issue: Energy & Environment

Rah-Rah for Retrofits

Posted on by The Progressive Policy Institute

We’ve heard a lot of doom and gloom on environmental topics recently, with progressives providing dark statistics about escalating carbon levels and conservative rebutting with stormy predictions of economic eclipse.

But Earth Day is supposed to be a feel-good day. And, as Thomas Friedman argued yesterday, when you start winning, everything becomes easier. That’s why President Obama’s victory on health care helped led National Security Advisor Jim Jones’ to declare that “America is back” on the world stage.

So it’s fitting that Vice President Joe Biden yesterday announced just under a half-billion dollars worth of stimulus monies for efficiency retrofits. In a little over a year, the administration has won a surprising number of victories in the push to mine “negawatts” through efficiency. Where we were slouching toward disaster through the laissez-faire, do-nothing inertia of the prior administration, we are now plowing toward a brighter, cleaner horizon.

Among other highlights, Biden announced that $20 million will be distributed to cities in the southeastern states of Alabama, Florida, Georgia, North Carolina, Louisiana, South Carolina, Tennessee and Virginia to dramatically increase the effectiveness of retrofits across the region. The new programs will use a pay-for-performance approach to finance affordable, accessible programs for both small and large residential, commercial and public buildings. But that’s just one of dozens of programs spread through Boulder to Camden, Cincinnati to Seattle.

What’s not to like? These projects pay for themselves. They work with local and state governments to quickly upgrade buildings. They employ local workers and are the quintessence of “shovel-ready.” And perhaps most importantly, they showcase in very public ways the powerful nexus of public works and progressive policy. These are wins — and, hopefully, preludes to victory this summer, as the administration and Congress turn to the effort to price carbon.

Plan B for Climate Policy?: A PPI Series

Posted on by The Progressive Policy Institute

PPI has long been a proponent of an economy-wide cap-and-trade system to confront the problem of climate change. But as the fortunes of cap-and-trade legislation in the Senate fade, we need to begin looking at other options before Congress. In the first post of this series, we looked at the Cantwell-Collins “cap-and-dividend” bill. This post examines the Carper-Alexander “3P” plan introduced this February, a bill that regulates only non-greenhouse-gas pollutants that some have suggested could be expanded into an electric-sector carbon cap-and-trade plan.

In early February, Sens. Tom Carper (D-DE) and Lamar Alexander (R-TN) introduced what we will call the “3P” (P for pollutant) bill, which tightens emissions of SO2, NOx and mercury from coal and oil-fired power plants through cap-and-trade markets. While the bill covers only non-greenhouse-gas pollutants, it has been discussed as a possible template for a climate bill targeting the electricity sector — or “4P.”

Carper-Alexander is nothing radically new. Considering how knowledgeable the American public is about cap-and-trade in general, it’s a safe bet to say most people don’t know that there is already a cap-and-trade market working to reduce air pollution from fossil fuel-fired power plants in the U.S. as we speak.

If you’ve ever had any discussions about market solutions to pollution problems, then chances are you’ve heard about the 1990 amendments to the Clean Air Act, which established a pollution reduction market to address acid rain in the Northeast. Specifically, it created a cap-and-trade market for sulfur dioxide (SO2: primarily responsible for acid rain, not a greenhouse gas) and nitrogen oxides (NO and NO2, both commonly labeled NOx: harmful to humans, primary precursor to ground-level ozone, which is a greenhouse gas) for the eastern half of the country. Since its inception in 1990, it has impressively reduced acid rain problems at much lower costs than initially predicted. It is the example advocates and economists point to when discussing how cap-and-trade can help control greenhouse gas emissions. This program was further strengthened in 2005 when the Environmental Protection Agency (EPA) issued the Clean Air Interstate Rule (CAIR), which established permanent caps and aggressive reductions for SO2 and NOx emissions beyond the Clean Air Act.

Designed to protect human health, CAIR is in poor health itself. A D.C. Circuit Court in 2008 found it failed to follow Clean Air Act statutory mandates and vacated the rule. The court then reinstated it under the stipulation that the EPA make some significant changes. The EPA is currently retooling CAIR to bring it in line with the court ruling. Just like with carbon emissions, however, it would be nice if Congress stepped up to the plate and made a law that clearly told the EPA how to administer these regulations. Unlike on carbon emissions, there’s a chance Congress can act relatively quickly.

The Basics

The Carper-Alexander bill sets a 3.5 million ton cap for a national market of SO2 emissions in 2012, then ratchets it down to two million tons in 2015 and 1.5 million tons in 2018, an 80 percent reduction of 2008 emissions. This final limit would remain unless after 2021 the EPA finds a lower cap is needed to protect public health.

The NOx market would operate slightly differently, as the country would be split into two zones, with the eastern states and western states each getting their own NOx market. The eastern market will face a cap of 1.39 million tons in 2012, which will tighten to 1.3 million tons by 2020. The western market will be capped at 510,000 tons in 2012, cranking down to 320,000 ton by 2020. When combined, the two markets will reduce NOx emissions from 2008 levels by 53 percent. The bill calls for mercury to be reduced by 90 percent by 2015, but it is not regulated in a market. Rather, the bill sets a cap for mercury (no trading) and leaves it to the EPA to promulgate the program rules.

A 4P bill could be very similar to the 3P proposal. Likely, the bill would establish a single market for CO2 emissions from power plants with reduction goals for future years, likely extending out to 2020. The bill could possibly call for New Source Performance Standards on all four pollutants for new plants. It might also include offset provisions for CO2 production. This legislative approach could be appealing if a more comprehensive proposal fails to gain support in the Senate and legislators begin to look for smaller-scale, more piecemeal approaches to emissions reduction.

The Good

The 3P bill takes aggressive action to reduce harmful air pollutants that derive from the combustion of fossil fuels, namely coal and oil, for electricity generation. Even though it targets only non-greenhouse gas pollutants, 3P could actually lead to indirect climate change benefits. While pollutants capped under the bill can be lowered through the use of filters and other technologies, a 3P scheme could also spur plant upgrades, the retirement of older (and dirtier) plants, and fuel-switching to less carbon-intensive sources, including natural gas, renewables, nuclear and hydropower — all of which would lead to lower carbon emissions. By successfully applying a cap-and-trade system for mitigating environmental damages, 3P also reinforces the notion that these systems can work in the real world without harming the economy.

Furthermore, 3P saves the EPA from legal limbo by clearly establishing the reduction goals for SO2, NOx and mercury emissions over the next 10 years and providing clarity for both firms and regulators. The bill also seems politically innocuous — even infamous climate change denier Sen. Jim Inhofe has said vaguely positive things about it. If the Obama administration goes looking for a bipartisan win on the environmental front, it may look to push the 3P.

The Bad

As already mentioned, 3P is not a climate bill, though it may have some indirect climate benefits. But even a 4P climate bill would be less than ideal. If CO2 were added to the 3P’s list of targeted pollutants, the bill would still fall short as it would regulate only the electricity sector — transportation, manufacturing and other carbon-emitting sectors would evade regulation. Electricity generation accounts for roughly one-third of total greenhouse gas emissions in the U.S., meaning that a 4P bill would still be far less preferable than an economy-wide cap-and-trade system.

Additionally, were a 4P bill to be structured similarly to the current 3P bill, it would give a great deal of authority for market design and administration to the EPA as CO2 would technically be regulated under the Clean Air Act. Regardless of your opinion about the EPA’s ability to properly administer a massive emissions market, it’s a political sticking point, as highlighted by current proposals to strip EPA of its authority to regulate greenhouse gases.

