issue: Energy & Environment

Public Power Goes Nuclear

Posted on by The Progressive Policy Institute

Opposition to nuclear energy seems to be melting fast, especially in the South. The Tennessee Valley Authority voted last week to complete a nuclear reactor in Alabama it stopped working on in 1988.

Earlier this year, the Obama administration awarded loan guarantees to Southern Company and two partners to build two new nuclear reactors in Georgia – the first new generating plants to be approved since the 1970s. Others are in the works for South Carolina, southern Maryland, and Texas.

TVA’s decision to revive its long-shelved reactor at the Bellefonte site was the latest sign that a “nuclear renaissance” in America isn’t just hype. Work began on the plant in 1974 but was stopped in 1988 because of falling energy demand, as well rising anti-nuclear sentiment following the 1979 Three Mile Island incident.

The $4.3 billion project is part of the venerable public power company’s strategic plan for meeting future energy demand in the seven states it serves: Tennessee, Alabama, Mississippi, Kentucky, George, North Carolina, and Virginia. It envisions reducing carbon and sulfur dioxide emissions, by switching from coal-burning units to natural gas and nuclear energy. “We want to be one of the nation’s leading providers of low-cost and clean energy by 2020,” TVA CEO Tom Kilgore told the Associated Press.

Will other regions emulate the South and learn to love nuclear power again? It’s hard to say. The South is not as well endowed in wind, hydro and even solar energy as other regions, though it could become a major biofuels producer. But other regions, notably the Midwest and Mountain West, are even more dependent on coal than the South. They may also turn to nuclear energy, along with natural gas and, if it pans out, clean coal technology as attractive alternatives for meeting rising energy demand with low-carbon fuels.

And since President Obama isn’t getting much love these days, it’s worth pointing out that his administration has given the nuclear revival a big boost by dramatically increasing nuclear loan guarantees. He’s absolutely right: at a time when America’s ability to generate good jobs is in question, we cannot afford to cede global leadership in the fast-growing market for nuclear energy to France and China.

Photo credit: Scrunchleface’s photostream

Myths and Realities of Regulatory Uncertainty

Posted on by The Progressive Policy Institute

Ezra Klein joined others this week in mocking the “uncertainty” rhetoric that Republicans and some business leaders have been parroting to argue for lower taxes and lighter regulation.  As Stan Collander, Brad DeLong, and Ezra himself have all done an excellent job of arguing, there is plenty of reason for ridicule.  Most of the talk about businesses being paralyzed by uncertainty over taxes and regulations is little more than politically-driven spin.

The problem I have with Ezra’s post this week is that he chose the wrong example to pick on.  He points to Derek Thompson’s  interview with Eric Spiegel, CEO of Siemens USA, who complains about the uncertainty his company faces in the wake of the failure to pass an energy bill in Congress.  Thompson and Klein both equate this position with the less policy-specific confusion and outrage Republicans are attributing to the business community at large.   Thompson sums it up with this broad conclusion:

It’s another piece of evidence that “government should remove uncertainty” is a euphemism for “government should enact the laws that make me profitable.” For some companies, “make me profitable” might mean simply slashing taxes on income and capital gains, cutting public spending and getting out of the way. For other companies like Siemens, it means government getting in the way. It means putting a new tax on carbon, giving tax money to companies building wind blades, and adding new regulations for renewables.

In this case, there is more to it than that.  The kind of uncertainty problems that Spiegel describes are actually legitimate, at least in part.  The energy industry has been holding its breath for years waiting for the EPA and Congress to decide what they are going to do about regulating carbon emissions.  With the energy bill now faded into legislative limbo, it looks like the industry will not get the resolution it needs anytime soon, which means billions of dollars worth of investment will be trapped in limbo as well.  The uncertainty is so real that several people in the industry have privately told me that they almost don’t care what Congress chooses to do with carbon pricing, as long as it does something, so they can stop waiting and start building.   Or as another energy CEO put it recently, “There’s a lot of capital sitting on the sidelines just waiting for more regulatory clarity.”

It’s worth differentiating the energy industry’s need for long-term clarity in climate policy from the standard fear and loathing Republicans are promoting.  Here’s why.  A lot of the decisions energy companies need to make are binary choices that change dramatically depending on the policy assumptions: whether a new plant should be coal or natural gas, whether a new wind farm is viable without tax incentives, whether a new nuclear plant could be approved and running within ten years.  It’s hard to make economically rational decisions when the outcomes are so dependent on unresolved political questions.  This is fundamentally different from arguments that companies are afraid to hire new workers this quarter due to taxes or health care regulations.

There is no shortage of unsupportable statements about uncertainty that belong to the realm of political fiction.  Rep. Boehner’s latest call for a moratorium on new regulations certainly qualifies, blaming the “uncertainty that’s being created by the Democrats’ agenda” for leaving every employer and investor in America “frozen” with fear.   That kind of rhetoric is obviously exaggerated, and it should either be refuted or ignored altogether.

However, we should not allow Republicans crying wolf to drown out the voices that have legitimate gripes about regulatory uncertainties that Congress needs to address.  And we should be careful not to confuse the two for each other when we hear them pleading their case.

How the Military is Leading the Way on Energy Security

Posted on by The Progressive Policy Institute

As a U.S. Army veteran I am used to dealing with the military, an organization that, by necessity, takes swift and decisive action when necessary, despite the fact that many see it as a conservative organization that is resistant and slow to change. In Washington, I am becoming used to dealing with another organization that is much more conservative and even more resistant and slower: the United States Senate. I am proud to say that the U.S. military is once again taking decisive action on energy independence and security, as well as addressing the military repercussions of climate change. The military is taking action where the United States Congress will not.

On July 27 I attended the White House Forum on Energy Security along with a group of veterans from Operation Free, a nationwide coalition of military veterans from all eras and ranging from Privates and Airmen to Generals and Admirals – all of whom support the goal of energy independence, security, and addressing the national security repercussions of climate change.

We have collectively been touring and speaking throughout the country and in Washington, D.C. in support of breaking our dependence on largely foreign oil and pushing Congress to take real steps toward a comprehensive clean energy climate plan. We have come to support the American Power Act developed through a bipartisan effort by Senators John Kerry and Lindsey Graham with Senator Joseph Lieberman and cooperation from the White House.

