Why an EPA Rule for Traditional Pollutants Matters for Greenhouse Gases

Greenhouse gases (GHGs) are the sexy pollutant. “Traditional” pollutants like sulfur dioxide (SO2) and nitrous oxides or NOx (which are themselves GHGs, though their climatic effects are not the basis for their regulation) get less attention, with media, legal, research, and to a lesser extent regulatory attention devoted to GHGs. These pollutants have much greater health impacts than GHGs, however. Moreover, how the Environmental Protection Agency (EPA) regulates them under the Clean Air Act (CAA) might shed some light on how they will regulate GHGs under the same statute.

Unfortunately, the EPA’s master plan for new  SO2 and NOx regulations, the Clean Air Interstate Rule (CAIR), is in legal limbo. In North Carolina v. EPA, the D.C. Circuit found such substantial flaws in the rule that it vacated CAIR completely in 2008, before backing down somewhat and directing the EPA to fix a number of problems. In the meantime, the rule has remained in effect — CAIR is zombie regulation.

Nobody likes zombie regulation. It’s hard to determine environmental benefits and for industry to determine costs, and markets in tradable allowances don’t work very well when the future structure of those markets (and even whether they will exist) is unclear. Whatever the EPA does to address the court’s concerns with CAIR is therefore likely to be an improvement on the current situation.

The EPA is expected to release the required revisions to CAIR soon. Some of the issues the court identified with CAIR in its original form are that compliance deadlines for it and other regulations do not match, and that the EPA exceeded its authority by making changes to the congressionally created Title IV trading program for SO2.

The largest problems for the court, however, were with the trading programs created or modified by CAIR. How the EPA addresses these concerns will be the most interesting part of the new CAIR and will shed the most light on how far the EPA can go in using emissions trading methods under existing CAA authority — something that may be important for future GHG regulation.

Will Emissions Trading Survive?

 

The original CAIR created new interstate trading programs for SO2 and NOx or expanded existing ones. The court, however, cast real doubt on whether these trading programs are viable. Specifically, the court held that the CAA authority (NAAQS) used by the EPA requires actual reductions in emissions from each state that contributes to pollution in downwind areas (it is largely this interstate pollution “transport” problem that CAIR is designed to address). The trading programs in the original CAIR would have reduced pollution from upwind states, but free trading among states meant that the EPA could not guarantee that every upwind state would reduce its emissions.

It’s hard to see how the EPA can comply with the court’s interpretation of the CAA here and keep interstate trading as part of the revised CAIR. If you have interstate trading, you reduce costs of compliance but at the expense of certainty over where emissions will be reduced. It is just this certainty that the court claims the CAA requires. Trading may survive in the form of purely intra-state markets, or the EPA may devise some hybrid regulation that includes some command-and-control elements that would force reductions in emissions in all upwind states.

The structure the EPA chooses — and whether the court deems it permissible — is important. There is some chance that the EPA will choose (or be forced) to regulate GHGs under the NAAQS program. If the EPA does go down this route, CAIR and the courts’ treatment of it will provide the precedent for a GHG trading system. Can such a system be implemented nationwide under the CAA if only intrastate trading is permitted for other pollutants? If GHG regulations are not driven by contributions to other states’ pollution problems, the EPA might be able to distinguish them from the CAIR regulations. But SO2 and NOx are the best examples by far of emissions trading programs under the CAA. If the new CAIR kills or guts these programs, the precedent for any GHG trading scheme – at least under the NAAQS – will be weakened.

The proposed new CAIR should be released by the EPA in the near future. The character of the emissions trading programs it creates will tell us a lot about the future of the Clean Air Act for greenhouse gases and beyond.

This item is cross-posted at Weathervane.

The New Yorker Goes Nuclear

In this week’s New Yorker (subscribers only), Hendrik Hertzberg wades into an issue that has taken up increasing bandwidth in our climate and energy debates: nuclear energy. Weighing nuclear power’s virtues against its drawbacks, Hertzberg concludes:

Republicans love [nuclear energy] anyway – perhaps because it annoys environmentalists, perhaps on its merits. But they don’t love it as much as they hate taxes, which is how they view cap-and-trade. Obama’s willingness to give nukes a chance won’t win him many of their votes. “It won’t cause Republicans to support the national energy tax,” a spokesman for Mitch McConnell, the Senate Minority Leader, said. But it might win a few of those among them who don’t hate taxes (and science) enough to dismiss global warming as an elaborate hoax. Carl Pope, the executive chairman of the Sierra Club, has said that Obama’s nods to nuclear “may ease the politics around comprehensive clean-energy and climate legislation, but we do not believe that they are the best policy.” But the best, as often happens in our sclerotic political system, may not be among the available choices. As we stumble our way toward an acceptable approach to energy and climate change, the merely good might be the best that we can get.

Its support notwithstanding, Hertzberg’s piece still traffics in the same fear-mongering about nuclear energy’s safety record that has hindered its expansion for decades. “The nuclear industry is one whose record for safety and transparency is very far from spotless, and reviving it will require, besides big spending, nanny-state levels of government regulation,” Hertzberg writes.

In fact, the nuclear industry’s safety culture is so strong that working in the nuclear industry is actually safer than working in manufacturing. Considering the alarmist rhetoric surrounding nuclear energy safety, it might surprise most Americans to know that not one person has died or been injured from a nuclear-related incident in the U.S. (Three Mile Island, that ominous symbol of nuclear risk, did not actually lead to any adverse health or environmental effects.) According to the Nuclear Regulatory Commission (NRC), plant safety performance since Three Mile Island has improved exponentially, with the average number of significant reactor events over the past 20 years dropping to nearly zero. Meanwhile, the average number of times that nuclear plant safety systems have had to be activated – a good index of safety performance – is one-tenth of what it was 22 years ago.