The Upshot

The 3P bill could provide a viable pathway for carbon regulation of the electricity sector. If the highly anticipated tri-partisan climate bill from Sens. John Kerry (D-MA), Joe Lieberman (I-CT) and Lindsey Graham (R-S.C.) does not create the kind of momentum for climate and energy legislation the authors are hoping for (more on that in the next entry), one option could be for the Senate to take a more piecemeal, sector-by-sector approach, in which a 4P bill (SO2, NOx, mercury and CO2) moves forward.

Both Carper and Alexander have sponsored carbon emissions legislation specific to electricity generation in past sessions of Congress. Both those bills called for electricity-specific cap-and-trade markets to reduce carbon emissions. Carper has signaled he’s open to incorporating his bill into a broader climate bill, though it’s unclear if he meant including CO2 in the structure of his bill or working the SO2, NOx and mercury caps into another piece of legislation.

The Carper-Alexander bill provides a simple structure, and clarifies existing regulations within EPA. It would not be an ideal approach to emissions reduction, but if all else fails, it could provide a workable jumpstart. The Clean Act Air showed that cap-and-trade can work once before, and it might have a chance to do it again.

Photo credit: https://www.flickr.com/photos/emmajg/ / CC BY-NC-SA 2.0

Cheat Sheet for Climate Policy: Part I – What’s Essential for a Good Climate Bill

Posted on by The Progressive Policy Institute

How to tell a good climate bill from a bad one? This series will guide you through the main issues that are likely to arise in the coming weeks as the Senate takes on climate change. In this post, we identify the essential ideas that need to be enshrined in any climate bill. These are the provisions that no good climate policy can do without. (To read the other posts in the series, click here.)

With Sens. John Kerry (D-MA), Lindsey Graham (R-S.C.), and Joe Lieberman (I-CT) set to release their climate legislation next week, climate change seems poised to return to the top of the agenda in Washington. One lesson learned from the last big fight on the Hill — health care — is that things can get confusing and ugly quickly for non-expert observers when media attention shines a light on the congressional sausage factory. It becomes hard to keep issues and ideas straight, harder still to understand which are important, and the avalanche of political rhetoric can make it tempting to just tune out.

Our goal for this short series is to help you cut through the noise. These posts are intended to be a climate policy cheat sheet that will help you decode the discussions. The issues we’ll cover are not equally important — some, like a price on carbon, are integral to the success of any climate and energy policy. Others, like expanding oil drilling, are substantially less significant from a climate/emissions perspective, though perhaps more relevant from other angles (energy security, politics, etc.).

To make the relative importance of these issues clear, we’ve divided them into four categories of decreasing significance — the crucial, the merely important, the relatively minor and the distractions. We’ll summarize the issues in each of the four categories in different posts, starting today with the absolutely vital issues. These categories, we hope, will help you figure out whether something is relatively trivial, or if the farm is being given away in the course of the legislative debate.

We want to make it clear that these categories are based only on the policies’ impact on the key issue: reducing emissions as much as possible for the lowest cost. Other policy goals like economic equity, increased domestic energy production, energy security, etc. might all be important, but (at least in the context of climate policy debates) they’re subordinate to the primary aim of emissions reduction. We’ll mention these goals when one of the policies we discuss affects them, but they are not our focus. We also won’t spend much time discussing the relative levels of political support for different policies – we’ll leave the political commentary to others.

We’re sure that not all of you will agree with our judgment of the relative importance of these issues. That’s fine — encouraging and enabling quality debate on climate policy (look elsewhere for a science debate) is the entire point of the list.

Category I Issues: The Sine Qua Non of Climate Policy

#1: A price on carbon

As Nathan’s written here before, a climate policy without a price on carbon isn’t a serious one. Fossil fuels have deep roots in our economy, and only a carbon price can effectively reach all sources of greenhouse gas emissions. Just as important, no other policy can achieve reductions as efficiently as a carbon price can. The price mechanism forces firms to identify inefficiencies that generate excess greenhouse gas emissions, resulting in the cheapest emissions cuts.

A carbon price can come in one of two forms: either tax carbon emissions directly, or cap them and distribute a limited number of emissions allowances. While a carbon price is not the only policy that matters, it is the one that matters most by far. Anyone who tells you a carbon price is not the most important aspect of climate legislation, no matter how well-intentioned, is wrong.

No climate proposal from the Hill, and few media reports, however, will mention a carbon price. Instead, you’ll hear about cap-and-trade or, since that term has become politically unpalatable, any one of a number of rebrandings: “cap and dividend,” “creating a green economy,” “incentives-based mechanisms,” or something altogether new. If there’s one point worth making here, it’s this — none of these names matter very much, at least substantively. They serve a political purpose, not a policy purpose.

By far the most important question to ask is whether a rebranded proposal puts a price on carbon or not. Is there a cap on emissions and allowances or permits that emitters can trade? Is there a single price (whether it’s called a tax or not) on carbon emissions? If there is, the rest of the proposal is secondary (the details of which may or may not be important). If not, it’s not an honest climate policy.

#2: Breadth of coverage—how much carbon gets priced?

A related issue is how much of U.S. carbon emissions a price mechanism covers. A tax or cap-and-trade system could cover the entire economy, or just one or more sectors. Generally speaking, the broader the coverage of a single emissions market, the greater the possible emissions reductions and the lower the cost per unit of emissions reduction. In other words, broader markets are better. There is some indication that the Kerry-Graham-Lieberman proposal will have an energy-sector only cap, with other measures used to reduce emissions elsewhere. This is useful, but not as good as an economy-wide cap.

A useful rough rule of thumb is that electricity-sector emissions are a third of total U.S. emissions, transportation-sector emissions are another third, and everything else (industry, agriculture, etc.) comprises the remaining third. Since it’s hard to measure emissions from some sectors (like agriculture), a program that includes all U.S. emissions isn’t practical. But including electricity, transportation and industry is feasible and can cover approximately 85 percent of all U.S. greenhouse gas emissions. Policies that cover these sectors are better than those that don’t, and policies that have the same price mechanisms for all three are best of all.

#3: Emissions reduction targets — setting the cap

Setting a price on carbon is critical, but it’s only a means to an end. The goal, of course, is to reduce greenhouse gas (primarily CO2) emissions and limit environmental damages. Once you know that a proposal is a serious one (because it includes a price on carbon), your next question should be how much that policy will reduce emissions. In short, what’s the target?

For a cap-and-trade system, knowing the target is easy: it’s the cap. The concept is pretty simple: set a finite number of emissions allowances and distribute them to actors in the economy in the first year of the program. In each succeeding year, lower the number of allowances available until you reach a desired level of emissions.

For a carbon tax, figuring out emissions reductions is a little more complicated. A rising tax produces similar results as a tightening cap, but you trade emissions certainty (you don’t know exactly how much reduction you’ll get, unlike with cap-and-trade) for price certainty (emitters know exactly how much it will cost for them to emit greenhouse gases). With a cap, it’s the opposite – we know exactly how much we’ll get in reductions, but the market for allowances will determine the price.

More often than not, the first thing highlighted about a new climate proposal are the reduction targets, especially the near-term targets. From an environmental perspective, however, the more important issue is cumulative emissions, not emissions at any point in time. That’s because CO2 and other greenhouse gases are stock pollutants — they accumulate over time. It doesn’t necessarily matter if high or low volumes are released at certain times, just what those volumes add up to over the course of the regulation.