July 27 was supposed to be the day that the Senate finally took real action on the issue we have all been working hard for over the past year. It didn’t happen. As we all got on airplanes throughout the country in high spirits, something was happening on Capitol Hill: nothing.

By the time we hit ground in Washington, D.C. we learned that everything had changed. The Senate didn’t have the sixty votes needed to proceed to an up-or-down vote on the bill. We went to the Hill again to meet with fence-sitting Senators and their staff. The opinion we encountered there was disappointing, but not surprising: we need to do something about the issues of energy security, energy independence, and climate change, but we’re not going to do anything now.

Some, echoing Republican sentiment, said the issue hadn’t been discussed enough yet, that the Senate process of debate and hearings needs to be completed, that it would force them to choose ‘winners and losers’ and they are not ready to do that.

Hadn’t been discussed enough? We’ve been talking about energy security and independence since the 1970s. Other countries are taking action while we are being left behind. The CIA includes repercussions of climate change and our dependence on foreign fossil energy in its assessments. The State Department does as well.

Now the U.S. military is taking serious steps to address the issue. It devoted an entire section of the 2010 Quadrennial Defense Review Report (p. 84) to responding to climate change issues.  Secretary of the Navy Ray Mabus has expressed a clear vision of a force independent of fossil fuels. The military is taking action by reducing the use of fossil fuels, researching the use of alternative sources, and increasing the efficiency of its energy use, whether on battlefield outposts in Afghanistan or home installations in Texas. Speakers from each branch of the U.S. military have discussed similar opinions, expressing that action on this issue shouldn’t be taken for political reasons, but for security reasons. The money we pay for oil goes to regimes opposed to our interests. The cost of procuring, transporting, and securing that fuel is extreme, in dollars and to the lives of our troops.

This contrasts greatly with the attitude of too many Senators, who continue to choose politics over security. The U.S. Congress trusts the military and veterans on other security issues. Energy independence, energy security, and planning for the possible consequences of climate change are national security issues. The military is taking action, even if Congress won’t. If they’ll listen on other national security issues, let’s hope they’ll trust the military when it comes to a comprehensive clean energy climate plan that makes us energy independent.

Photo Credit: DVIDSHUB’s Photostream

Stop Playing Favorites in the Biofuels Market!

Posted on by The Progressive Policy Institute

In discussions of the energy bill this summer, talk focused on a price for carbon. This is a vital component in any legislation that would force companies to reduce emissions, either by becoming more efficient or substituting cleaner fuels. But that’s only realistic if cleaner alternatives, like biofuels, are available to replace dirty fossil fuels. Whether or not cap-and-trade passes this year, biofuels should play a key role in our new energy economy, but we need to reassess federal support to allow for more diverse and higher performing biofuels.

The biofuels industry today continues to rely on significant federal assistance to encourage investment and innovation. In the recent past, federal support has focused on pre-approved types of fuel, most prominently corn ethanol. This policy has aided the boom and bust cycle in today’s biofuels market. The government paid all its subsidies and tax credits to corn ethanol, causing the industry to expand at a faster rate than the market could accommodate. Choosing corn as the favorite resulted in a crash in ethanol prices once it became clear that supply had been propped up by federal support (rather than realistic market demand). These government policies that focus solely on corn ethanol have created both a bias in the market and a situation where investors are not willing to support alternative fuels because of federal support in favor of corn ethanol.

The biofuels market began with alternative fuel mandates in the Energy Policy Act of 1992, but these were mostly filled by conventional biofuels (ethanol derived from cornstarch). Since they were the most developed form of biofuel at the time, they received the bulk of individual tax credits (like the Volumetric Ethanol Excise Tax). Since then, Congress has adopted mandates for advanced biofuels (fuels other than cornstarch ethanol, derived from renewable biomass) and tax credits for cellulosic biofuels (a type of advanced biofuel derived from grasses, woodchips and other non-food sources). But other potential advanced biofuels (such as algae biofuel) still receive no support beyond general R&D funding. Corn ethanol’s stranglehold of the market through congressional subsidies can be seen in what would happen if current tax credits were extended through 2014: ethanol would receive more than 75 percent of the credits, while cellulosic biofuels would get less than 11 percent.

Corn ethanol production in the United States has more than tripled in the last five years, a boom that has caused other problems: diversion of corn away from food production, increased erosion, higher inputs of chemicals and water, and changes in cropping patterns and land use. Worse, these have serious repercussions, including the exhaustion of groundwater supplies, the destruction of native prairies, and the expansion of the Dead Zone in the Gulf of Mexico.

Some advocates for clean energy have pointed to these problems as reasons to stop supporting biofuel development. However, these negative consequences and the recent public backlash against ethanol mean we need a second generation of biofuels that is more diverse and market-based. Business Insights found that biofuels are estimated to account for 5-10 percent of global fuel production by 2017. It is unrealistic to think that our reliance on fuels for combustion engines will decrease anytime soon. Even if electric cars become economically feasible in the near future, it will take time to phase out existing cars. Concerns about energy security, rising oil prices and climate change will increasingly force us to change the energy mix to rely on cleaner fuels. For biofuels, this translates into a very real and growing market demand for at least the next several decades.

That’s why instead of continuing to use biofuel credits to help political constituencies like corn farmers, Congress needs to focus on forms of support that will increase performance and long-term viability for all types of biofuels. A good step toward diversifying the biofuels market is the Advanced Biofuel Investment Act of 2010, proposed by Representative Stephanie Herseth Sandlin (D-SD), which would create a new 30 percent Investment Tax Credit for investing in advanced biorefineries. This would build on existing tax credits, continuing America’s commitment to the biofuels industry.

Futhermore, if we really want to move beyond a market dominated by ethanol, Congress should approve a tax credit like the Biofuels Performance Tax Credit proposed by the Union of Concerned Scientists. All types of biofuels would be eligible for this tax credit and would receive support in proportion to their emissions reduction, rewarding performance, and fostering competition and innovation. The maximum tax credit would be $1.15 for every gallon of gasoline replaced, but to qualify for the full credit, the biofuel must have zero emissions over its lifetime. Thus, the tax credit incentivizes performance both for replacing oil and reducing global warming pollution. It would build on the current Renewable Fuel Standard by supporting producers that go beyond the Standard’s requirement of emissions reductions of at least 20 percent. This would keep incentives technology and feedstock neutral, so we wouldn’t fall into the same trap of placing overwhelming support on one fuel. It is also critical that any tax credit encourage innovation by setting a high standard for emissions reductions and allowing all companies to compete. This should lead to greater innovation and ultimately cleaner fuels.