What about Vermont Yankee, the nuclear plant in the Green Mountain State that was recently shut down by its legislature after tritium was detected in nearby groundwater? While such events demonstrate for some critics the unreliability of nuclear, one could argue it actually shows the improved vigilance and monitoring at nuclear plants – and the continuing hysteria among public and politicians over even small amounts of radiation. According to NRC Chairman Gregory Jaczko, such leaks – which have been found at other plants – do not constitute a public health threat. “In the grand scheme of radiation, it is well down the scale,” Jaczko said last month, “but in the area of public perception, it takes on greater significance.” According to an NRC study in 2009, “These pipe leaks have been of low significance with respect to public health and safety and the environment.” Moreover, the Environmental Protection Agency has called tritium one of the least dangerous radionuclides because it emits low levels of radiation and leaves the body quickly. (For more perspective on the health effects of the Vermont tritium leak, check out this post from Rod Adams’ indispensable Atomic Insights blog.)

Hertzberg’s piece adds one more voice to a growing chorus of acceptance among liberals that nuclear energy needs to be a part of the energy mix if we are to address climate change. There’s no getting around it: We need to stop using coal and replace it with low- and non-carbon emitting sources. Wind and solar will certainly have a role in that transformation, but they simply can’t be scaled up to meet our energy needs at the moment or for the next couple of decades. Nuclear, on the other hand, is here, it works, and it doesn’t emit carbon. Based on those facts, one would expect a stronger push from progressives eager to battle climate change. But in the current climate, grudging acceptance might be the best that we can get.

Are We Serious About Climate Change? Then Let’s Price Carbon

Climate policy seems to be returning to the legislative agenda. The Cantwell-Collins “cap and dividend” bill is getting real (and bipartisan) interest. The Kerry-Graham-Lieberman “tripartisan” climate proposal is rumored to be nearly ready. As these proposals indicate, it is likely that the Senate will start its discussions on climate from first principles, despite the presence of a more-or-less complete bill (Waxman-Markey) from the House.

These are interesting times for climate politics, and in many ways similar to how the politics of health care reform played out last year, with likely shifts in the basic ideas and key details over the coming months. I firmly believe Congress will pass a comprehensive climate bill — it’s just a matter of time (though I do hope the endgame is not as protracted as it has been for health care). But what that bill will look like is anyone’s guess.

Major issues will be familiar: how to allocate allowances and revenues, whether to fund nuclear energy or expand drilling, whether and how to include offsets, maybe even whether to scrap cap-and-trade and tax carbon instead (I think there’s a nonzero chance). These debates are all worth having and paying attention to. But we — that is, anyone who cares about climate change, which should be everyone — cannot lose sight of the one element any climate bill must include: a price on carbon.

There is simply no other policy mechanism that can cut emissions, drive the necessary innovation and produce the necessary changes to the U.S. economy. It’s not just that nothing else is as efficient — nothing else will work. Other tools like technology standards, subsidies, and offsets may be useful, but they are secondary in importance. If a proposal does not include a carbon price, it either isn’t about climate or it isn’t serious. None of this is new or surprising: we have a tool, and we know it works.

A Carbon Price Consensus?

To return to the health care analogy, a price on carbon will in some ways play a similar role to that played by the “public option” — it is considered by many to be the necessary core of a meaningful policy, and opposed fiercely by others. I think the similarities end there, however. Pricing carbon is far more important — indeed, necessary — to climate policy than a public option ever was for health care. It is possible to make progress on the basic goals of health care reform (cutting costs, reaching the uninsured, promoting equitable access, etc.) without a public option. The same is not true of climate change mitigation and a carbon price.

Consequently, there is broader and, to some extent, more bipartisan support for pricing carbon than there was for a public option. Despite Sen. Lindsey Graham’s (R-S.C.) recent declaration that cap-and-trade is dead (not exactly what he said, it should be pointed out), a few Republicans and virtually all Democrats alike realize that a carbon price must be part of meaningful climate legislation. The only people who don’t believe this either don’t believe in anthropogenic global warming at all (and are therefore at least principled, if on the wrong side of the science) or are just playing politics with the most important issue of our time. Perhaps this is not surprising, but it is disappointing.

If you care about climate change, the first question you should ask of any proposal is, “Does it put a price on carbon?” Only if the answer is yes is it worth getting into details. As someone once said about soccer, “The ball is round. The game lasts 90 minutes. That is fact. Everything else is theory.”

This holds true for proposals that might be attractive for other reasons, like an “energy only” bill, even if it includes a renewable portfolio standard. This or other measures that don’t include a carbon price are not going to produce significant change in U.S. emissions, and aren’t going to spur the necessary innovation for long-term change in how we produce and use energy. The same goes for incentives and subsidies for “green technology” and creation of “green jobs.” These sound nice, but if you really want the jobs and technology, you need to implement a carbon price. We are likely to see a wide variety of proposals with a wide variety of policy mechanisms over the coming months. All of them will be characterized as pro-climate, pro-innovation, and pro-jobs. It is critical to look past this rhetoric, and even beyond many of the policies included in the proposals, and determine whether there is a carbon price at their core — regardless of how much “rebranding” of climate proposals goes on.

Demanding a price on carbon makes sense regardless of your politics: producing the greatest reduction in emissions at the lowest cost is attractive for everyone. The details of a climate bill do matter, and will surely drive wedges between political groups — but the time has come for a political consensus on pricing carbon. I think progressives should be open to ideas on climate policy from all directions. The proposals that are likely to be at the center of debates in the Senate, Cantwell-Collins and Kerry-Graham-Lieberman, are bipartisan from the start. There will undoubtedly be other proposals and much discussion of the details. But amid all of the political maneuvering, we shouldn’t lose sight of the indispensable core of climate policy. Everyone serious about climate change should be banging the same drum: price carbon.

The EPA and GHGs: Sometimes the Little Things Matter Most

Major pieces of legislation from the Hill, blockbuster rulemakings, and Supreme Court cases get all the policy headlines. Sometimes, though, small things can make just as much of an impact. Last week’s completion by the EPA of a proposed revision to an internal memo — the Johnson Memorandum — could be an example of this, though it looks like it will be most notable for maintaining the status quo. Still, it’s interesting to look at what impact it could have made (and may yet, if the final version is different).