The current global benchmark, to which U.S. action will contribute, is to reach an emissions path that keeps average temperature rises to 2 degrees Celsius. For climate legislation, what matters is the general path of emissions, not necessarily the specific reductions in 2020 or 2040. As we’ll explain in our next post, specific market regulations will determine the exact emissions in any given year, but the market needs a path to follow, which is determined by the lowering cap (or increasing tax). There’s no way to guarantee some set percentage reductions in any year without a direct mandate, which would be extremely costly and restrictive. When you hear lawmakers railing about how 20 percent reductions from 2005 levels in 2020 are unreasonable but 14 percent cuts are attainable, know that they are having a political discussion, not a policy one.

In short, the exact percent emissions targets don’t matter too much year to year. Instead of worrying about whether the goal is to reduce greenhouse gas output by 17 percent or 20 percent in 2020, worry about the trajectory of emissions reduction over the lifetime of the regulation. The long-term outlook is much more important than the short-term benchmarks. Unfortunately, finding out what this long-term outlook is can be hard. It’s a failure of policy leaders and the media that short-term single-year targets are widely publicized while the effect of a given policy on the future stock of greenhouse gases in the atmosphere is rarely discussed.

The Bottom Line

These issues — a carbon price, its reach and the emissions target — are by far the most important parts of a climate proposal. The first questions you should ask of any such proposal are:

  1. Does it create a price on carbon?
  2. How much of U.S. emissions are covered by that price?
  3. What is the path of emissions reduction set by the cap?

The answers to these questions are the most critical to designing effective climate policy. Other things are important, too, as we’ll describe in our next post, but don’t let them distract you. If you care about climate change, keep your eyes on these three ideas.

Photo credit: https://www.flickr.com/photos/evenprimes/ / CC BY-NC-ND 2.0

Update: This item has been corrected.

Earth Day at 40: Can Obama Outperform Nixon?

Posted on by The Progressive Policy Institute

Today is the 40th anniversary of Earth Day, the first of which took place in 1970 at the beginning of the golden age of environmental legislation in the United States. It’s a telling statement that in the past four decades, the most successful environmental record belongs to Richard Nixon.

Our most disgraced president looks rather hippie-esque when you look at the achievements that passed during his administration: the National Environmental Policy Act, the Clean Air Act, the Clean Water Act, the Marine Mammals Act, the Safe Drinking Water Act and the Endangered Species Act all became law under his watch, and he established the Environmental Protection Agency (EPA) soon after Earth Day One.

Since then, environmental policy has often meandered from favored conservative punching bag to a second-tier issue. President Barack Obama has a chance to cement a similar environmental legacy by acting on climate, energy and natural conservation legislation. How has he done so far? In his first term in office, President Obama has achieved notable environmental progress by simply not being President Bush.

Following arguably the most anti-environment administration since the 1970s, almost anyone would shine in comparison. Like on many other fronts, Obama does not lack for ambition. He included energy as one of his three top priorities during the 2008 campaign and has signaled that it will be getting his attention very soon. That being said, the Obama administration has not yet established an impressive or even cohesive environmental record. Many of the president’s actions have been piecemeal, either addressing specific policy problems or cleaning some of the messes left over from the previous eight years. He has yet to achieve a stout victory on the environmental front, but it has only been one year. He still has time to work.

Below is a list of the top five environmental actions that occurred in the first year of the Obama administration – and five other items on which he needs to do more work:

The Accomplishments

  • Endangerment finding: This finding, which said that carbon dioxide is a pollutant that endangers human health, gave the EPA authority to regulate it under the Clean Air Act. This is the most significant step toward reducing greenhouse gas emissions the U.S. government has yet taken.
  • CAFE standards: The EPA increased average fuel economy standards for cars and trucks in the U.S. fleet to be 35 mpg in 2020, the first increase since 1990. The regulation is estimated to reduce greenhouse gas emissions by 960 million metric tons by 2030.
  • The stimulus package: The American Reinvestment and Recovery Act channeled $8 billion toward energy projects, mainly focusing on renewables and energy efficiency. It included another $6 billion in water and wastewater projects.
  • Copenhagen: Simply put, international climate negotiations would have collapsed were it not for the direct personal involvement of the president. He was instrumental in getting almost every country in attendance to commit to two-degree temperature rise targets, helped get important concessions from China on emissions monitoring and established long-term financing ($100 billion annually by 2020, $20 billion for the U.S.) for international adaptation efforts.
  • Executive appointments: Lisa Jackson at EPA. Steven Chu at Department of Energy. Nancy Sutley at Council on Environmental Quality. Ken Salazar at Department of Interior. John Holdren at the White House Office of Science and Technology Policy. Jane Lubchenco at National Oceanic and Atmospheric Administration. Carol Browner as special adviser to the president on energy and climate change issues. These are all smart, competent, committed people who will help the president shape effective environmental policies over the course of his administration.

So what can Obama do for the environment in 2010 and the second half of his term? Here are just a few things:

The To-Do List

  • Climate: Above all, the president should push Congress hard to pass legislation that controls greenhouse gases by setting a price on carbon. The president already has a climate bill, Waxman-Markey, that had passed the House last year and was ready to go to the Senate. Instead of pushing this bill, he and the Senate leadership chose to focus on health care. That process consumed the heart of this Congress’ legislative calendar and much of its political energy. While that choice was understandable, it leaves action on climate and energy as the largest unfulfilled element of the president’s legislative agenda.Debates on climate appear set to start again in the Senate with the release of a new bill next week. The president should push the debate forward, hopefully resulting in a new law that sets economy-wide greenhouse gas controls before the November elections. This is admittedly an ambitious goal. If it proves impossible, Obama should dedicate as much energy in the second half of his term to climate as he did to health care in the first.
  • Air pollution: With so much focus on climate, traditional forms of pollution haven’t drawn much attention. Conventional pollutants like sulfur dioxide, nitrous oxides, mercury and ozone still pose significant health risks, and economists believe reducing emissions of these pollutants would result in substantial net benefits to the economy in life expectancy and quality of life. The EPA’s recent attempts to tighten regulations on these pollutants (both of which, it must be said, were authored by the Bush EPA) were struck down by courts. The Obama EPA should renew efforts to regulate these pollutants by issuing new versions of these rules (called CAIR and CAMR) as soon as possible. The president should throw his support behind proposed “3-pollutant” legislation on the Hill that would remove the legal barriers to stricter regulation of these pollutants, and follow that legislation up with action from the EPA. (More on that bill in a later post.)
  • Nuclear waste storage: The president has thrown his support behind nuclear power with $8 billion in loan guarantees for two new plants in Georgia. Regardless of your opinion of nuclear power as an energy source, you have to admit the storage of waste poses quite a problem. The president eliminated Yucca Mountain, the long-controversial water repository in Nevada, without proposing a specific alternative. He organized a blue-ribbon panel to look into solutions to the nuclear waste problem, and the commission is supposed to issue its recommendations sometime next year. They have their work cut out for them.
  • Environmental foreign policy: The president should also consider making environmental issues a more central part of his foreign policy. Whether it’s pushing China, India, Russia and others to agree to global cuts in carbon emissions, or calling Japan out for its cynical efforts to avoid limits on bluefin tuna fishing, ample opportunities exist for advancing U.S. environmental interests internationally and re-establishing our position as the global leader on environmental policy innovation. The president has made a good start in this area, but he can do more.
  • Future environmental dangers: Finally, the president can move beyond environmental issues that have been neglected in the past to examining possible future environmental risks. Many such risks, such as pollution of water with pharmaceuticals and the environmental impacts of nanotechnology, aren’t sufficiently understood. Government also lacks the tools to deal with these issues even if they are identified as dangers. The president should dedicate resources to investigating these and other future risks, and push Congress to give the EPA authority to regulate them when supported by the science. These are the kinds of forward-looking reforms that Nixon pursued, and which could give Obama an enduring environmental legacy.