Adopting the tax credit would be an important step towards a more even distribution of federal subsidies in the biofuels market. This would allow advanced biofuels to receive significantly more than the paltry 11 percent of tax credits that they are currently getting, which would be crucial in building a new energy economy.

The federal government has played a role in creating the ethanol market and it now it must play a stronger role in convincing investors of the potential of the biofuels market. Considerable federal support is needed to get the biofuels industry off the ground. It is essential to create policies that do not limit the market but instead allow for new developments and innovations.

Photo Credit: Kiwi Shooter’s Photostream

Congress and Climate: The Long View

Posted on by The Progressive Policy Institute

As you know by now, no climate bill will emerge from this Congress. Most have picked up Lindsey Graham’s metaphor — “cap and trade is dead” — though I prefer to think of a bill as “mathematically eliminated”. In other words, the right reaction is not permanent loss of hope but “wait til next year.” That hope is faint, however, given the likely makeup of the next Congress.

It has not taken long for the process of taking stock and assigning blame to begin. Will Marshall here at Progressive Fix has written on Congress’ failure (and I agree with everything he writes). The New York Times op-ed page has been dominated by pieces on why the bill failed, and who is to blame. Grist  summarizes reactions. I don’t have much to add to what has already been said. I’m disappointed, but not surprised, and I think there is plenty of blame to go around. That said, I’m still very optimistic about the prospects for action on climate – and by that I mean specifically a national, comprehensive carbon price – in the relatively near future. I think failure in 2010 is a setback, but will be viewed in retrospect as a minor one. This is little different from the way I felt weeks or months ago, but events of last week seem to have suddenly made me a contrarian. Climate pessimism is the new zeitgeist. So why the optimism? Because changes are coming that make climate action inevitable. The world is moving, with or without the Senate.

Some of these changes are structural. Above all, climate policy has to face physical reality, not just social and political preferences. The science of climate change is clear on the big issues, is constantly improving its predictions, and is deepening our understanding of the climate system. The longer we wait, the more we will know — and the warmer the planet will get. Those skeptical of climate science have played almost no role in the failure of climate legislation this year; they were marginal from the beginning. Better knowledge, and tangible evidence of the consequences of climate change, will make the case for action steadily stronger. Physics, as much as politics, will move the “centrist” position on climate towards action. I hope this will be by way of clear but remote physical evidence, such as melting icecaps, rather than by way of weather disasters or droughts. Demographics point in the right direction as well. Young people tend to be more strongly in favor of limiting carbon emissions (though not all polls agree). As today’s youth start to vote and gain power and influence, legislators will have to respond or choose another career.

Another more or less structural change on the way is pressing need for deficit reduction. As both Tyler Cowen and Nate Silver have pointed out in the last couple of days, this, too, will increase the chances of a price on carbon. Higher taxes are almost a certainty given our debt burden and the plausible range of spending cuts. As Cowen puts it, a price on carbon is the “least bad tax” in the sense that it discourages harmful actions (emitting carbon) rather than productive activity.

Other changes come from policies already in the pipeline. Existing state and federal laws provide some authority for regulating carbon emissions, though results will be more modest and costs higher than they would be with a uniform national carbon price. This is my area of expertise, and we’ve written a lot on the issue at Resources for the Future. The summary is this – the EPA can get modest but meaningful carbon reductions with the tools it has, likely at modest cost. EPA regulations on “traditional” pollutants like sulfur dioxide, which are emitted primarily by fossil fuel (and above all coal) plants will also have co-benefits for carbon emissions. These incidental reductions in carbon emissions will make the goals we need to reach with an eventual carbon price more modest. In the past, health benefits from reduction in pollution from coal has been cited as a secondary reason to price carbon. Now, the tables are turned – moves to reduce these pollutants using existing Clean Air Act authority will have climate benefits. Put it this way – in the long or even medium-term, climate action isn’t dead, but coal is, at least unless carbon capture and storage technology becomes available at modest cost. David Roberts at Grist makes this point, with the added irony that coal will likely be begging for cap-and-trade before long, since it would probably give the industry a handout in the form of allowances that could be sold as plants are shut down.

Finally, there’s the economy. Whether out of opportunism or genuine fear, concerns over the economic impact of climate policy fueled opposition this year. If 2010 politics could be matched with the 2007 economy, I have no doubt that a climate bill (of some kind) would have passed the Senate. The politics will get rosier for climate action, for the reasons I explained above. The economy will strengthen as well, and “jobs” will not dominate politics to the extent that they are the only acceptable justification for policy, and the rhetorical foundation of all opposition to policy. Those that agree with Ross Douthat that “sometimes it makes sense to wait, get richer, and then try to muddle through” will be more prepared to muddle through as we get richer. If the economy does not improve, we have bigger problems – though the one small benefit of our economic troubles is that it has likely bought us a little time on climate. Carbon emissions are down sharply over the last few years. In fact it will be an interesting question to look back once we have some perspective and ask whether the economic crisis was beneficial or harmful in climate terms.

These changes are all inevitable or at least very likely. Together, they will make a carbon price ever more politically possible, and eventually politically necessary. As most people who have considered the climate problem seriously have known for a long time, pricing carbon is the only workable solution. Eventually, it will come.

Of course, whether climate action will happen is easier to predict than how long it will take. I don’t have an solid answer for the latter question. Some of the shifts I mention will take longer than others. Structural changes, like global warming itself and demographic shifts, may take a long time to affect politics. Policies in the pipeline are more well-understood, but many are in the planning stage and could be held up, possibly by litigation. Meaningful EPA regulations on carbon could be in place by late 2011, or might not be effective until near the end of the decade. Economic improvement should, I hope, come more quickly – but there are of course no guarantees, and the “joblessness” of the recovery to date may mean the economy will dominate politics for longer than growth figures would indicate. So I don’t  know when we’ll have real climate legislation. My best guess would be 2013 –  another presidential & congressional election, presumably a stronger economy, fossil industries under pressure from the EPA and states, and, plausibly, palpable evidence of climate change could all converge to make a comprehensive climate bill politically possible. But that’s only a guess.

