issue: Energy & Environment

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.

Why an EPA Rule for Traditional Pollutants Matters for Greenhouse Gases

Posted on by The Progressive Policy Institute

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

Posted on by The Progressive Policy Institute

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

Posted on by The Progressive Policy Institute

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

Posted on by The Progressive Policy Institute

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

Posted on by The Progressive Policy Institute

Sen. John D. Rockefeller (D-WV) today introduced a bill 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

Posted on by The Progressive Policy Institute

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

Posted on by The Progressive Policy Institute

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

Posted on by The Progressive Policy Institute

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

Posted on by The Progressive Policy Institute

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?

Posted on by The Progressive Policy Institute

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

Posted on by The Progressive Policy Institute

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.