Success on these fronts — and above all on climate — would not only fulfill President Obama’s environmental promises, but would put him in contention as the most environmentally successful president since Nixon, and likely ever.

As the Earth Turns: How Environmentalism Has Evolved

Posted on by The Progressive Policy Institute

When Earth Day was first celebrated 40 years ago today, environmental distress was in our face. Rivers caught fire, oil spills fouled U.S. shores, toxic waste dumps proliferated, and Los Angeles seemed permanently wreathed in smog. Now we worry more about things we don’t see — runoff and waste from farms, growing carbon concentrations in the atmosphere, fish disappearing from the oceans.

This change underscores both the successes and the limits of the “first generation” of environmental law and regulation. Starting with the landmark Clean Air Act of 1970, Americans for the first time began to grapple seriously with the environmental havoc wrought by the industrial revolution.

We’ve made undeniable progress since then, as Gregg Easterbrook and other writers have documented. Our air and water are cleaner. This would be a good day, in fact, for environmentalists and their business antagonists not to indulge in the usual doomsday talk. What we’ve learned since the first Earth Day is that ecological calamity isn’t inevitable, that the damage we do to nature is often reversible, and that we can curb pollution without wrecking our economy.

Republicans still cling to the myth that a clean environment is a luxury we can’t afford, hence their refusal to take climate change seriously. And some environmental activists evidently believe that alarmism in the defense of ecological health is no vice. If the idea is to shake Americans out of their “denial” about global warming, the opposite seems to be happening. Polls show the public is growing more skeptical about the hazards of climate change. Allegations (unfounded, as it turns out) that British university researchers cooked climate data in an excess of environmental correctness haven’t helped.

Even discounting for some hyperbole, however, the new environmental challenges are real enough. Unlike the great industrial cleanup, which focused on specific “point sources” of pollution like smokestacks and drainage pipes, we’re faced today with damage from “non-point” sources like fields and hog farms, high-tech fishing fleets and the millions of cars, dry cleaners, lawnmowers and even cows pumping carbon and other greenhouse gases into the atmosphere.

The top-down, “command and control” regulations of the first generation of environment activism could not cope effectively with these new problems. That’s why PPI back in the 1990s started advocating a “second generation” of policy tools for dealing with new and more diffuse ecological challenges. Examples include innovations like the Toxic Release Inventory, which allows citizens to find out about health risks posed by local polluters; market incentives like carbon pricing and the cap-and-trade system first set up in 1990 to combat acid rain; and “civic environmentalism,” which decentralizes decisions about, say, how to manage habitat vital to endangered species, from Washington regulators to local landowners.

Now it appears as though we’re heading into a third phase, in which environmental and energy policy merge into one. The environmental movement traditionally has aimed at mitigating the impact of industrial society on nature. Now we’re talking about something truly revolutionary – a shift from a dirty economy powered by cheap fossil fuels to a clean, low-carbon economy. This prospect beckons not only because of the environmental benefits, which would be large, but also because of the potential for immense economic and security gains. It would enable the United States to reduce its costly dependence on foreign oil suppliers, many of whom don’t have our best interests at heart. And it opens up broad new avenues for economic innovation and growth in the development of clean technology and fuels.

Some will use Earth Day to depict America as an energy wastrel and despoiler of the earth. Instead of donning hair shirts, progressives ought to stress America’s opportunity to lead the world toward its clean energy future.

Photo credit: https://www.flickr.com/photos/thomas-merton/ / CC BY-NC-SA 2.0

Our Eco-Friendly Military

Posted on by The Progressive Policy Institute

“The Army’s mission is not to be green. Our mission is to defend the nation. In that context, we’ve found it’s in our interest to develop sustainable projects.”

This is the powerful quote by the Army’s program director for energy security in a new must-read article in USA Today. At the E3 Initiative, we’ve been arguing for months that new energy practices are essential to upgrading our national security strategy.

The military has recently spent over $100 million to insulate tents in Iraq and Afghanistan. Why? It cuts the leakage of air conditioning by at least 50 percent. Taxpayers recoup their investment within 90 days.

All this is important to defense because it addresses the sluggish, dangerous practices of our old-energy defense posture. For example, truck convoys carrying water and gas (required by inefficient energy in theater) are vulnerable to roadside bombs, which themselves are the biggest killer of U.S. troops in Iraq and Afghanistan. As USA Today reports, “Greater energy efficiency also helps keep troops in war zones safer, because it reduces the number of trucks on the road carrying fuel to outlying bases.”

As the Army recognizes, sustainability isn’t about ideology — being “green” for the sake of being green. It’s about making America smarter, tougher, more competitive and more resilient: lessons we should remember as we head into the inevitable fight in Congress about legislation to price and control carbon.

Energy Realism and Hype

Posted on by The Progressive Policy Institute

Thanks to new drilling techniques, U.S. natural gas reserves may have doubled, Energy Secretary Steven Chu announced this week. “That’s a big deal because it will be a transition fuel as we go to renewables,” Chu said at a conference hosted by the U.S. Energy Information Administration.

Chu’s emphasis on natural gas as a bridge fuel, together with President Obama’s decisions to allow offshore drilling and expand loan guarantees for building nuclear power plants, attest to a new realism in U.S. energy policy. The Obama administration is trying to move the deadlocked energy debate beyond a false choice between fossil and renewable fuels. For now, America needs more of both.

This “no fuel left behind” approach also lays the groundwork for bipartisan cooperation on capping carbon emissions. If Republicans say “no” to things they’ve long demanded, namely more nuclear power and offshore drilling, as part of a comprehensive climate bill, it will be another sign that they are unwilling to help solve the country’s biggest problems.

Some environmentalists (including, apparently, Al Gore) are chagrined over Obama’s support for offshore drilling, which they see as a concession to the “drill, baby, drill” right.  So let’s be clear: offshore production in U.S. waters will not lead us to “energy independence,” nor will it lower prices at the pump. Our share of the world’s oil reserves — even if much more is aggressively produced — is still not large enough to move global oil prices. This would be the case even if there was a truly competitive and free global petroleum market. But the global oil market is not free and competitive — it is dominated by low-cost producers in the Persian Gulf, who are aligned in a cartel and could easily counteract any downward price influence from an increase in U.S. supply. The only way that U.S. oil could directly and dramatically lead to low U.S. gas prices would be for us to adopt the Venezuelan model: nationalize the industry, close the borders, and grossly subsidize the industry. Not gonna happen.

Nonetheless, modest expansions of domestically produced oil would yield modest benefits. Estimates range from a low of 39 billion barrels of recoverable oil to a high of 63 billion barrels. “If ramped up quickly enough, that could overcome the underlying decline rate of current U.S. output and add significant net production for a decade or two, at a time when competition for the oil we are currently importing is likely to be fiercest,” writes energy consultant Geoffrey Styles.

In addition to marginally reducing our reliance on foreign imports, offshore drilling would create U.S. jobs and lower our massive energy trade deficit. These benefits shouldn’t be exaggerated, but they certainly aren’t negligible. Further, to the extent that our offshore development leads to large and cost-effective finds of natural gas, that is almost certainly a good thing since unlike oil, gas is not as subject to global price pressures or oligopolistic manipulation as is oil. Moreover, to really reduce our greenhouse gas emissions, the United States will have to substitute baseload gas for baseload coal on a large scale and abundant gas developed in an environmentally acceptable fashion (more likely to apply to offshore development than to much of the contemplated onshore development of “unconventional” sources) is a key to that goal.