A critical look at last week’s events and, indeed, the last few years of congressional inertia is warranted. Pushing for action on climate – whether at the grassroots or in the Capitol – is still desperately needed. The longer we wait, the greater the risk and the higher the cost. But these events are just minor scenes in a story whose end we already know. Climate action may come sooner, or it may come later, but it will come.

Photo Credit: Casino Jones’ Photostream

Senate Punts Carbon Price

Posted on by The Progressive Policy Institute

After much self-congratulation over passing a massive financial regulatory bill, the U.S. Senate has punted on pricing carbon. That decision is likely to have a bigger long-term impact on the U.S. economy, and not in a good way.

Senate leaders yesterday conceded they don’t have the votes to put a price on carbon. Instead, they’ll try to pass a pallid energy bill that raises liability caps on oil companies and makes modest gestures toward energy efficiency. Even the catastrophic BP oil spill, it seems, was not enough to overcome lawmakers’ fear of being accused of raising taxes on energy as the economy struggles, even though a carbon price wouldn’t have gone into effect for several years.

Well, there’s always next year — except that the midterm election will likely bring in more Republicans wedded to climate denial and cheap fossil fuels. So the Senate’s failure to act is a costly setback from an economic, security and environmental perspective. It will prolong America’s dependence on oil and fossil fuels, worsen our trade deficit, retard investment in clean technology and low-carbon fuels, and forfeit leadership in energy innovation to other countries. And it means the United States won’t do its part to lower carbon emissions and thereby stop overheating the planet.

All this suggests progressives will have to rethink their approach to achieving a low-carbon economy. Not only is “cap and trade” dead, Majority Leader Sen. Harry Reid (D-NV) said those words are no longer in his vocabulary.

PPI has long considered pricing carbon the sine qua non of progressive energy policy, although we have been agnostic as to how. We helped to design the cap and trade architecture in several pathbreaking legislative proposals (the Lieberman-McCain and Lieberman-Warner bills, as well as Senator Tom Carper’s “4P” bill), and proposed a “tailpipe trading” system to cover auto emissions. We continue to believe that cap and trade offers the twin advantages of environmental certainty — a quantifiable limit on the amount of carbon Americans emit – and strong incentives for companies to invest in energy efficiency and innovation.

At the same time, however, we’ve endorsed a straight up carbon tax, as well as setting a “floor” under oil prices to prevent their volatility from inhibiting investments in clean fuels. The key is to price carbon realistically, by taking into account the “externalities” not included in the price of gas at the pump (or coal for that matter): the hundreds of billions we spend each year to assure access to fossil fuels, as well as the environmental damage done by concentrating greenhouse gases in the atmosphere.

To free market fundamentalists, ending such implicit subsidies to fossil fuels is tantamount to raising taxes on energy. So be it. We need to raise the cost of burning fossil fuels and lower the cost of low-carbon alternative fuels. This is a matter of urgent national interest, and President Obama will need to propose a new clean energy strategy to the next Congress.

Photo Credit: Americaspower’s Photostream

Increasing the Powers of the Nuclear Regulatory Commission

Posted on by The Progressive Policy Institute

We’re the good guys, right? The U.S. would never help other countries gain access to potentially dangerous nuclear technologies, would it? In general, that’s true. The United States has stringent export controls, and regularly sanctions companies that try to thwart these laws. Export control regulations, however, only cover technologies that have already been commercialized and are being sold for use in other countries. But what about new technologies for enriching uranium or separating plutonium? Should we be concerned about them even before they get built, especially if new technologies are smaller, more efficient, and could make it harder to detect cheating or covert plants?

I think so. After all, as Georgetown University physics professor Francis Slakey notes, “There’s been a number of different technologies to enrich uranium. Every single one of them — despite best efforts to keep secrets — every single one of them has proliferated.” The world’s most famous proliferator, AQ Khan, worked for the European company URENCO, a leading provider of nuclear fuel, in the 1970s. It is widely believed that he simply copied the blueprints for the enrichment technology — like gas centrifuges — that the company used at the time, and smuggled them out the front door, bit by bit. Later, in his native Pakistan, he led efforts to build centrifuges based on those designs and to improve them. Once he had mastered this technology, he offered both enrichment services and centrifuge designs to nearly anyone. Indeed, the International Atomic Energy Agency has reported that Iran’s centrifuges are based on the stolen URENCO designs.

So is there anything that we can do to prevent the next AQ Khan from stealing the latest and greatest new gadgets? One of our gatekeepers is the U.S. Nuclear Regulatory Commission. Created as an independent agency in 1974 by Congress to license the commercial nuclear power plants, the NRC also has oversight responsibility for all civilian uses of nuclear materials. Much of its jurisdiction predates the independent agency and is derived from the Atomic Energy Act of 1954 (when the NRC was part of the Atomic Energy Commission) and requires that the NRC evaluate whether the issuance of a license “would be inimical to the common defense and security or to the health and safety of the public.”

The Commission has a rigorous process in place to ensure that new nuclear power plants, enrichment facilities and storage depots — such as the now-in-limbo Yucca Mountain — all meet rigorous standards for safety and security. The NRC has not yet decided what role it can and should play in nonproliferation. Six members of the U.S. House of Representatives — both Democrats and Republicans — think that nonproliferation is already part of the NRC’s jurisdiction, and they’re recently written a letter to the NRC “expressing support for including a nonproliferation assessment as part of the process for evaluating license applications.”

The American Physical Society (APS), an organization I’m involved with, wants to go a step further. Based on information assembled in our recent report, Technical Steps to Support Nuclear Arsenal Downsizing, we noted that one way to ensure the peaceful use of fissile materials was to “elevate the priority of non-proliferation in the NRC licensing process.” Because of this, APS has filed a formal petition for an NRC rule change. If changes are made, nonproliferation would be an official part of the Standard Review Plan for the Review of a License Application for a Fuel Cycle Facility – Final Report (NUREG 1520 Revision 1).

What can NRC do? As part of the license application review process, NRC experts can determine if any of the technology is inherently dual-use or if technology is single-purpose. Single purpose technology — items that would only be used in this particular application — can be placed on export control lists and tightly constrained. For dual-use technologies, some may be placed on export controls lists as well. In addition, the NRC can require that no one — or at most, a very few highly trusted individuals — has access to the complete blueprints for these facilities. In other words, the NRC, in conjunction with other parts of the U.S. Government, can work to ensure that the particular components and ideas needed to make these facilities function properly don’t fall into the wrong hands.

