Cooler Heads Digest

Cooler Heads Digest

Issue #6
July 05, 2007

 

1. The Week in Global Warming News 2. CEI's Insider Information 3. Issue of the Week: Marlo Lewis's Senate Testimony4. Cooler Heads Digest Calls for Content

 

 

1. The Week in Global Warming News

 

2. CEI's Insider Information

 

Inside the BeltwayCEI's Myron Ebell analyzes the state of global warming policy in the nation's capitol.

 

My colleague Marlo Lewis testified at a painfully comic hearing of the Senate Environment and Public Works Committee on June 28th on “examining global warming issues in the power plant sector”. Marlo's testimony (see “Issue of the Week” for a summary of his testimony) is well worth reading, as is that of Robert E Murray and Tom Borelli, but I write to discuss the testimony of three heads of major electric utilities.

 

Peter Darbee , chairman and CEO of PG&E in California, supports a cap-and-trade scheme that would be fair to his company by giving out the initial allocations based on actions already undertaken that reduced emissions (called credits for early action) and on each emitter's historical level of energy produced rather than on its historical level of emissions. This would favor utilities (like PG& E!) that don't burn much or any coal and instead already rely on higher-priced lower-emitting fuels.

 

Lewis Hay, chairman and CEO of FPL (Florida Power and Light) favors a modest carbon fee, which differs from a carbon tax because…well, because it's called a fee. If Congress prefers a cap-and-trade instead, then it needs to be designed so that innocent people (like FPL shareholders?) aren't unfairly disadvantaged.

 

Jim Rogers , chairman and CEO of Duke Energy and the nation's most politically savvy capitalist since Ken Lay, supports a cap-and-trade scheme that would be fair to his company by giving out the initial allocations based on each emitter's historical level of emissions rather than on its historical level of energy produced. This would favor companies (like Duke!) that burn a lot of coal. They would in effect be paid to switch to producing more expensive electricity from lower-emitting fuels.

The testimonies of Darbee, Hay, and Rogers should alert legislators eager to regulate the American economy to mitigate global warming that when it comes time to divvy up the booty thieves nearly always fall out. It's going to be fun to watch the immense political pressures that are going to be put on Members of Congress by every special interest that hopes to make billions of dollars on the backs of American consumers from cap-and-trade. Fun, but not pretty.

 

In the States Daniel Simmons, of the American Legislative Exchange Council, analyzes the state of global warming policy in state capitols.

 

At a mini-summit with former British Prime Minister Tony Blair a week ago in London , California Governor Arnold Schwarzenegger boasted that his state would show the world how tackle global warming without damaging the economy . “We can show leadership,” exclaimed the beaming Governator.

 

True to his word, Schwarzenegger's  California has been a leader in global warming mitigation. They were the first state to pass greenhouse gas emissions reduction targets without having a plan to reach those targets, a planless plan of attack since adopted by a number of other states.

 

Now, with eyes of the world fixated upon California , the chickens have come home to roost. Everyone expects action, but the Schwarzenegger administration is paralyzed because it has no plan. In fact, it seems that Sacramento is just now beginning to realize how difficult emissions reductions will prove.

 

Recent developments in the highest echelons of Schwarzenegger's global warming policy team expose the desultory nature of California 's climate change mitigation “strategy.” A few days after returning from London , the Governor fired the Chairman of the California Air Resources Board (CARB) , the lead agency dealing with emissions reduction policy, because the chairman was moving too fast to regulate aging diesel construction equipment. Apparently, this exercise in emissions regulation would have damaged the California construction business, and the Governor intervened. Evidently, climate change mitigation and economic growth are not in perfect harmony, as Arnold had proclaimed in London . Days later, the executive director of CARB resigned in exasperation because of Schwarzenegger's lack of a “cogent vision” to reduce emissions.

 

California is proving an example to the world, but not the kind envisioned by their movie star executive. Day by day, it demonstrates the difficulties inherent in poorly thought out emissions reductions policies.

 

In the Home CEI's Julie Walsh looks at how energy policy affects consumers.