What about the environmental risks of drilling? Without question, the history of petroleum development and delivery is rife with calamities. The decades-old Santa Barbara spills are still seared into the minds of many and, of course, the Exxon Valdez has not – and should not – soon leave our collective memories. But the former was decades ago and the latter is a compelling argument for even stronger protections in the transportation of petroleum. The next Exxon Valdez could be carrying oil from onshore or offshore sources. But the technology and regulation of offshore production has greatly improved since Santa Barbara, and while one could compellingly argue for even more protections, the fact is that offshore development is much less risky than ever before.

Finally, Obama has deftly maneuvered his political opponents into a tight corner. The White House understands that the paramount goal of energy policy should be to price carbon. That goal is unlikely to be achieved in Congress as long as conservatives continue to fantasize over a supply-side panacea that will lead American to a golden age of “energy independence” and “lower prices at the pump.” This is an energy policy of abdication and isolationism. By taking a balanced approach, Obama has challenged conservatives to take “yes” for an answer — or show that they really don’t believe in their alleged “alternative” path to energy security.

The Greening of Massachusetts

Posted on by The Progressive Policy Institute

Much to Mitt Romney’s chagrin, Massachusetts has been in the news a lot recently as the birthplace of President Obama’s new health care reforms. Despite Romney’s protestations to the contrary, Obama’s ideas indisputably grew out of the reforms that the commonwealth enacted a few years ago.

Now it turns out that Massachusetts is also leading the country in another area that will likely become the subject of intense national controversy later this year: environmental regulation and the quest to build a clean economy. In one of America’s oldest and most traditional states, a coalition of business, policy-makers and nonprofits are leading the way in transforming the American economy – and bringing us closer to a clean, green future.

Massachusetts has a distinctive environment that makes clean energy a particularly bright choice. The commonwealth has unusually expensive electricity (from a lack of indigenous coal or natural gas) and a deregulated power market (where utilities do not own power plants).

Recently, PPI convened about three dozen clean tech industry leaders at the beautiful Parker House Hotel in downtown Boston. PPI’s new E3 Initiative held an event keynoted by Massachusetts Secretary of Energy and Environment Ian Bowles and also featuring Nick Darbeloff and Peter Rothstein, president and senior vice president, respectively, of the New England Clean Economy Council.

Secretary Bowles recounted for the audience the advances that have taken place under Governor Deval Patrick. Massachusetts has taken the lead in New England’s Regional Greenhouse Gas Initiative covering all major power plants, which caps emissions at 2009 levels through 2015, after which the cap will decline to reduce emissions 10 percent by 2019. Its efficiency programs have been so successful that the state is on track to cut its energy use by 30 percent by 2020. And under the renewable portfolio standard it adopted they have already exceeded their targets. Massachusetts has also built greenhouse gas emission reductions into the state environmental review process, which is leading to greater private investment in green buildings. The state will also provide utility customers with $1.6 billion in incentives to conserve energy at home, including free energy audits and rebates to purchase more efficient appliances.

National leaders looking to Massachusetts for lessons would do well to keep one thing in mind. Just as muscle needs a skeleton for support, structure and politics both matter for environmental regulation. Soon after Patrick was sworn in, and with the cooperation of Massachusetts’ legislative leaders, Massachusetts became the first state in the nation to merge all its energy and environmental agencies (six total) into a single cabinet secretariat with the overall mission of bringing clean energy technology to market, curbing greenhouse gas emissions and achieving energy efficiency.

With that structure in place, Bowles and his team went about achieving their agenda by closely cooperating with legislative leaders in the state House and Senate. Too often American states (or the federal government, for that matter) have seen promising environmental issues die on the vine, as special interests whittle ambitious legislative proposals into pilot projects that fail to achieve the economies of scale and systemic effect necessary for change. In Massachusetts, however, Bowles and his team began working very closely with legislative leaders in 2007, soon after Patrick took office. With a lot of elbow grease and diplomacy, Massachusetts enacted six major energy and environmental laws achieving broad energy reform, greenhouse gas reduction and comprehensive oceans management.

In advance of the battles certain to come this summer in Washington about a carbon control system, the E3 Initiative was proud to showcase Massachusetts’ pioneering work on achieving a clean economy. With smart ideas, proven economic benefits and steady political talent, we can see results instead of gridlock.

Photo credit: https://www.flickr.com/photos/mnsomero/ / CC BY-NC-ND 2.0

Why the New CAFE Standards Are Good – But Hardly the Best Climate Policy

Posted on by The Progressive Policy Institute

Cars and trucks sold in the U.S. will have to be a little more efficient, according to new Corporate Average Fuel Economy (CAFE) standards released last week by the Environmental Protection Agency (EPA) and the Department of Transportation.

The new standards are largely a product of a compromise between states, the federal government and auto manufacturers last year. (Is it still a compromise if one party—the feds—owns a big chunk of another—the U.S. auto industry—and has Supremacy Clause powers over another—the states? Just asking.) They are also the end product of the Supreme Court’s Massachusetts v. EPA decision requiring the EPA to address impacts of greenhouse gases under the Clean Air Act. The requirements appear relatively modest: the existing requirement of 35 mpg fleet average fuel economy by 2020 is moved up to 2016 and increased by 0.5 mpg.

That apparently small change can have a big impact when you consider how many cars and trucks there are in the U.S. and how long those vehicles will remain on the road. The EPA claims that the standards will reduce greenhouse gas emissions by 960 million metric tons and cut U.S. auto emissions by 21 percent over business as usual by 2030. The EPA also estimates that increased up-front vehicle costs of about $1,000 will be offset over the course of each vehicle’s life by reduced fuel costs, resulting in a savings of about $3,000.

That’s good news for the environment, and good news for consumers, right? The auto industry is (at least for now) OK with the new standards, and the environmental community is generally happy as well. I think the positive spin is broadly correct — we’re better off with stricter CAFE standards than we would be without them.

That said, I’m skeptical about the size of the benefits estimated by the EPA. Performance standards, and in particular efficiency standards, are flawed policy tools — emissions benefits may be lower, and costs higher, than with the best alternative: a carbon price.

The largest problem with efficiency standards is that they encourage increased use of whatever is being made more efficient. If your car is more efficient, it’s cheaper to drive it, and you’ll probably do so more often (and for longer distances). You might even move farther away from work or make other choices that increase your fuel consumption (but not your cost — remember, you’re more efficient now). This is great for you since you get increased utility from driving more, but your vehicle emissions won’t go down as much. Even if you “save” more money over the life of the car, the added cost per unit of emissions reduction goes up. Other social costs, like traffic congestion and increased risk of accidents, go up as well. This is called the “rebound effect,” and estimating its size is the subject of significant research among economists.

The EPA is aware of this effect and, as you might expect from an 837-page rule (with a 475-page regulatory impact analysis and 215-page technical support document), accounted for it in its analysis. Both the EPA estimates of emissions reductions and of costs to consumers assume that owners of new, more efficient vehicles will drive more. Good job by the EPA, right? Maybe.