So far, the U.S. has a stellar nonproliferation record. By including the Nuclear Regulatory Commission in nonproliferation efforts, we can better secure the country.

Photo Credit: Davi Sommerfeld’s Photostream

Death of Cap-and-Trade?

Posted on by The Progressive Policy Institute

When Sen. Lindsey Graham (R- S.C.) recently declared cap-and-trade “dead,” he may have been more right than he realized. Graham was referring to the political prospects for carbon pricing in this Congress, but cap-and-trade has been the tool of choice for limiting emissions of other pollutants — like sulfur dioxide and nitrous oxides — for almost 20 years. The EPA proposed a rule yesterday that could sharply limit the role of trading in markets for those pollutants.

The proposed “transport rule” would replace the existing Clean Air Interstate Rule (CAIR). Both are aimed at reducing emissions that affect air quality not locally, but in downwind areas (hence the “transport” and “interstate” in their names). CAIR was issued under the Bush administration but comprehensively rejected by the D.C. Circuit Court in North Carolina v. EPA. CAIR has been in effect since the ruling, but as a zombie regulation. The EPA needs to replace it with a new rule that fits the court’s view of the agency’s powers under the Clean Air Act. The transport rule released yesterday is the agency’s attempt to do this. The rule is massive — 1,300 pages — and reads like a long-form response to the court’s opinion.

So what does this have to do with cap-and-trade? Among the court’s major objections to CAIR was the inability of the EPA to guarantee each state would reduce its emissions sufficiently to prevent interference with air quality downwind. The emissions trading systems set up by CAIR was to reduce emissions overall, and prevent problematic transport of pollution generally, but the EPA couldn’t promise, as the court read the statute to require, that each and every state would reduce emissions sufficiently. The reason for this is interstate trading. CAIR would have allowed emissions sources in different states to trade with each other. This has obvious benefits, as a bigger market is generally more efficient, but it is impossible to know in advance where the emissions reductions will occur. If it is unexpectedly cheap to reduce NOx emissions in Ohio and unexpectedly expensive in Kentucky, trading will happen and Ohio will make deeper cuts. Knowing in advance where reductions will be cheaper is hard (this lack of information is the reason for having a market in the first place). Generally, this lack of foreknowledge is not a problem, since the overall cost of emissions reductions is lower. Under the court’s reading of the Clean Air Act, however, the agency has to know the outcome in advance, at least at the state level.

The transport rule addresses this by largely eliminating interstate trading. Intrastate trading is still allowed, but the rule would only allow interstate trading at the margin, within relatively narrow “variability limits.” The EPA seems to be doubtful that even this small amount of interstate trading will be permitted by the courts. The new rule lists alternative options that do not include interstate trading at all.

It looks like we’ll be lucky if the final version of the new rule includes any interstate trading. Without interstate trading, the emissions reductions achieved by the new rule will be more expensive than they otherwise would be — possibly a lot more (I look forward to analysis from economists on exactly how much). Since the transport rule would replace both of the major cap-and-trade programs currently in operation in the U.S., this would mean an end to interstate emissions trading, at least for the 31 states affected by the new rule. It’s only a slight overstatement to say that cap-and-trade as we now know it would end.

It’s hard to accuse the EPA of timidity or error here. The agency attempted in CAIR to create an interstate market and was (somewhat surprisingly) kicked in the teeth for it by the D.C. Circuit. Though I and many other lawyers disagree with the D.C. Circuit’s reading of the Clean Air Act that led it to reject CAIR, the reading isn’t unreasonable, so it’s hard to place all of the blame on the courts either. Congress ultimately has responsibility for either creating markets for pollution reduction, or giving the EPA sufficient tools to create them itself. The transport rule released yesterday makes it clear that the EPA does not have the tools it needs.

At least some in Congress are aware of this problem, however. The three-pollutant or “3P” bill written by Sens. Carper (D-DE) and Alexander (R-TN) would create new national cap-and-trade markets for SO2, NOx and mercury (a new EPA mercury rule was also rejected by courts). If this bill were passed, it would hopefully include a fourth “P,” carbon, but even without it, the EPA would have the tools it needs. Without it, the transport rule appears to be the best the agency can do. Twenty years after the 1990 Amendments to the Clean Air Act, that should be embarrassing.

This item is cross-posted at Weathervane.

Photo credit: Mhaithaca’s Photostream

A Nation of Pilot Projects?

Posted on by The Progressive Policy Institute

More news this weekend that the Obama administration continues to pursue its unheralded campaign to reverse retrograde Bush-era policies and put the nation on a more sustainable footing. The president announced that the Department of Energy will award $2 billion in conditional commitments from the Recovery Act to two solar companies for plants in Arizona, Colorado, and Indiana, which together will create over 5,000 jobs.

The president’s heart is clearly in this cause. In his address, he said, “Already, I’ve seen the payoff from these investments. I’ve seen once-shuttered factories humming with new workers who are building solar panels and wind turbines; rolling up their sleeves to help America win the race for the clean energy economy.”

However, as good as it is, the announcement leaves a lingering question: On cutting-edge infrastructure issues such as solar, will we continue to be a nation of pilot projects? Or will we take any quantum leaps and achieve actual national policy?

There’s nothing to quarrel with in the announcements themselves. Abengoa Solar will build the plant in Arizona, which, when complete, will provide enough clean energy to power 70,000 homes. Over 70 percent of the components and products used in construction will be manufactured here in the U.S.

Abound Solar Manufacturing is building the Colorado and Indiana plants, which will produce millions of state-of-the-art solar panels each year—in Indiana’s case, using an empty Chrysler factory.

In announcing the plants on July 4th weekend, the president said, “But what this weekend reminds us, more than any other, is that we are a nation that has always risen to the challenges before it. We are a nation that, 234 years ago, declared our independence from one of the greatest empires the world had ever known. We are a nation that mustered a sense of common purpose to overcome Depression and fear itself. . . I know America will write our own destiny once more.”