The memo and today’s revision have to do with a bit of Clean Air Act (CAA) arcana: which polluters have to get preconstruction permits to build new plants or modify existing ones? This question seems superficially to be interesting to only the most pedantic of CAA wonks, but the answer has real effects for the cost and effectiveness of policy.

These permits are a big deal. They are expensive and time-consuming to get and require facilities to install the “best available control technology” (BACT). Since the EPA will very shortly regulate greenhouse gas tailpipe emissions, the question has pressing relevance. The EPA’s controversial “tailoring rule” is aimed at minimizing the impact of these permit requirements (called PSD in CAA lingo) by restricting them initially to larger sources. But the even more immediate question of when those large sources have to get permits is determined elsewhere in the Johnson Memo. (For more on how these pieces fit together, see the chart here.)

The EPA has traditionally required only emitters of pollutants subject to actual control under the CAA to get PSD permits. This means that emitters of pollutants that are only reported, not regulated, don’t have to get permits. It also means that emitters don’t have to get permits until regulation actually forces action; regulation just being announced isn’t enough. The Johnson Memo, released in 2008 by the Bush-era EPA and named for then-EPA Administrator Steven Johnson, confirmed this traditional approach.

Now that the EPA is about to regulate GHGs, the agency is reopening this issue. If you thought that the 19-page Johnson Memo was a comprehensive treatment, get ready for the 77-page reconsideration. In the proposed version of reconsideration (released last year), the EPA claims its preferred option is to stick with the traditional approach. This would probably result in permit requirements for GHGs beginning in January 2011, according to Administrator Lisa Jackson’s letter to Congress last week. But the proposed reconsideration mentions alternatives, such as a permit requirement when an endangerment finding for a pollutant is made, or even when reporting is required. If one of these options is chosen by the EPA in the final reconsideration, emitters will require permits now (since GHGs are subject to reporting in 2010 and an endangerment finding was made in December).

As Jeff Holmstead of Bracewell & Giuliani discussed at RFF’s Clean Air Act event last week, this timing issue really matters for emitters. If an emitter has a new plant or modification awaiting a permit, whether a permit application is processed before or after GHGs become part of the BACT inquiry is very important. Uncertainty makes planning difficult. Combined with the uncertainty surrounding the tailoring rule, GHG emitters are unsettled and unhappy. Unsettled and unhappy industries tend to sue agencies and lobby Congress. Environmentalists also care about timing. They want GHGs to be a part of the permit process as soon as possible, and are likely to exert pressure of their own.

Since the Johnson Memo and the new reconsideration of it are EPA interpretations of its own statutes, they are very hard to challenge in court (they are entitled to Chevron deference). This makes pressure on the agency directly (through the comment process) or indirectly (through Congress) the most likely avenues of attack from either side.

Since the proposed reconsideration confirms the existing approach, I think it will be relatively unchanged in its final form. If the EPA does pursue a change in this policy, however, the effects will be large. This is just one of countless illustrations of how, in Washington as much as anywhere, the little things matter.

This item is cross-posted at Weathervane.

Some Quick Thoughts on the Rockefeller Proposal

Sen. John D. Rockefeller (D-WV) today introducedbill which, if passed, would become the “Stationary Source Regulations Delay Act.’’ This bill, like Sen. Lisa Murkowski’s (R-AK) proposal that I’ve written about before, would curtail the EPA’s authority to regulate greenhouse gas (GHG) emissions under the Clean Air Act (CAA). There are major differences between the proposals, however, and I think these are worth clearing up. I suspect media reports will group the two proposals together, even though the practical and political effects will be very different.

First, even though both proposals target EPA CAA authority over GHGs, they are mirror images of each other. The Murkowski proposal would kill the EPA’s endangerment finding for mobile sources (cars and trucks). In the short term, this would block all EPA efforts to regulate GHGs under the CAA, though in principle the EPA could make a new endangerment finding under a different section of the act and go after other kinds of sources. The Rockefeller proposal would leave the endangerment finding and mobile source regulation intact but, as its title indicates, would impose a two-year moratorium on EPA regulation of stationary-source (power plants, etc.) GHGs.

The Rockefeller bill makes much more sense, I think. This isn’t to say I personally support it, just that it addresses concerns over EPA regulation of GHGs much more effectively than the Murkowski proposal. Mobile-source regulation is the one piece of the CAA/GHG process that has broad support. The regulations the EPA plans to finalize this month were a product of compromise with the auto industry last year. All of the comprehensive climate bills I know of leave EPA authority over mobile sources intact. It’s EPA regulation of stationary sources, and in particular requirements for preconstruction GHG permits, that is causing the most controversy and putting the most pressure on Congress. If Congress wants to relieve this pressure then the Rockefeller path is the right one, not Murkowski.

Second, the political differences are obvious though I’m skeptical about whether the end result will be any different. Rockefeller is a Democrat, and while Murkowski has support from some moderate Dems, this new proposal seems pitched more directly at the center-left core of the Senate. Unlike Murkowski’s proposal, it will need 60 votes to pass, but it is probably more likely to get them. Similar bills are being proposed by House Dems.  This makes it much more likely, I think, that the bill will pass one or both houses—though I leave it to more adept vote-counters to make the call.

Even if the bill did pass both houses, it would still have to be signed by President Obama. I cannot imagine the president would sign the bill. It blocks action on GHGs that the president has publically stood behind. Also, and maybe more importantly, the bill would take an arrow out of the quiver of the executive branch. No president likes that. Until and unless that changes—or unless Congress somehow comes up with a veto-proof majority—the Rockefeller bill won’t become law.

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

This item is cross-posted at Weathervane.

