago, in the WSJ.

Has the IEA downplayed the risk of an oil shortage? Whistleblowers say it has, in The Guardian. But the IEA has been very clear about peak production from non-OPEC countries, in the FT’s Energy Source.

President Obama will go to Copenhagen if there is a chance to secure a global deal on climate and if his visit can make a difference, in an interview with Reuters. More in The Guardian.

Better hustle: The IEA says that every year of delay in implementing a global climate deal will cost another $500 billion, in Reuters.

Offshore wind power is the flavor of the day. NRG Energy bought Bluewater Wind, which aims to develop offshore wind farms in the Atlantic, in the WSJ. Offshore wind is the great white hope of U.S. turbine manufacturers, who are looking for a way back into the race, in Climate Wire. British banks raise their funding for big offshore wind projects in the U.K., also in the WSJ.

Some countries are looking even further out for new power: Japan presses ahead with its plans for space-based solar power, at Greentech Media.

There’s an interesting debate going on over nuclear power: Does a country have to be socialist to make it really take off?, at Matt Yglesias. Speaking of which, a big chunk of U.S. reactors are fueled by uranium from Russia’s weapons program. As those supplies wind down, what happens next?, in the NYT.

Finally, is the belief in man-made climate change really a religion? Yes, according to British labor law, in The Economist.

Adoption of that endangerment finding is the legal precursor to regulating such gases under the Clean Air Act. The agency proposed its declaration in April, provoking a furious response from business groups – such as the U.S. Chamber of Commerce – who have questioned the agency’s scientific and legal basis.

Environmental groups, naturally, are thrilled with the EPA’s move, hoping it will boost the Obama administration’s efforts to forge a global agreement to curb emissions when representatives of more than 190 countries gather next month in Copenhagen, Denmark for a United Nations conference.

“As Copenhagen approaches, this step just reinforces that–one way or another–a significant portion of U.S. emissions will be regulated very, very soon,” says Josh Dorner, spokesman for Clean Energy Works, a Washington-based group that advocates regulation of greenhouse gases.

An EPA spokeswoman says “This is the next step in the regulatory process. Nothing has been finalized at this point, and the April 2009 proposed findings are still just that – proposed and being reviewed through the regulatory process.”

Some politicians want Mr. Obama’s administration to go further. On Monday, the chairman of the House Select Committee on Energy Independence and Global Warming, Rep. Edward Markey (D., Mass.) urged Interior Secretary Ken Salazar to make a decision before the UN summit on a Massachusetts company’s proposal to build a wind farm off Cape Cod. The project – known as Cape Wind – has been the subject of years of litigation and regulatory reviews, partly as a result of Cape Cod residents’ objections that the farm’s turbines will ruin the views of the Cape.

Republicans have had a field day contrasting Democrats’ stated support for wind energy with President Obama’s silence on the project, which was opposed by the late Sen. Edward M. Kennedy among other prominent Cape Cod residents.

“Approving the Cape Wind project as the nation’s first commercial offshore wind project before the start of the U.N. conference would send a strong message to international negotiators about the United States’ commitment to developing sources of clean energy and reducing global warming pollution,” Mr. Markey said in a letter to Mr. Salazar made public Monday.

Mr. Salazar has said his Department hopes to make a decision on the project by the end of the year; his spokeswoman said Monday that the department is “working expeditiously” on its review but didn’t specify when it would be complete.

The latest setback: on Monday, a consortium made up of Denmark’s DONG Energy, RWE npower and Peel Energy said it was pulling out of a government-sponsored competition to design the UK’s first carbon capture and storage demonstration project amid frustration at the glacial pace of the contest.

It wouldn’t be so bad, but they’re not the first to withdraw. Almost exactly a year ago, BP PLC threw up its hands and bowed out. That leaves only E.ON AG and ScottishPower, the UK arm of Spain’s Iberdrola SA, of the original short-list of four.

E.ON’s participation is also in question. Last month, it put off a final investment decision on its planned coal-fired power station at Kingsnorth, Kent, for three years due to the economic downturn. Kingsnorth was supposed to be the site of E.ON’s CCS plant.

Where all that leaves Britain’s clean coal effort is anybody’s guess. “It’s very frustrating,” says Dr. Jeff Chapman, head of the UK’s CCS Association. “The industry is just exasperated by all the uncertainty.”

It’s a big comedown from the heady days when the UK was seen as a front-runner in the global race to deploy CCS. But the government has been so sluggish about putting the right laws in place and providing adequate financial incentives that Britain’s lead in carbon capture has evaporated.

And the withdrawal today coincides with the release of big U.K. energy-policy papers. In a nutshell, the country is trying to make sure that it will have new and timely energy investment to keep the lights on, and that those new energies will be clean enough to help the government meet its own plans to curb greenhouse-gas emissions.

For all the gab about clean coal, Britain—like the U.S., Austrialia, and other big coal consumers—is going nowhere fast. A report published by the Institution of Civil Engineers last month criticized “continued uncertainty about how CCS will be funded and [the] lack of a coherent regulatory framework.”

The U.S., Canada and Australia all now provide a more welcome home for investments in clean coal, the report noted But even those countries are struggling to make the iffy economics of clean coal a reality.

Part of Britain’s woes are semantics. The government’s policy is to suppoort “up to four” CCS projects. The carbon capture lobby wants that changed to “at least four.” “This is just not an ambitious program,” says Dr. Chapman.