But the question is whether the scale, scope, and ambition of our solar policy rises to the level of the president’s language. The Recovery Act monies, and the policies underlying them, have been attacked left and right for failing to deliver on a set of clear national priorities. The stimulus dollars have been spread so wide and thin that they’ve been vulnerable to attacks both on pork and policy grounds.

That two solar plants are heralded as helping America “win the race for a clean economy” is the same pattern we’ve seen elsewhere in the collision between the clean economy campaign and today’s toxic budgetary and political environment. We saw the pattern in high-speed rail. As PPI’s Mark Reutter has noted, the administration announced $8 billion in stimulus funds that would go to a handful of projects. But without additional administration pressure, those funds are only being followed by $1 billion of congressional authorization. As 100 members of Congress wrote the president recently, “[G]iven budget constraints, we cannot continue to rely on general authorizations and appropriations to finance high-speed rail. We need to identify a dedicated revenue source for high-speed rail, and we need your help to do that.”

We have also seen the pattern in nuclear energy, where the administration took the bold step of announcing loan guarantees for two new nuclear plants in Georgia, the first built in a generation. However, the president’s language again made the actual commitment pale in comparison to the challenge. In announcing the guarantees, he cited the fact that there are, today, 56 nuclear reactors under construction around the world: 21 in China; six in South Korea, and five in India. He said, “Whether it’s nuclear energy or solar or wind energy, if we fail to invest in the technologies of tomorrow, then we’re going to be importing those technologies instead of exporting them.  We will fall behind. Jobs will be produced overseas instead of here in the United States of America. And that’s not a future that I accept.”

The ambitions are noble and the rhetoric stirring, but the question is whether we really are shaping a future here—or just a set of ambitious but singular pilot projects.

Yes, there is too little money in annual authorizations for serious infrastructure. But as infrastructure expert Norm Anderson has recently written for PPI, “The financing issue — not a surprise for anyone in the infrastructure business — is the number one problem facing the industry.”

This is all the more reason the administration should follow the stirring rhetoric about competitiveness and “writing our destiny” by creating a new institution, such as an infrastructure bank of the type proposed by Sen. Chris Dodd (D-CT) and Rep. Rosa DeLauro (D-CT) and supported by the president in the past, that would create a long-term funding source and the energy for true national policy.

Photo credit: Bilfinger Berger Group

Among Industry, Surprising Support for a Carbon Price

Posted on by The Progressive Policy Institute

In meetings I’ve had recently with folks representing industries from automobiles to energy to private equity, I’ve heard it over and over again. They want a price on carbon.

They want it because they want to make money through alternative energy. For that, they need predictability in supporting the companies that take risks and need capital to design and develop alternative fuel technologies.

They want it because they, their children, their grandchildren, their employees and their shareholders, like everyone on the planet, will suffer the externalities of a carbon-dependent economy.

And they want it because they’re good corporate citizens, and they want to do their part in easing the nation toward a lower-carbon future.

The question is whether carbon pricing will get any traction in the coming weeks from a White House that seems more intent on political calibration than on shaping the landscape itself.

Given the dynamism of the carbon-pricing movement, the twin mysteries today are, first, why the president didn’t press harder for what seems to be the consensus, industry-friendly position on carbon — a simple pricing mechanism — in his Oval Office speech last week, and second, whether he will do so in the coming weeks.

The politics of carbon have changed dramatically in recent weeks, as the nation continues to watch the spill billow in the Gulf. (If you haven’t yet done it yourself on your computer, click here for BP’s own mesmerizing and terrifying live feed). A recent, post-BP poll found that 63 percent of Americans support a bill with a carbon price, while only 29 percent oppose it. The environment has also improved for proposals like the “cap-and-dividend” bill recently offered by Sens. Susan Collins (R-ME) and Maria Cantwell (D-WA) (and explained here on P-Fix by Danny Morris), which would price carbon with a net-neutral return to the taxpayers in the form of checks.

Meanwhile, the nation’s leading corporations continue to support a price on carbon. In April, before the spill, three of the nation’s largest oil companies — Shell, ConocoPhillips, and BP (this is even pre-oil spill) — as well as the Edison Electric Institute, a consortium of utilities whose members provide the bulk of the nation’s electricity, all announced their support for the Kerry-Lieberman legislation with a “hard price collar” for the price of carbon (including both a floor and a ceiling).

The fact is that many private corporations want a price on carbon. They want it because they believe the future is headed in a direction where carbon-producing technologies will simply have to be reduced, and they’d rather build their businesses around that future quickly rather than slowly.

However, there was no such leadership last week from the Oval Office. Of the transition from carbon, the president said:

There are costs associated with this transition. And some believe we can’t afford those costs right now. I say we can’t afford not to change how we produce and use energy — because the long-term costs to our economy, our national security and our environment are far greater. So I am happy to look at other ideas and approaches from either party — as long they seriously tackle our addiction to fossil fuels.

This clinical framing scarcely captures the urgency of the task. There is a golden opportunity now finally to get business and clean energy on the same page. The question is whether it will billow by and disperse, like the oil we’re all watching in the Gulf.

Photo credit: Michael Caven’s Photostream

So Much for Market Mechanisms

Posted on by The Progressive Policy Institute

If, as appears likely, cap-and-trade legislation is not going to be enacted this year or any other time soon, it represents more than a setback for the Obama administration (or for the environment). It’s also another blow to the high concept of using market mechanisms rather than direct government control to address major public policy challenges.

Cap-and-trade was originally designed, after all, as an alternative to command-and-control environmental regulations, which is why it was once championed by Republicans, particularly during and after its successful use in reducing acid rain in the 1990s.

But as the New York Times‘ David Leonhardt (with an exclamation point from Jonathan Chait) explained this week, Republicans have abandoned cap-and-trade just when it might be most useful, with some former advocates, ironically, embracing command-and-control:

[T]he great economic strength of market systems like cap and trade also happens to be their political weakness. They set prices and allow people to react. In the process, market systems acknowledge that reducing pollution may actually cost a little bit of money.Politicians don’t like to admit this, because voters don’t like it. Accepting higher costs is especially hard when the economy is weak. So Congressional Democrats have been repackaging their energy bills to make them look less and less market-oriented. Senator John McCain, who supported a permit system for carbon as the Republican presidential nominee, no longer does. Senator Lindsey Graham, the South Carolina Republican, has reversed his position as well.