Digging deeper suggests that while the EPA is accounting for the rebound effect, it might be underestimating it. The EPA assumes the effect will be 10 percent — that is, increased driving will erase 10 percent of the emissions reductions that would otherwise be achieved. This estimate, the EPA admits, is lower than that suggested by most studies of the effect for vehicle efficiency standards in the U.S. These studies give estimates from seven percent to 75 percent, with the average around 22 percent — more than double the 10 percent the EPA chose. The EPA bases its choice on other studies that suggest that the effect declines over time and then projects that trend into the future. It’s possible the EPA is right here (they are relying in part on the most recent and well-regarded work on the subject), but it still seems like a relatively optimistic estimate. Because of this, I think it’s more likely that the EPA will have overestimated the benefits of the new standards than underestimated them.*

The EPA’s analysis has other limitations as well. For example, fuel prices are projected to increase in the future due to rising global demand and other factors. This will lead to demand for more fuel-efficient cars independent of any standards, possibly making CAFE requirements superfluous. Emissions would still go down, but CAFE standards might not deserve the credit.

For me, the worst part isn’t that the EPA might have overplayed an obscure (but important) assumption, or taken credit for something that might happen anyway. Even if they haven’t done either of these things, none of this is necessary. Pricing carbon, whether through an economy-wide cap-and-trade system, a transportation-sector only cap, or (hide the children) a higher gasoline tax, could achieve emissions gains without these perverse effects and estimation problems. These policies would increase the cost of gas — which is the point. If your reason for buying a more efficient car is a higher fuel price, there’s no incentive to drive more — there would be no rebound effect. In fact, there is a powerful incentive to drive less, reducing carbon emissions even further and giving other benefits: less congestion, fewer accidents, better air quality, etc. A gas tax or trading scheme would also be simpler, easier to administer and more transparent. It need not even hurt consumers: the revenues from permit auctions or taxes can be returned to households through lower taxes elsewhere, rebates or investments in public goods.

The reason CAFE standards, with all their problems, are and have long been our only policy option for controlling vehicle emissions has nothing to do with efficiency or good government — it’s politics. It’s not politically possible (or politicians think it’s not politically possible) to support a policy that increases prices at the pump. Instead, we hide costs in suboptimal and inefficient programs like CAFE. While it’s true that our cities and in some ways our society are built around driving, often long distances, that doesn’t mean we should hide the costs of those choices, or use second-rate policy tools because we can’t handle the truth. The politics behind CAFE are a shame, whatever benefits last week’s regulations will have.

* If you’re interested in the EPA’s decisionmaking process on the rebound effect, it’s candidly explained in Section 4.2.4 of the Technical Support Document.

Photo credit: https://www.flickr.com/photos/joelogon/ / CC BY-SA 2.0

Lessons from New England on a Clean Economy

Posted on by The Progressive Policy Institute

On March 22, the Progressive Policy Institute’s E3 Initiative hosted an event in Boston, Massachusetts on New England’s best practices on stimulating and building a clean economy sector. At the event, Massachusetts Secretary of Energy and Environment Ian Bowles shared remarks on how state and federal governments and clean energy entrepreneurs can collaborate to build a vibrant clean economy.

Speakers:

The Honorable Ian Bowles
Massachusetts Secretary of Energy and Environmental Affairs

Will Marshall
President, Progressive Policy Institute

Mike Signer
E3 Initiative Chair and Senior Fellow, Progressive Policy Institute

New Fuel Efficiency Rules a Historic Turn for Climate Policy

Posted on by The Progressive Policy Institute

Energy and climate legislation may be stalled in Congress, but President Obama is pressing forward on another crucial, clean energy front.

In a historic first, the Environmental Protection Agency and the Department of Transportation yesterday issued rules regulating greenhouse gas emissions from cars and light trucks. In 2007, the Supreme Court had ruled in Massachusetts v. EPA that the EPA had the authority under the Clean Air Act to regulate greenhouse gases. That decision paved the way for last year’s determination by the agency that CO2 and other greenhouse gases were dangerous pollutants. The rules announced yesterday combine traditional efficiency standards with direct regulation of CO2 emissions from vehicles (a proxy for fuel consumption).

Under the new standards, by model year 2016 vehicles must get an average of 35.5 miles per gallon. The requirements — which represent the administration’s most significant achievement in reducing global warming pollution — are expected to reduce greenhouse gas emissions from cars by 21 percent by 2030. The announced rule was the final implementation of a deal made by the Obama administration with the auto manufacturers last year, whereby the industry would get the certainty of a national standard in exchange for dropping their extensive litigation meant to prevent California from mandating similar tailpipe emissions standards (and having a dozen or so states follow suit).

Not to take any credit, but back in 2004, Jan Mazurek and I wrote a paper for PPI titled “Clean Cars – Kicking America’s Oil Habit,” in which we argued for adopting a strong tailpipe emission approach to fuel economy. In addition to compelling environmental and national security arguments for stricter fuel efficiency rules, our motivation was to suggest a new framework beyond the broken and stale political battles over CAFE standards – the Corporate Average Fuel Economy rules that had not been raised in a generation in large part because of firm opposition from Detroit and its protectors on Capitol Hill.

We and others argued that by focusing capital and political resources on lawyers, lobbyists and the short-term political objective of defeating annual meager attempts by the environmental community to increase CAFE standards, Detroit was missing the larger vision that global automotive competiveness would be shaped in the future by innovation around fuel economy and environmental performance. We felt that the exigencies of climate change and the inevitable structural rise in fuel costs stemming from increasing global demand and the rising marginal costs of production meant that the “clean car innovators” would have an advantage in the global marketplace.

The Bush administration, after a costly “head fake” over hydrogen that caused many to take their eye off the fuel-economy ball, did propose some modest increases in CAFE standards, but they were far short of what was needed to restructure our national approach to competitiveness in the international auto marketplace, or to seriously address the economic, environmental and security threats posed by our addiction to oil.

Ultimately, it took a prostrate domestic auto industry and a high-flying new Democratic president to take serious action. The result should be seen by nearly all as a true win-win. Automakers get a national standard, we finally have a policy aimed squarely at both greenhouse gas emissions and oil dependence, and – we hope – Detroit will lay off some lobbyists while creating jobs for smart engineers.

Of course, nothing is so simple. We now see that the ultra-conservative attorney general from Virginia, in yet another pander to tea party types, has vowed to file a lawsuit challenging the new rules. (I thought it was liberals who were supposed like frivolous lawsuits?) God knows what his arguments will be, but let’s hope he comes up with a clever basis for being against jobs, innovation, increased national security and a more stable climate. Bring it on.

Greenhouse Gas Permits Won’t Be Required Until 2011

Posted on by The Progressive Policy Institute

The Environmental Protection Agency (EPA) this week announced that it would not require greenhouse gas emitters to get permits until 2011, a decision that sets the stage for the administration’s regulation of greenhouse gases in the absence of climate change legislation. I posted recently on the EPA’s reconsideration of the “Johnson Memo,” a piece of regulatory arcana that determines when pollutant emitters have to get permits under the Clean Air Act for new plants or major upgrades to existing plants. The EPA’s final version of the memo (cheat sheet here) shows an agency that’s attempting to juggle several imperatives: congressional concerns, industry pressure, and its own mandate to regulate greenhouse gases as a pollutant.

Under the Clean Air Act, major emitters — those that release more than 250 tons of pollutants into the atmosphere — have to get permits that include analysis of all the pollutants they emit. With the EPA’s endangerment ruling — which classified carbon dioxide as a dangerous pollutant — big emitters will soon have to include greenhouse gas analysis in their permit applications. These permits are time-consuming and expensive, and industry is very concerned about their impact.

As always, politics plays a role. Strictly interpreted, the Clean Air Act would impose big burdens on lots of emitters through a permit process that isn’t really set up to deal with the scale and volume of greenhouse gas permits required. Industry is spooked by the process, but so are the state regulators who would have to issue many of the permits. The EPA itself also doesn’t think a full-scale, immediate permit requirement is workable.