Scaling Up Natural Gas

Here at PPI, we’ve long argued that for the U.S. to meet its carbon reduction targets, we need to assume a “Leave No Fuel Behind” outlook. Currently, coal — the most polluting and the cheapest of sources — accounts for half of all power produced in the U.S. There’s no doubt that we need to scale back our use of coal. But replacing that base-load capacity will be a tall order.

Ramping up renewable sources like wind and solar should, of course, be a priority, but they simply won’t be reliable energy sources for decades to come. We’ve also argued for an expansion of nuclear power and more research into carbon capture and storage, and we applaud the administration’s recent efforts to jumpstart our nuclear industry. But let’s not forget the quickest interim source we can use to begin cutting back on coal emissions: natural gas.

In a column last Friday, the Washington Post‘s Steven Pearlstein makes a compelling case for scaling up natural gas:

The silver bullet: Decommission about two-thirds of the electric-generating capacity fueled by cheap and plentiful coal, and replace it with power generated from cheap and plentiful natural gas, which emits half as much carbon for each megawatt of electricity.

Pearlstein points out that a confluence of events — the overbuilding of gas-fired plants in the ’90s and an increase in supply thanks to new drilling techniques — has made natural gas a feasible substitute for base-load electricity generation. A Congressional Research Service study found that if our currently underutilized gas plants were to double their production, about a third of coal-fired power would be displaced — a major step toward meeting our emissions reduction targets.

In trying to wean ourselves off coal, the most effective method would still be to put a price on carbon. This week, the Senate is back from recess and will make a “last-ditch attempt” to put together a compromise cap-and-trade bill. But as legislators try to break the gridlock over cap-and-trade, they should keep their eye on alternatives that can begin to ease the grip of coal on our economy. Nudging utilities toward natural gas seems like a good start.

Creating American Jobs, Generating American Energy

A new policy memo from Third Way offers 23 ways to create clean energy jobs and lay down the foundation for a green economy. The memo breaks down its proposals into short-, medium-, and long-term ideas for generating new jobs. Among the proposals include a small-business energy efficiency loan program; advanced energy manufacturing tax credits; transitioning diesel heavy vehicles to natural gas; nuclear workforce training; and the creation of a National Infrastructure Bank.

The World Without Obama

If you’ve been watching the cult TV show “Lost,” then you’re familiar with the concept of parallel universes. That is, alternate realities in which history turned out differently, because people made different decisions.

It’s a useful concept when it comes to thinking about President Obama’s current predicament. On a variety of fronts, the Obama administration is suffering from an inability to show Americans the parallel universe in which its past policies were not enacted — and the future that will result if its current proposals bite the dust.

That’s most obviously true with the early, fateful decisions to continue TARP and bail out the auto companies. They arguably averted the collapse of the global financial system, the virtual extinction of consumer and business credit, and 1930s levels of unemployment (especially hard-hit would have been the upper Midwest). Nevertheless, no matter how often the president tells us his actions kept a deep recession from developing into a Great Depression, it remains an abstract proposition for the people who are currently unemployed. The same is true for the 2009 economic stimulus package, which virtually all experts, public and private, credit with saving about two million jobs. The continued job losses reported each month make it hard to claim that one has succeeded by avoiding even greater unemployment.

The problem of “proving a negative” is even more daunting when it comes to prospective policy proposals. Critics savage Obama for a health care plan that doesn’t do enough to limit costs. Obama responds that health care costs are going up anyway, without a plan. But it’s not easy to convince people that the status quo is riskier than a large and complicated series of changes in how Americans obtain health insurance. That’s why the White House has made such a big deal out of Anthem Blue Cross’s gargantuan premium increases for individual policyholders in California. It is, they argue, a sign of where the status quo is headed absent reform. They do not, unfortunately, have such a convenient example that will help them explain the need for climate-change legislation, as conservatives, stupidly but effectively, cite this winter’s heavy snowstorms as disproof for the scientific consensus about global warming trends.

There is one way to deal with Obama’s dilemma. Although it’s difficult to prove that American life under the president’s policies is better than life without them, it should be easier to point to another parallel universe: life under Republican policies. But such an effort requires a basic strategic decision. Should Democrats point back to the reality of life under George W. Bush, which most people remember pretty vividly, and simply say today’s GOP wants to “turn the clock back”? Or should they focus on current Republican proposals, such as they are, which in many respects make Bush policies look pretty responsible? It’s hard to take both tacks simultaneously, since the extremism of contemporary Republican politics is in no small part motivated by a determination to separate the GOP and the conservative movement from association with that incompetent big spender, Bush, who failed because he “betrayed conservative principles.”

It appears the White House is increasingly inclined to take the second, forward-looking approach to highlighting the GOP’s desired alternate reality, rather than the first, backward-looking one. As much as some Democrats wail about the “bipartisanship” rhetoric that surrounds Obama’s outreach to Republicans, which he’s employed while challenging them to direct debate over health reform and economic recovery, the president’s main intention is clear. He wants to force the opposition to help him present voters with a choice between two specific courses of action — or simply admit that their strategy is one of pure gridlock, obstruction, and paralysis (which, as my colleage J.P. Green has pointed out, spells “G.O.P”).

The stake that Obama and the Democrats have in convincing Americans to consider these parallel universes couldn’t be much higher. This November, if voters remain fixated on the current reality, rather than the terrible alternatives, then the midterm elections really will be a referendum on the status quo and its Democratic caretakers. Explaining life as it would be without Obama, and as it could be under Republican management, is not easy. But Democrats must do it or face catastrophe at the polls.

This item is cross-posted at The Democratic Strategist.

Obama’s Strong Push for Nuclear Power

Yesterday, President Obama announced the approval of an $8.3 billion loan guarantee to break ground on two new nuclear reactors in Georgia — the first new nuclear plants to be built in the U.S. in three decades:

The commitment to Southern Co. was the latest — and strongest — signal yet that the administration is serious about making nuclear power part of the energy mix for a clean economy. It also reflects this administration’s resolutely pragmatic and reality-based approach to energy policy.