What does Mr. Graham now favor? A series of command-and-control regulations. He has introduced a bill with Senator Richard Lugar, an Indiana Republican, that would mandate specific standards for cars, trucks, homes and offices. It would also give the energy secretary the power to award loans to companies he thought could do a good job of setting up programs to retrofit buildings. State officials would do the same for factories. The bill, in short, puts more faith in government than the market.

Leonhardt clearly believes that the transparency of cap-and-trade when it comes to costs is its major political flaw. That’s definitely a factor, but I’d argue that something more fundamental is going on. Once Democrats embraced cap-and-trade, Republicans began retreating from it as a simple matter of politics. And this distancing effort has been immensely reinforced by the rightward trend in the GOP during the last few years, in which leaders who simply denied there was any climate change problem, and/or that government had any useful role to play on the issue, have been in the ascendancy. So “cap-and-tax” was demonized and essentially placed off-limits for Republican politicians, to the point where those like Sen. Lindsay Graham (R-S.C.) and Sen. Richard Lugar (R-IN) who weren’t quite in the “denialist” camp found it easier to just support direct federal regulation.

We saw a similar dynamic play out on health reform, where a market-based managed competition model long supported by Republicans, and championed quite recently by Mitt Romney, became toxic the moment it was fully advanced by Barack Obama. And even as they savaged ObamaCare as “socialized medicine,” Republicans saw little irony in posing as last-ditch defenders of Medicare, a relic of an earlier Democratic drive for a government-run single-payer system.

On both health care and climate change, it’s not surprising that many progressives are impatient with Obama’s determination to promote market-based approaches that the supposed party of market-based policy, the GOP, will no longer support. But nobody should for a moment mistake the identity of the prime mover in shifting the political ground away from the once-promising “centrist” convergence on using market mechanisms to address public sector challenges. The GOP could have declared partial victory and celebrated the Democratic Party’s abandonment of big government solutions, and then fought it out over the details. Instead, Republicans have burned down every structure on the potential common ground that Americans seem to crave. They may be able to succeed for a while in opportunistically deploring the inability of Democrats to get anything done. But if and when Republicans regain power, they may well discover that the GOP policy arsenal has been emptied by their own hands.

This item is cross-posted at The Democratic Strategist.

Photo credit: Magnera

Dealing With a Different Wheel

Posted on by The Progressive Policy Institute

As we await the next step on energy legislation in the Senate, Ezra Klein makes an extremely important if fairly obvious point about the Obama administration’s apparent determination to get something passed even if it doesn’t include a cap-and-trade system or some equivalent carbon pricing mechanism. If the Senate won’t pass such provisions now, it won’t pass them later, either:

There’s nothing magic about [a House-Senate] conference that allows controversial policies that couldn’t pass the Senate the first time around to pass on the second go. The advantage of a conference report is that it can’t be amended, which means you might be able to sneak in some small concessions to the House that aren’t important enough for anyone to sink the whole bill over. But it can be filibustered. So if you add anything major to the bill that would’ve killed it on the pre-conference vote, it’s a good bet that it’ll kill it on the post-conference vote as well.

Carbon pricing almost certainly falls into that category. It’s not a side policy or a bit of pork. It’s the core of a climate bill. If it doesn’t pass in the original Senate bill, that’s because it can’t pass the Senate. Adding it in during conference won’t change that. It’ll just mean the conference report can’t pass the Senate, either. I can’t see any permutation of this in which a conference strategy for carbon pricing makes any sense.

This doesn’t, of course, mean that Congress can’t pass worthwhile energy legislation this year. But it’s not going to magically become a real climate change bill somewhere down the road, particularly with Republicans now monolithically opposing a cap-and-trade approach they once championed.

It’s fine to wheel and deal on legislation, but sometimes the only deal available is one that turns the wheel to an entirely different outcome. That’s probably where things are headed on energy this year.

Photo credit: Rob Crawley’s Photostream

This item is cross-posted at The Democratic Strategist.

A Deafening Silence on Pricing Carbon

Posted on by The Progressive Policy Institute

The president had a gilt-edged opportunity last night to show leadership on energy and climate policy. Most everyone who has written about the speech agrees that he let it slip through his fingers.

The president started, of course, with a discussion of the Deepwater Horizon spill and cleanup efforts, only linking the spill to larger questions of energy, energy security and climate towards the end of the speech:

When I was a candidate for this office, I laid out a set of principles that would move our country towards energy independence.  Last year, the House of Representatives acted on these principles by passing a strong and comprehensive energy and climate bill—a bill that finally makes clean energy the profitable kind of energy for America’s businesses.

Now, there are costs associated with this transition. And some believe we can’t afford those costs right now. I say we can’t afford not to change how we produce and use energy—because the long-term costs to our economy, our national security, and our environment are far greater.

Great so far.  The president then added:

This is why I’m confirming the commitment I made as a candidate to securing America’s future by putting a price on carbon. Doing so would end our dependence on foreign oil, reduce the environmental risks of oil drilling, protect our children from the risk of climate change, and reduce the burden of debt we will pass on to them. Nothing else we can do as a nation would address so many critical problems. For too long we have allowed this policy to be written off because it is politically risky. That must end today. I am calling on the Senate to follow me, the House, and the American people in demanding action. Expedient half-measures will no longer do.

Except he didn’t actually say that, of course. Instead of ending his speech with the call to action it was crying out for, he punted, promising to look at “other ideas and approaches from either party” like new building efficiency and renewable energy standards.

Listening to ideas is a good thing, of course, but disregarding far and away the best one — pricing carbon — is not. The most striking difference between this speech and Obama’s “energy speech” before the 2008 election is the failure to mention a price mechanism for carbon. None of the measures Obama mentioned will do much to address any of the problems he raised, and to the extent they do anything, it will be more costly than achieving the same results with a carbon price. As Sen. Joe Lieberman (I-CT) said before the speech, trying to achieve climate and energy security results without a carbon price “would be the equivalent of President Kennedy launching our national effort to put a man on the moon without building a rocket.” (Side note: Whatever those on the left think about Lieberman, he deserves credit for the grunt work and political stand he has taken this year on climate).