The result is a series of compromises. The most well-known is the “tailoring rule,” in which the EPA is limiting the permit requirement to big emitters (really big emitters, according to the EPA’s latest statements). The Johnson memo revision strikes another compromise by delaying the permit requirement until 2011, when the EPA claims its new mobile-source rules will enter into effect.*

I think these recent moves are partly in response to pressure from Congress. Congress, in proposals by Sens. Lisa Murkowski (R-AK) and Jay Rockefeller (D-WV), has threatened to take away the EPA’s authority to regulate greenhouse gases (for mobile sources, stationary sources, or both). Part of this is driven by fears among industry and on the Hill that the EPA would wreak havoc on the economy with greenhouse gas permit requirements. By moderating the impact of these requirements, the EPA is trying to comply with the Clean Air Act and achieve its environmental goals while appeasing the congressional dragon. To be sure, the EPA and state agencies are probably concerned about their own ability to handle the permit requirements and would benefit from more time, but I think congressional pressure is a big factor. One piece of evidence is that EPA Administrator Lisa Jackson announced these moves first in a letter to Sen. Rockefeller.

You could characterize this series of events as influence by special interests behind the scenes, undermining an EPA regulatory program without a congressional vote. I think there’s a more benign balance-of-powers story, though. In regulating air pollution the EPA has used Clean Air Act powers delegated from Congress, and it has now followed the Supreme Court’s Massachusetts v. EPA decision affirming that those powers extend to greenhouse gases. This has led to a problem, however: it was hardly realistic to regulate every single emitter of carbon in the economy. The agency realized that to do so would create problems for itself and would be a political non-starter. Congress aside, it’s unlikely even Administrator Jackson or her boss, President Obama, would find much value in a draconian permit scheme, so the EPA proposed a solution — the tailoring rule. Congress continued to push back with some legislative saber-rattling, and the EPA moderated its approach a little further by expanding the tailoring rule and delaying the permit requirement. Time will tell whether that is enough to forestall congressional action against EPA, but it appears to be sufficient for now.

This isn’t ideal, but it’s regulatory government at work. In a real way, however awkward, politicized and bureaucratic, the three branches of government have had a conversation of sorts on climate policy. A compromise seems to have been reached. Of course, new climate legislation would be much better — not only because of its Schoolhouse Rock clarity but because of the superior policy mechanisms that Congress has the power to implement.

* This is because the rules apply to model-year 2012 cars and trucks. A 2010 rule applies in 2011 to 2012 vehicles. Only in Washington…

Cap-and-Whatever

Posted on by The Progressive Policy Institute

Via TPM, I learned that Interior Secretary Ken Salazar went on CNBC today and said the administration would no longer be using the term “cap-and-trade” for its climate change proposals.

This decision does not appear to mean any change in the actual proposal, which would still presumably involve placing a “cap” on carbon emissions and then creating a system whereby credits for exceeding carbon goals could be “traded,” thus creating market incentives for pollution control efforts and technology. It’s the label that seems to be the problem, probably because conservatives have taken to calling it “cap-and-tax.”

I can sympathize with the rebranding effort (though it’s not clear what the new moniker will be). We at PPI — early proponents of “cap and trade” — spent years trying, without a lot of success, to find simple ways to explain the cap-and-trade approach to carbon emissions. It wasn’t as hard as, say, trying to write descriptions of the “revolution in military affairs,” another perennial head-scratcher, but it was never possible to capture it on a bumper sticker.

It probably doesn’t matter, so long as the administration and congressional proponents continue to make it clear that cap-and-whatever is a way to limit potentially catastrophic carbon emissions while employing market mechanisms to create incentives for private-sector innovations in clean energy technology. It is, indeed, the kind of market-friendly alternative to command-and-control environmental regulations that conservatives ought to find attractive, and often have in the past. But it’s the substance, not the politics, of this approach, that really matters, and that will remain regardless of the marketing.

This item is cross-posted at The Democratic Strategist.

Photo credit: https://www.flickr.com/photos/muora/ / CC BY-NC-SA 2.0

Plan B for Climate Policy?: A PPI Series

Posted on by The Progressive Policy Institute

PPI has long been a proponent of an economy-wide cap-and-trade system to confront the problem of climate change. But as the fortunes of cap-and-trade legislation in the Senate fade, we need to begin looking at other options before Congress. This post, on the Cantwell-Collins “cap-and-dividend” bill, is the first in a series of analyses of various alternatives to cap-and-trade.

You may not have noticed lately, but there are other major legislative initiatives, including climate and energy, on the Senate’s docket. One climate action bill that has received a lot of attention is the bill sponsored by Sens. Maria Cantwell (D-WA) and Susan Collins (R-ME). When the bill, officially called the Carbon Limits and Energy for America’s Renewal (CLEAR) Act, was first introduced in December, it caught the eye of some in the enviroblog world, but didn’t make much of an immediate splash in the Senate. Between the long build-up of the Kerry-Lieberman-Graham multi-partisan grab bag and the poorly understood Copenhagen outcome, however, it filled a vacuum with a poorly appreciated concept at the time: offsetting costs of climate legislation to consumers by cutting them a check.

The Basics

Also known as “cap-and-dividend,” the Cantwell-Collins bill is pretty simple: starting in 2012, it would mandate monthly auctions of pollution permits, called carbon shares, to the first seller (producer or importer) of fossil fuel carbon into the economy. The bill sets a floor price (shares can’t be sold for less) of $7 and a ceiling price (shares can’t be sold more) of $21 in the first auction in 2012, with the cap lowering — leading to rising prices — over time.

Most of the revenue from these auctions is distributed back to citizens in the form of a monthly check, while the rest is placed in a Clean Energy Refund Trust (CERT) fund established by the bill for use on a variety of different purposes: energy R&D, climate change adaptation, non-CO2 greenhouse gas reductions, international forestry and agriculture offsets, carbon capture and storage projects. First sellers cannot trade carbon shares and carbon derivatives are prohibited. In addition, the legislation has economy-wide emissions reduction goals of 20 percent below 2005 levels in 2020, 42 percent in 2030, and 83 percent in 2050.

The Good

Advocates of Cantwell-Collins praise it for being simple and transparent. As has been noted by others, it is a mere 40 pages, certainly an easier read than Waxman-Markey, the behemoth, 1,400-page cap-and-trade bill passed by the House last June. It regulates fossil fuel-related CO2 as far “upstream” in the economic supply chain as possible, meaning that whoever produces or imports a fossil fuel is on the hook for the CO2 content. Under Cantwell-Collins, coal mines and oil producers are responsible for paying for carbon, which means that only about 3,000 facilities need to be regulated. This upstream approach is administratively more streamlined, affecting far fewer parties than Waxman-Markey, which regulates electricity producers, natural gas distributors and manufacturers (over 75,000 regulated facilities).

The CLEAR Act also rejects the convoluted system of free and auctioned allocations in Waxman-Markey for a straight-up auction of all carbon shares. All regulated parties must participate in open monthly auctions, the revenue from which is split 75-25 percent: 75 percent is redistributed per capita to every American citizen and 25 percent is placed in the CERT. Whether you agree with the approach or not, offering to cut a monthly check for every U.S. citizen is not a bad way to gain some political support. Also, from the perspective of regulated firms, the use of price floors and ceilings, also known as a price collar, would reduce future price uncertainty and help them better predict investment needs.

Finally, the bill is co-sponsored by a Republican and a Democrat. That bipartisan provenance could certainly help its chances for passage.