As we at PPI have argued, for the U.S. to achieve its goal of cutting carbon emissions and freeing ourselves from our dependence on foreign oil, all forms of low- and no-carbon fuel sources need to be considered. Nuclear currently provides 19 percent of the U.S.’s energy, making it by far the largest source of non-carbon emitting power. While solar and wind energy should also be scaled up, the fact remains that it will be a long time before those renewables become major energy sources.

The administration’s support will also mean jobs. The Georgia plants alone will create thousands of construction jobs and hundreds of permanent operation and management positions. With a promise of more loan guarantees down the pipeline, the administration is wisely framing the nuclear push as a jobs program as well.

By aggressively promoting nuclear, the administration is also seeking to call the Republicans’ bluff on energy policy. Longtime advocates of nuclear power, Republicans have been slow to accept the olive branch that the Obama administration has offered. In his speech, President Obama argued that nuclear would not get the boost it needed unless we created incentives for clean energy — in other words, a price on carbon. As long as there is no penalty for carbon pollution, fossil fuel sources will remain more cost-effective and profitable than nuclear and other renewables.

Can a Cap-and-Dividend Scheme Pass?

In a new post on his blog, Harvard economist and PPI contributor Robert Stavins surveys the dismal political landscape for cap-and-trade and finds reason to be optimistic. Acknowledging that cap-and-trade as laid out in the Waxman-Markey bill is dead, Stavins surveys the remaining alternatives.

First he looks at the increasingly likely option of a stand-alone energy bill, which as he accurately describes it lops off the best thing about Waxman-Markey (a cap-and-trade scheme) and preserves the worst (a cocktail of standards and subsidies that will do very little at high costs).

Then he takes a look at EPA regulation as mandated by the Supreme Court. Stavins argues that going that route would be “relatively ineffective and terribly costly for what is accomplished.” Moreover, it promises a political backlash, with the EPA’s enforcement becoming the embodiment of regulatory overkill that can be used by the right to defeat sensible climate policies.

But Stavins does like one alternative lurking out there: a so-called “cap-and-divided” system whose appeal lies in its populist politics. Stavins explains:

This could be done with a simple upstream cap-and-trade system in which all of the needed allowances are sold (auctioned) – not given freely – to fossil-fuel producers and importers, and a very large share – say 75% – of the revenue is rebated directly to American households through monthly checks in a progressive scheme through which all individuals receive identical payments.

Such an approach could appeal to the populist sentiments that are increasingly dominating political discourse and judgments in this mid-term election year. Such a system – which would have direct and visible positive financial consequences (i.e., rebate checks larger than energy price increases) for 80% of American households – might not only not be difficult for politicians to support, but it might actually be difficult for politicians to oppose!

Such a system has already been proposed in Congress, with Sen. Maria Cantwell’s (D-WA) Carbon Limits and Energy for America’s Renewal (CLEAR) Act. Also sponsored by Republican Sen. Susan Collins (ME), the bill has the advantage of being bipartisan as well as populist. Stavins warns that changes still need to be made. For instance, the bill restricts the creation of a broad market for CO2 allowances, making it less efficient and needlessly driving up costs. (David Roberts at Grist has a more detailed — and I must say persuasive — critique of the CLEAR Act here.)

In actuality, a cap-and-dividend system as Stavins lays it out is little different from a cap-and-trade system. The main difference is optics. Waxman-Markey has now been (unfairly) painted as an unwieldy sausage of backroom deals and industry giveaways. By calling for auction revenues to be returned to consumers, a cap-and-dividend certainly might be more palatable in a populist period.

But one thing that supporters of cap-and-dividend forget is that Waxman-Markey did not give away free allowances because the bill’s authors like industry. Rather, they did it because they needed industry to buy in. Can a bill that withholds those incentives from utilities and other affected companies actually make it through the legislative process? I have my doubts.

The State of Play on Cap-and-Trade

Remember cap-and-trade? Progressives now speak of it in hushed, glum tones, the way we do of the recently departed. If the bill was already unlikely to be passed in the wake of a difficult 2009 for Democrats, then Scott Brown’s win all but guaranteed that it wouldn’t be so much as a blip on the Dems’ political agenda in 2010.

Yet there are some out there who continue to hold out hope. Some are even Republicans. Here’s Sen. Lindsey Graham (S.C.) speaking at a D.C. event yesterday:

I don’t think you’ll ever have energy independence the way I want it until you start dealing with carbon pollution and pricing carbon. The two are connected in my view—very much connected. The money to be made in solving the carbon pollution problem can only happen when you price carbon in my view.

So if the approach is to try to pass some half-assed energy bill and say that is moving the ball down the road, forget it with me.

Now, Graham has come out against both the House-passed cap-and-trade bill last year and the bill that passed out of the Senate Environment and Public Works Committee. But he, Sen. John Kerry (D-MA), and Sen. Joe Lieberman (I-CT) are trying to cobble together a compromise that results in some sort of carbon-pricing scheme and, no less important, can get 60 votes.

It’s indisputable that a system that prices carbon is better at curbing greenhouse gas emissions and spurring clean energy development than a stand-alone energy bill with the usual cocktail of subsidies to energy companies – something that some in Congress are now actively pushing. As Bradford Plumer has pointed out, “without a cap on carbon, such a bill might even end up increasing emissions – especially if the proposed new transmission lines merely gave coal-fired plants access to new markets, allowing them to boost output.”

Where’s the administration in all this? President Obama’s budget pointedly left out revenue that an emissions-trading program would have brought in. (Last year’s budget, by contrast, included a revenue forecast of $646 billion over several years from a cap-and-trade system.) The administration insists that the omission shouldn’t be read as a signal of where things stand on cap-and-trade — but it’s sure hard not to. Then again, the budget also includes a $43 million increase for the EPA’s implementation of its carbon endangerment finding, certainly a signal that it intends to move ahead with a Supreme Court-mandated regulatory effort to confront the carbon problem in the absence of legislation.