I’m unsympathetic to the meme that the president’s reaction to the oil spill itself has been somehow weak — there is only so much he or anyone can do about the unfolding disaster. I do think, however, that he has shown a lack of political courage in passing up the opportunity to call for meaningful action on climate and energy. It’s likely that Rahm Emanuel, ever mindful of votes, simply does not think that there is enough support in the Senate for a real climate bill. He’s probably right, but the president’s failure to go out on a political limb for a carbon price ensures that support won’t materialize, since there’s a climate/energy leadership deficit in the Senate as well (looking at you, Sen. Harry Reid (D-NV) and Sen. Lindsey Graham (R-SC)). The bully pulpit is a powerful tool to move and shape debate. Emanuel should listen to his own advice here and not waste a crisis that presents such a resonant illustration of the value of reducing carbon emissions. This kind of opportunity may not come again.

However cynical it may appear, Emanuel is right that politics only really changes in response to crises. Climate is a slow problem that will generate obvious crises only when it is too late. The only crises we are going to get while there is still an opportunity to act are those that are indirectly related to climate change (like the oil spill) or illustrate its dangers (like Katrina). If even disasters of this scale are not enough to get us to move — and if even leaders of President Obama’s caliber are unwilling to use them as an opportunity to lead — then maybe we have already lost.

Photo credit: Roberthuffstutter’s Photostream

The War on Oil?

Posted on by The Progressive Policy Institute

President Obama firmly took charge of the Gulf oil disaster last night. That was something he needed to do. But am I the only one who found his martial tone off-putting?

There were even moments when I flashed back to his predecessor’s portentous declarations about the war on terror.

More than most of President Obama’s major speeches, this one seemed like a performance aimed at achieving a particular political result: belying a media narrative that says he’s lost control of the crisis. His histrionic address from the Oval Office suggested an actor who has read too many critical reviews.

It’s one thing to have the media whip itself into a frenzy over an oil spill that nobody seems to know how to stop. But it’s unnerving when this usually unflappable president loses his sense of proportion. The oil spill already has done immense ecological and economic damage, and it isn’t done yet. The president was right to mobilize his administration to mitigate the damage, and to put the onus on BP to make whole those whose livelihoods have been destroyed by its reckless disregard for safety.

But there really was no need for the president to sound like Churchill after the fall of France. The situation just isn’t that dire. The leaking well will be plugged, possibly in the next several weeks; nature will demonstrate its amazing resilience and self-healing properties once again; and the shrimpers, fishermen, and hospitality workers devastated by the spill will be compensated.

If his hyperbolic language seemed forced and unconvincing, the president at least drew the right lessons from the Deepwater Horizon disaster. He challenged Americans to embrace the tough measures necessary to reduce our dependence on cheap fossil fuels, which Obama rightly identified as the real nub of the problem. But when it came to specifics, the president was dismayingly vague. Unaccountably, he did not repeat and drive home the crucial point which he made last week: putting a price on carbon is the sine qua non of kicking our oil addiction.

The president made it amply clear last night that he will not let BP off the hook. But that’s the relatively easy part. Would that he had been as resolute with the U.S. Senate, which has been backpedalling furiously away from the comprehensive energy/climate bill the House passed last year. The smart money in Washington says that any kind of carbon cap or price can’t muster 60 votes in the Senate, and so is dead for this year. That likely means it’s dead for next year too, since Democrats will have, at best, reduced margins in the House and Senate.

Before a national audience, the president missed an opportunity to call out Republicans for their monolithic opposition to pricing carbon. Their stance, a noxious blend of scientific ignorance and anti-tax demagoguery, condemns America to even more abject reliance on fossil fuels, with all the risks that entails, including deep water drilling and a worsening energy trade balance. The president could also have used the occasion to stiffen Democratic spines to take a firm stand for clean energy, and to acknowledge that America will also need more nuclear power to meet rising energy demand without increasing carbon emissions.

Best of all, the president could have threatened to veto any bill that doesn’t include pricing carbon to more accurately capture the true economic and environmental costs of burning fossil fuels.

Fortunately, the game is far from over and the president will have other opportunities to make his stand. Despite all his talk of oil “invasion” and “siege,” kicking America’s oil habit isn’t the moral equivalent of war; nothing is. But as the Gulf calamity reminds us, it’s an urgent imperative for presidential leadership.

Photo credit: Marinephotobank’s Photostream

Climate Legislation in the Balance

Posted on by The Progressive Policy Institute

Expect stern words tomorrow when President Obama speaks to the nation about BP’s failure to stop the Gulf oil spill. He should also use the occasion to deliver a strong message to the U.S. Senate.

The world’s greatest deliberative body has been flailing around energy and climate legislation since the House passed the Waxman-Markey bill last year. You’d think that, with oil still gushing into the Gulf, senators would be moved to do something serious about America’s oil addiction. Instead, the Senate seems headed toward the path of least political resistance.

It’s easy to place sole blame on BP for the spill, but ultimately insatiable American demand for oil played a role in fouling the Gulf. The key to reducing U.S. dependence on oil, and fossil fuels in general, is to put a price on carbon. That would capture both the environmental and the security costs of our thirst for oil, and provide investors with the certainty they need to put money into developing clean fuel alternatives.

An economy-wide cap-and-trade bill at this point is clearly a bridge too far for the Senate. But President Obama made it clear last week that some kind of carbon pricing is still the sine qua none of a serious energy/climate bill.

Republicans, unembarrassed by their “drill-baby-drill” demands before the BP disaster, are standing foursquare for the petro-centric status quo. “We don’t think this is a great time to be socking a national energy tax to the American people,” Minority Leader Mitch McConnell said last week.

And even South Carolina Sen. Lindsey Graham (R-SC), poster boy for GOP reasonableness on capping carbon, now says: maybe next year. He’s talking up an “energy only” bill by Sen. Dick Lugar (R-IN) that includes subsidies for clean fuels but no carbon price to truly galvanize private investment in clean technology and energy.

Thus has the BP spill has not only done grave damage to the Gulf’s ecology and economy, it’s unraveled President Obama’s careful attempts to forge a grand bargain in which some Republicans support a carbon price in return for more support for nuclear power as well as offshore drilling (off the table, at least for now).

It would be a bitter irony if the political fallout from the BP spill wound up perpetuating America’s dependence on oil. To avert that tragedy, the president should make it clear tomorrow that he will accept no bill from the Senate that fails to put a price on carbon.

Photo credit: Valeshel’s Photostream