The Bad

So with a bill that’s easy to read, easy to monitor and easy on the wallet, is there anyone who won’t like it? Well, anyone who favors hard targets for emissions reductions and anyone who believes in markets, for two. First, while the bill establishes economy-wide reduction goals as strong as Waxman-Markey, the auction system alone will not reach them. National emissions are capped at 2012 (note that it only caps CO2 emissions, unlike Waxman-Markey, which covered other greenhouse gases as well), and the cap doesn’t tighten until 2015, at which point it decreases by 0.25 percent that year, then by an additional 0.25 percent every corresponding year (so in 2016, the cap reduces by 0.5 percent, in 2017, 0.75 percent, etc).

This slow lowering of the cap will result in only five percent reductions below 2012 emissions by 2020, well short of the 20 percent reductions by 2020 goal. Even at that, the cap is not rock solid due to the price collar, which functions as a sort of safety valve. That is, if the auction price goes higher than the established ceiling price, then that essentially releases extra carbon shares for firms to bid on until the price falls back below the ceiling.

That means the remaining reductions to be met in 2020 will have to come from technology advances, land use offsets in forestry and agriculture, and reductions of non-CO2 gases, all of which are paid for by the CERT (which will be administered by the Department of Treasury). If we assume an initial carbon price of $15 in 2012 (a middle-range price, based on analyses done by the EPA and EIA), and the projected cap of roughly 7.2 billion carbon shares, then the CERT will get about $27 billion in the first year of the program.

That’s $27 billion to be split among all the uses listed above to help reduce emissions, as well as adaptation projects, energy efficiency efforts, and support for trade-sensitive industries and low-income families. The problem with a bill that’s only 40 pages is that it doesn’t have a lot of room for details — indeed, the CLEAR Act provides no guidance on how to prioritize uses of CERT funds. Although CERT funds will increase as the price of carbon shares rise, it will likely not even be close to enough to compensate for the majority of necessary carbon reductions.

A carbon market could mobilize private capital to help address some of these issues efficiently, instead of leaving all the choices and funding responsibility to the federal government. While it’s understandable that the public and politicians might still distrust markets in the wake of the recent financial collapse, the fact is that when it comes to finding inefficiencies and catalyzing innovation, nothing works better. But the “market” in Cantwell-Collins is simply an auction system. Unlike in Waxman-Markey, regulated firms can’t trade their permits, and carbon derivatives are strictly prohibited. These restrictions are going to severely limit the efficacy of the program to find the cheapest emissions reductions.

Also, there is a huge amount of risk in carbon markets (both in terms of accurate compliance and extreme events), so while they should be tightly regulated, derivatives are a necessary component because they allow firms to hedge against the risk of non-compliance or shifting standards. You will be hard-pressed to find any industry player who will advocate for a market without any trading, and there will need to be at least some industry support for any viable future climate legislation. Moreover, the monthly auction system may generate more carbon share price volatility than a continuous market, making it even more unattractive to firms.

The Upshot

Cantwell-Collins injects some great ideas into the climate policy debate that had not been prominently discussed before. If a policymaker wants to reduce the burden of increased energy costs on consumers, a direct rebate is an efficient and effective way to do it. The bill overall, however, is a somewhat naïve approach that does not fully appreciate the ability of markets to generate efficient emissions reductions and does not limit carbon emissions effectively. Its merits (simplified approach, upstream regulation, price collar) are outweighed by its limitations (extremely slow cap reduction, heavy reliance on CERT-funded reduction programs, draconian market restrictions). The CLEAR Act will continue to play a role in the climate debate of the Hill, but in its current form, it is unlikely to be the last bill standing.

Photo credit: https://www.flickr.com/photos/haglundc/ / CC BY-NC 2.0

Blue Ribbon Panel on Nuclear Waste to Start Its Work

Posted on by The Progressive Policy Institute

The highly touted Blue Ribbon Commission on America’s Nuclear Future that President Obama assembled last year will have its first public meeting today at the Willard Hotel in Washington, D.C. The panel, co-chaired by former Rep. Lee Hamilton (D-IN) and former National Security Advisor to President George H.W. Bush Brent Scowcroft, is tasked with reviewing policy options for managing the back end of the nuclear fuel cycle, including developing a safe, long-term solution to the nuclear waste problem.

What to think of the panel? The 15-person commission is comprised of a good mix of scientists, politicos and think tankers. Five of the members are science Ph.D.’s (including Per Peterson of Berkeley, who is considered by some to be the best in the field), which is pretty good as far as these things go. Too many Washington luminaries and it stops being serious; too many scientists and no one will listen. It might be easy to dismiss the participation of a perennial blue ribbonite like Lee Hamilton, but he’s reportedly been fairly proactive in staking out a broad mandate for the panel, urging the president to give the commission wide latitude on what to look into. His engagement is a good sign.

But the most significant thing about the panel is who organized it: Barack Obama. Throughout his first year-plus in office, he has proven to be serious about leading a comprehensive transformation of America’s archaic and damaging energy policies. While his support for nuclear energy has turned off some allies in the environmental community, it also shows that he knows that that U.S. can’t reduce its dependence on fossil fuels and meet rising energy demand without a significantly expanded role for nuclear. He’s lifting a three-decade old taboo on nuclear power and laying the groundwork for a revival of a domestic civilian nuclear power industry. And it’s not a moment too soon, as China rushes ahead with plans for as many as 400 nuclear plants.

Obama’s push for nuclear is also further evidence of the radical pragmatism that has marked his determination to tackle the nation’s biggest public problems. The question now is whether Republicans, many of whom have clamored loudly for a greater emphasis on nuclear energy, are willing to find common ground with Democrats, or continue their “flat earth” obstructionism on climate change and clean energy.

Obama’s blue ribbon panel has 18 months to conduct its work and issue its recommendations. Their work will be closely watched by those in the nuclear energy community. As the debate over nuclear power heats up, the problem of what to do about waste will need to be addressed. In the coming weeks, PPI will be issuing its own recommendations. Stay tuned.

PPI to Host Clean Energy Event in Boston Today

Posted on by The Progressive Policy Institute

Already reeling economically, California may soon be overtaken by Massachusetts as the greenest state in the union.

California ranked first in a 2009 survey of the most energy-efficient states, with Massachusetts second. In January, however, the Bay State announced the nation’s most ambitious energy efficiency standards for utilities.

Despite growing energy demand, Massachusetts aims to cut electricity use by 2.4 percent over the next three years. It will provide utility customers with $1.6 billion in incentives to conserve energy at home, including free energy audits and rebates to purchase more efficient appliances. That’s more on a per person basis than California spends on energy efficiency.

And it’s not just Massachusetts. Connecticut, Maine and Rhode Island also have passed mandates for utilities to invest in any energy-saving measures that cost less than traditional energy-supply options. In fact, New England seems to be emerging as the nation’s epicenter of energy efficiency, clean tech innovation and carbon emissions control.

While Congress struggles with a nationwide “cap and trade” system for carbon dioxide, 10 Northeast states launched a regional cap-and-trade program covering all major power plants. The Regional Greenhouse Gas Initiative (RGGI) caps emissions at projected 2009 levels through 2015, when the cap declines annually to reduce emissions 10 percent by 2019.

To examine why, and how, New England has catapulted itself into clean energy leadership, PPI is hosting a conversation in Boston today with Ian A. Bowles, Massachusetts’ secretary for energy and environmental affairs. Boston is also the base for the Clean Energy Council, a regional network of clean tech businesses, analysts and investors.

The event is part of PPI’s E3 Initiative, a coalition of energy and environmental businesses working to develop and drive new policy frameworks to build a clean economy.