For his part, President Obama in a town hall appearance in New Hampshire earlier this week gave a strong defense of the concept of pricing carbon to drive incentives for clean energy investments. But he also acknowledged that the Senate might separate the subsidies for clean energy in an energy bill from a carbon-pricing mechanism – which realistically means no cap-and-trade at all.

I understand that the president can’t throw around words like “half-assed.” But a stronger push would be nice. Graham called out an energy-bill-only route for what it is and stood firm on the issue of carbon pricing. It seems like there’s an opening there for the president to make the same argument and embolden Congress to do what’s really needed to spur a clean energy economy and curb greenhouse gases: pass a cap-and-trade system.

Will GOP Tango on Nuclear Power?

President Obama has delivered on his promise to expand nuclear energy — big time. But can Republicans take “yes” for an answer?

Obama’s new budget calls for a whopping increase in federal loan guarantees for nuclear power, from $18.5 billion to $54 billion. Last week, he also created a blue ribbon panel to explore solutions to the contentious issue of nuclear waste disposal, which many regard as a key roadblock to building new nuclear plants.

The president’s commitment to a nuclear “renaissance” in America signals a major shift among progressives. Although some environmentalists remain adamantly opposed, Obama’s pragmatic stance probably will speed the melting away of taboos on nuclear energy that date back to the 1979 Three Mile Island incident.

Increasing the role nuclear power plays in the nation’s energy portfolio serves our economic, security and environmental interests. It would help America meet rising energy demand as well as the targets it set in Copenhagen for greenhouse gas reduction. As more hybrids and electric cars come onto the market, it would enable us to generate more electricity with zero carbon emissions. And the switch in transportation fuels from gas to electricity will lessen our dependence on foreign oil.

Some progressives, however, balk at expanding federal loan guarantees to underwrite nuclear plant construction. They cite a relatively high risk of default, although such risk is at least in part the result of political obstacles to expeditiously siting, approving and building new facilities.

Critics also object that Obama’s push for nuclear power is a preemptive concession to Republicans. Some GOP leaders, like Sen. John McCain, have demanded more support for nuclear energy in exchange for their support of the president’s “cap-and-trade” proposal to reduce U.S. carbon emissions and spur clean energy development. It’s true that Republicans aren’t lining up now to support the legislation, but it’s also true that the president’s budget is still just a proposal at this point.

Expanding nuclear power is worth doing whether or not some pro-nuke Republicans sign onto the climate bill. But in coming budget negotiations, Obama should offer Republicans a deal: more support for nuclear power in return for a softening of their monolithic, and retrograde, opposition to ensuring that America does its part to stop overheating the planet.

If they refuse, it will bolster the president’s point that “it takes two to tango,” and put the onus of obstructionism squarely on the GOP.

Obama’s Budget Delivers on Energy

Elections really do have consequences. After years of virtual inaction from the Bush administration on a clean economy, the president’s new budget is a politically savvy, substantively brave, and altogether impressive collection of proposals. Against the dim eight years, the proposals for the Department of Energy are electrifying, and continue to show the administration’s commitment to bringing path-breaking change to energy and environmental policies.

In the critical area of “negawatts,” for instance, the president proposes a sweeping expansion in energy efficiency, with $500 million in credit subsidies to support $3 to $5 billion in loan guarantees for efficiency and renewable energy projects.

On research and innovation, he proposes $5.1 billion for the Office of Science, including $1.8 billion for basic energy sciences to discover novel ways to produce, store, and use energy. He also puts $300 million into the Advanced Research Projects Agency–Energy (DARPA-E).

And he includes goals regular folks can get our arms around. The budget will double renewable energy generating capacity (excluding conventional hydropower) by 2012. It will push out new battery manufacturing for 500,000 plug-in hybrid electric vehicles a year by 2015. And DOE and HUD will work together to retrofit 1.1 million housing units through 2011.

Renewables, batteries, and retrofits. These are all practical achievements that will make a difference in the lives of millions of people, and that can be easily visualized.

These are progressive measures, to be sure. They’ll be popular in blue states and probably purple ones as well. But the president also includes other measures to ensure the package is taken seriously across the country. The budget includes $36 billion in new loan authority, for a total of $54.5 billion, to support DOE loan guarantees for nuclear power facilities. Specifically, the budget conditionally commits to loan guarantees for two nuclear power facilities for at least 3,800 megawatts during 2010. It’s a move that will help the president sell his budget to pro-nuclear senators.

The budget also proposes $545 million to develop carbon capture and sequestration (CCS) technologies. Substantial support for these exciting technologies is critical to getting support from representatives and senators from states, including the critical Appalachian belt, where coal is, and will continue to be, an important source of energy.

Exciting news to see substance, vision, and strategy coming together in one document and a clear indication that — on the energy front, at least — the change promised in 2008 is resoundingly here.

Cape Wind Project Faces New Delay

The squabble over the Cape Wind, an offshore wind farm off Cape Cod, has been raging for years now, with some residents of Nantucket who dearly prize their ocean views battling with pro-wind energy forces who want to establish the nation’s first major offshore wind farm. But after eight years of regulatory review, during which time no regulator has found that the project’s 130 turbines would cause harm to the environment, Cape Wind looked just about ready to be resolved, with one more regulatory hurdle waiting to be cleared.

Alas, the new year brought some bad news for Cape Wind backers:

In a new setback for a controversial wind farm proposed off Cape Cod, the National Park Service announced Monday that Nantucket Sound was eligible for listing on the National Register of Historic Places, guaranteeing further delays for the project.

Known as Cape Wind, the project is the nation’s first planned offshore wind farm and would cover 24 square miles in the sound, an area roughly the size of Manhattan. The Park Service decision came in response to a request from two Massachusetts Indian tribes, who said the 130 proposed wind turbines would thwart their spiritual ritual of greeting the sunrise, which requires unobstructed views across the sound, and disturb ancestral burial grounds.

The Park Service’s decision, which caught observers by surprise, no doubt throws the project’s prospects in doubt, and deals another blow to the cause of clean energy.