Peel Energy’s statement was cryptic, but it was clear government flip-flopping was the problem. The consortium pulled out, it said, “because the competition timetable is not compatible with the partner companies’ coal development plans.”

A spokesman for RWE npower said with the recession hitting energy demand, investment in UK power didn’t make sense. “If you look at the costs of building a coal-fired power plant, and the price of electricity over the medium-term, the economics just don’t add up,” said Leon Flexman.

Ministers are putting a brave face on it. “The competition is still going ahead,” said Erica Herrero-Martinez of the Department of Energy and Climate Change. “We’re not put off. And we’re still confident we’re going to be one of the first countries to demonstrate CCS.” She said Ernst & Young had voted the UK no. 2 after the U.S. in terms of its attractiveness for investment in CCS. The U.S. also has yet to get a demonstration plant up and running.

Peel said it would continue to seek funding for developing a commercial-scale CCS plant from other sources, both in the UK and the European Union. But for now it, like others before it, has given up on the government.

Is the Environmental Protection Agency trying to stifle dissenting views on climate change?

The EPA has told two longtime agency veterans and outspoken critics of the administration’s cap-and-trade plan to remove any references to the agency in their critiques and to get approval for any future “outside writing projects.” That includes removing their critical video from You Tube.

Laurie Williams and Allan Zabel, a married couple and EPA lawyers in San Francisco, have been railing against cap-and-trade proposals for a while. Most recently, they had a sharply-worded op-ed in the Washington Post that said current legislation would be ineffective and even counterproductive.

The couple stressed that the views they expressed were their own—not the agency’s. But they also stressed that their years of experience with the EPA, and specifically working on other cap-and-trade programs, informed their views.

Now Public Employees for Environmental Responsibility has jumped into the fray. The organization, which groups public-sector employees concerned with environmental questions, has re-posted the banned video and come out in defense of the two attorneys:

“EPA is abusing ethics rules to gag two conscientious employees who have every right to speak out as citizens,” stated PEER Executive Director Jeff Ruch, who has re-posted the original video and its script. “EPA reversed itself because someone in headquarters had a tantrum about their Washington Post essay.”

When Ms. Williams and Mr. Zabel first started publicly criticizing cap-and-trade, in the spring of 2008, the EPA gave them a green light. As we noted at the time, “An EPA spokeswoman confirmed that the agency cleared the couple to write the letter, ‘provided that it was written in their personal capacity and were not speaking on behalf of the agency.’”

We’ve asked the EPA for comment today.
UPDATE: This from EPA General Counsel Scott Fulton:

EPA has nearly 18,000 employees and all of them are free to – and many do - publicly express their views on issues of the day, including issues that are central to EPA’s mission. The only requirement is that employees adhere to the government’s ethical regulations, which are in place to ensure that EPA and other agencies maintain the highest possible ethical standards at all times.

One EPA official said that the agency’s response wasn’t due to the content of the attorneys’ writings, but to the way they highlighted their EPA experience in making their arguments, which runs counter to agency rules federal regulations.

The lawyers’ criticism hasn’t always gone down well in environmental circles, because many greens worry the pair are providing more ammunition to critics of climate legislation. But even folks who shudder at the lawyers’ argments worry that the current spat doesn’t look good for free speech, notes Dave Roberts at Grist.

To recap: Democrats passed their version of the big energy and climate bill out of the Senate Environment and Public Works Committee, but it was a phyrric Pyrrhic victory. Republicans boycotted the vote, forcing chairwoman Barbara Boxer to sidestep Senate protocol and count on only Democratic votes. The new conventional wisdom is that last week’s antics have fatally wounded the current Kerry-Boxer bill.

So now the action moves to a couple of other committees: Finance and Energy. Hearings in both committees start tomorrow. And Sen. Max Baucus’ finance committee could be the key.

At the risk of stating the obvious, the climate bill isn’t going to live or die on its environmental creds—but rather on its cost. The issue of how much new energy and environmental regulation will cost—consumers, businesses, and the economy as a whole—has been front and center since Congress took up legislation in earnest last year.

The bill’s cost makes or breaks public support. The bill’s cost is what largely drives congressional opponents, both Republicans and Democrats.

So the big question becomes: What will Sen. Baucus do? His finance committee will deal with two big issues central to determining the economic impacts of any climate bill: the allocation of emissions permits and figuring out how to cushion the blow for U.S. manufacturers. Darren Samuelsohn at Climate Wire has a great rundown.

The fight over the emissions permits will likely be fierce—they’re worth hundreds of billions of dollars, and a similar fight in the House largely shaped final legislation there. The Senate is under pressure to tweak the way permits are handed out to utilities, for instance, and Sen. Baucus has signaled he will tweak the House formula.

But the bigger question might be trade—unlike the skirmish over permits, that’s an either-or question. Ten Democratic senators have said they can’t support a climate bill that doesn’t shield U.S. manufacturers from “unfair” foreign competition. That means carbon tariffs, something already included in the House bill, but which has rankled the White House, the UN, and plenty of foreign governments.

That means that Sen. Baucus’ real challenge will be to reconcile the demands for trade protection in a climate bill with international trade rules. The jury is still out on whether carbon tariffs violate World Trade Organization rules. Sen. Baucus described his tight-rope act earlier this year: “We’ve got to protect ourselves,” he told E&E in July. “But anything I do, I want it to be WTO consistent.”