The ruling certainly caught the Obama administration’s attention. Interior Secretary Ken Salazar, whose department oversees the Park Service, issued a statement calling on the principal parties in the dispute to meet next week to hammer out a “common-sense agreement” by March 1. Salazar added that if a deal isn’t reached, “I will be prepared to take the steps necessary to bring the permit process to conclusion.’’

Salazar’s statement is the boldest declaration of interest yet by the administration in the Cape Wind project. Perhaps after the frustrations of Copenhagen and cap-and-trade, the administration has a renewed sense of urgency about proving its commitment to clean energy. Certainly the comparison between the U.S. and its peers isn’t flattering to us: just two days ago, Britain announced that it would award £100 billion worth of development contracts for a new generation of offshore wind farms.

We won’t know until the meeting next week what the administration’s plan and next moves are. For now, we stick with a frustrating mantra familiar to followers of the Cape Wind saga: Stay tuned.

What Happened at Copenhagen?

Robert Stavins, who wrote us a dispatch from Copenhagen upon President Obama’s arrival there last week, has had a couple of days to mull over the outcome of the talks. His verdict: qualified approval, with a healthy dose of “too soon to tell.”

At the final hour in Copenhagen, the leaders of a small number of key countries worked creatively together to identify a politically feasible path forward.  I have previously argued (“Defining Success for Climate Negotiations in Copenhagen”) that the best goal for the Copenhagen climate talks was to make progress on a sound foundation for meaningful, long-term global action, not some notion of immediate, numerical triumph.  That has essentially been accomplished with the “Copenhagen Accord,” despite its flaws and despite overt challenges from five of some 193 countries represented (Bolivia, Cuba, Nicaragua, Sudan, and Venezuela).

Stavins calls the deal “a potentially very important third step” (the Rio Earth Summit in ’92 and Kyoto in ’97 being the first two), noting the improvement it makes over the Kyoto Protocol. The accord “expand[s] the coalition of the willing” by including rapidly growing developing countries that were left out in the Kyoto agreement, a crucial move if the world really is to make a concerted effort to mitigate greenhouse gas emissions.

Underscoring the immense difficulty of getting the whole world to sign on to one agreement, Stavins argues that while the Copenhagen accord may fall short of people’s expectations, it nonetheless was much better than what most people anticipated days before the conference’s end, when talks seemed hopelessly stuck in neutral. Stavins singles out President Obama’s late-game intervention as key to hammering out an accord. But as Stavins’ item-by-item breakdown of the deal suggests, there are simply too many details that have yet to be hammered out to fully determine the accord’s merits. The jury is still out.

One point that Stavins does make stands out: pointing the way forward, he suggests that bilateral and multilateral talks might be the more effective path as we proceed from here. I’ve been wondering about this, too. Considering how unwieldy it is to get nearly 200 nations on the same page, and that only 17 countries in the world account for some 90 percent of its emissions, wouldn’t scaling down agreements to the bilateral and multilateral level have a better chance of getting results?

Of course, it will all go for naught if the U.S. doesn’t act. Although China is now the world’s largest GHG emitter, it is still doing more on the renewable energy front than the U.S. And let’s face it: the average Chinese citizen is still nowhere near the polluter the average American is. The fact is that the U.S. needs to now do its part and enact a cap-and-trade bill. Senators, the world is watching — and waiting.

Dispatch From Copenhagen: Obama, Kyoto, and the Prospects for a Deal

The following is a guest column from PPI friend and sometime contributor Robert Stavins, Albert Pratt Professor of Business and Government at Harvard and director of the Harvard Environmental Economics Program. He is attending the U.N. climate change negotiations in Copenhagen.

Copenhagen

First things first: Let’s start with Secretary of State Hillary Clinton’s announcement today regarding U.S. funding for developing countries.  The developing countries are asking for truly huge sums in Copenhagen — more than $100 billion to $200 billion annually to pay for their carbon mitigation and climate change adaptation through 2050. The U.S. can play an important role, and it could do so in a way that will not add to U.S. debt and ought not antagonize more conservative elements in the U.S. Congress, but it will not be through direct payments from the U.S. government to governments of developing countries. Let me explain.

Although it is inconceivable that the governments of the industrialized world, including the U.S. government, will come up with sufficient, sustainable foreign aid to satisfy the demands for financial transfers by the developing countries, they can — through sensible domestic and international policy arrangements — provide key incentives for the private sector to provide the needed financing through foreign direct investments.

For example, if the cap-and-trade systems that are emerging throughout the industrialized world as the favored domestic approach to reducing CO2 and other greenhouse gas emissions are linked together through the existing, common emission-reduction-credit system, namely the Clean Development Mechanism (CDM), then powerful incentives can be created for carbon-friendly private investment in the developing world. That would not add to U.S. debt; indeed, it would be good for U.S. private industry.

Clearly the CDM, as it currently stands, cannot live up to this promise, but with appropriate reforms there is significant potential. Of course, problems of limited additionality will inevitably remain. Therefore, what is needed is for the key emerging economies — China, India, Brazil, South Korea, South Africa, and Mexico — to take on meaningful emission targets themselves (even if equivalent to business-as-usual in the short term), and then participate directly in international cap-and-trade, not government-government trading as envisioned in Article 17 of the Kyoto Protocol (which won’t work), but firm-firm trading through linked national and multinational cap-and-trade systems.

Importantly, the private finance approach stands a much greater chance than government aid of being efficiently employed — that is, targeted to reducing emissions, rather than spent by poor nations on other (possibly meritorious) purposes. So, the job can be done, and governments have an important role, but as facilitators, not providers, of finance. Unfortunately that has not been the focus of the Copenhagen discussions.

Moving Past Kyoto

More broadly, the developing countries have insisted that the Kyoto protocol must be the basis for a new agreement. This is a real problem, because the Kyoto Protocol, in particular its dichotomous distinction between the small set of Annex I countries with quantitative emission-reduction commitments and the majority of countries in the world with no responsibilities, is the “QWERTY keyboard” (that is, unproductive path dependence) of international climate policy — the major stumbling block in negotiations here in Copenhagen.

The world has changed dramatically since the 1997 Protocol divided the world in two. More than 50 non-Annex I countries (with no legally binding commitments) now have greater per capita income than the poorest of the Annex I countries (with commitments). So, even if this distinction was appropriate in 1997, it surely no longer is. But updating the list is impossible. Mexico and South Korea, for example, joined the OECD just six months after Kyoto, but they are unwilling to join the set of Annex I parties. Furthermore, updating the list would be insufficient. It is the very notion of a dichotomous distinction between countries with stringent targets and countries with no targets whatsoever that is at the heart of the problem. A more subtle, more sophisticated interpretation of “common but differentiated responsibilities” is needed. More about this below.

The industrialized (Annex I) countries have emitted most of the stock of manmade carbon dioxide in our atmosphere, so shouldn’t they reduce emissions before developing countries are asked to contribute? While this may seem to make sense, here are four reasons why a new climate agreement must engage all major emitting countries — both industrialized and developing:

  1. Emissions from developing countries are significant and growing rapidly. China surpassed the U.S. as the world’s largest CO2 emitter in 2006, and developing countries may account for more than half of global emissions within the next decade.
  2. Developing countries provide the best opportunities for low-cost emissions reduction; their participation could dramatically reduce total costs.
  3. The U.S. and several other industrialized countries may not commit to significant emissions reductions without developing country participation.
  4. If developing countries are excluded, up to one-third of carbon emissions reductions by participating countries may migrate to non-participating economies through international trade, reducing environmental gains and pushing developing nations onto more carbon-intensive growth paths (so-called “carbon leakage’’).

How can developing countries participate in an international effort to reduce emissions without incurring costs that derail their economic development? Their emissions targets could start at business-as-usual levels, becoming more stringent over time as countries become wealthier. If such “growth targets’’ were combined with an international emission trading program, developing countries could fully participate without incurring prohibitive costs (or even any costs in the short term). This approach — described in a recent Discussion Paper by Harvard Professor Jeffrey Frankel and Valentina Bosetti of the University of Venice for the Harvard Project on International Climate Agreements — could provide a progressive route forward, breaking the logjam between developed and developing countries, if only the two sides would begin to talk to each other, rather than past each other.

Obama in Denmark

Now that President Obama is on his way to Copenhagen, will his presence and that of so many heads of state provide the needed push for success? Unquestionably the presence of some 100 heads of state and government increases the likelihood that a climate change deal will be reached by the close of business on Friday, but the key question is whether it increases the likelihood that a “meaningful climate change deal” will be achieved. I am of mixed views on this.

On the one hand, the presence of the leaders surely provide impetus to the process in the sense that many of the key countries — including the U.S. — will not want their leaders to fly home without a “success” in hand. For President Obama, two flights home from Copenhagen within a few weeks without success in either would be a substantial political embarrassment. (The international press and Republicans in Congress have not forgotten the failed Chicago bid for the Olympics). Furthermore, as I explained in a Financial Times blog post last week, the very fact that the White House decided to shift President Obama’s trip to Copenhagen from the first week of the conference to its final day suggests that they had good reason to anticipate a successful outcome.

On the other hand, the political incentive that is provided for achieving “success” by the leaders’ presence may be to accept a deal that is less than meaningful (if a meaningful deal cannot be achieved), but one that has the appearance of success.  So, with the heads of state and government present, the incentives could be strong to agree to a climate change deal that is less than meaningful. The key, outstanding question is whether the outcome will be one that provides a sound foundation for meaningful, long-term global action, as opposed to some notion of immediate, albeit highly visible triumph.

It would be unfortunate if the outcome were no more than a signed international agreement per se, glowing press releases, and related photo opportunities for national leaders, because such an agreement would most likely be the Kyoto Protocol on steroids:  more stringent targets for the industrialized countries and the absence of real commitments by the key, rapidly growing emerging economies of China, India, Brazil, Korea, Mexico, and South Africa (let alone by the numerous developing countries of the world). With the promise of $100 billion now on the table in Copenhagen, such an agreement could — in principle — be signed, but it would not reduce global emissions and it would not be ratified by the U.S. Senate (just like Kyoto). Hence, there would be no real progress on climate change.

The Need for a New Mindset

At the heart of the matter is the reality that eventually the negotiations must get beyond what has become the “QWERTY keyboard” of international climate policy: the distinction in the Kyoto Protocol between the small set of Annex I countries with quantitative targets, and the majority of countries in the world with no responsibilities. Various meaningful policy architectures could begin to bridge the massive political divide that exists between the industrialized and the developing world, as we’ve found in the Harvard Project on International Climate Agreements.

For example, it remains possible that a midterm agreement could be reached on an approach involving an international portfolio of domestic commitments, whereby each nation would commit and register to abide by its domestic climate commitments, whether those are in the form of laws and regulations or multi-year development plans. Support for such an approach has been voiced by a remarkably diverse set of countries, including Australia, India, and the U.S.  And comments yesterday from the Chinese delegation suggest that support is increasing for this approach.

Consistent with this portfolio approach, President Obama recently announced that the U.S. would put a target on the table in Copenhagen to reduce emissions 17 percent below 2005 levels by 2020 (in line with climate legislation in the U.S. Congress). In response, China announced that it would reduce its carbon intensity (emissions per unit of economic activity) 40 percent below 2005 levels over the same period of time. Subsequently, India announced similar targets. Given these countries rapid rates of economic growth, the announced targets won’t cut emissions in absolute terms, but they are promising starting points for negotiations.  The key question is not what this approach would accomplish in the short term, but whether it would put the world in a better position two, five, and ten years from now in regard to a long-term path of more aggressive action.

Until we see the final outcome in Copenhagen, I will remain cautiously optimistic, because at least some of the key nations, including the U.S., appear to be more interested in real progress than in symbolic action.