 

If crossing the threshold of paying $4.00 per gallon of milk feels similar to having paid $50 for a tank of gas, the reasons behind these increases are more closely linked than you know.  The reasons are two-fold, but ethanol is behind both.

 

The Energy Policy Act of 2005 mandated that 4.7 billion gallons of ethanol be added to the gasoline supply by 2007, which is only a fraction of the 140 billion gallons of gasoline the U.S. currently uses yearly.  However, the government also provides tax credits, incentives, and subsidies that add up to roughly $1 per gallon of gas, causing U.S. farmers to decide that they'd rather be a part of the “Fuel Basket” than the “Bread Basket” of the world.  As a result, the risk of new investments in refinery capacity for oil companies because of the ethanol production has caused oil refining capacity to be severely stretched.  Together, these factors have caused gas prices to rise to unprecedented levels.  And, therefore, the cost to transport all groceries to the stores has risen proportionately.

 

The other reason for the increase in the price of milk is pointed out in a story by Julie Jargon in the June 25 th issue of the Wall Street Journal, “Milk-Price Rise Expected to Steepen in July.” “Some dairy farmers are raising milk prices to offset the higher prices they pay for cattle feed as corn prices rise” due to the ethanol mandate. Cheese, chocolate, and even Pizza Hut prices are rising now due to the higher price of milk.

 

Unfortunately for consumers, the current price increases in gas and food are only the beginning.  The Senate has now passed, and the House is now considering passing, legislation that will mandate ethanol production be increased seven-fold.

 

3. Issue of the Week

Putting the Policy Cart before the Technology HorseCEI's Marlo Lewis testimony before the Senate Environment and Public Works Committee

 

Jonah Goldberg, the columnist, notes that Earth warmed about 0.7 degrees Celsius in the 20 th century while global GDP increased by some 1,800 percent. For the sake of argument, says Goldberg, let's agree that all of the warming was anthropogenic—the result of economic activity. And let's further stipulate that the warming produced no benefits, only harms. “That's still an amazing bargain,” Goldberg remarks.

 

Average life expectancies doubled in the 20 th century. The human population nearly quadrupled yet per capita food supply increased. Literacy, medicine, leisure and even in many respects the environment hugely improved, at least in the prosperous West.

 

This suggests a thought experiment. Suppose you had the power to travel back in time and impose carbon caps on previous generations. How much growth would you be willing to sacrifice to avoid how many tenths of a degree of warming? Would humanity be better off today if the 20 th century had half as much warming--but also a half or a third or even a quarter less growth? I doubt anyone on this committee would say “yes.” A poorer planet would also be a hungrier, sicker planet. Many of us might not even be alive.

How much future growth are you willing to sacrifice to mitigate global warming? That is not an idle question. Some people believe we're now smart enough to measurably cool the planet without chilling the economy. But Europe is having a tough time meeting its Kyoto commitments, and Kyoto would have no detectable impact on global temperatures.

 

Three of the main climate bills introduced in the Senate this year would require CO2 emission cuts of about 60 percent by 2050. Yet the EIA projects that in 2030, U.S. emissions will be about 33 percent above year 2000 levels. Nobody knows how to meet the targets in those bills without severe cuts in either economic growth or population growth. But won't the bills' carbon penalties make deep emission reductions achievable by spurring technological change? I doubt it.

 

Europe has been taxing gasoline for decades at rates that translate into carbon penalties of $200 to $300 per ton of CO2. Where in Europe is the miracle fuel to replace petroleum? Where are all the zero emission vehicles? EU transport sector CO2 emissions in 2004 were 26 percent higher than in 1990.

 

The Energy Information Administration analyzed the market impacts of the relatively modest—$7 per ton—CO2 emission cap in the Bingaman-Specter legislation. The proposed cap decrease projected investment in coal generation by more than half . However, it does not make carbon capture and storage economical. Would a bigger regulatory hammer do the trick? No, it would just drive more investment out of coal generation.

 

An MIT study finds that it will take billions of dollars over roughly a decade to find out whether carbon capture and storage (CCS) is economical under a $30 per ton CO2 penalty. Note that even if CCS is determined to be “economical,” coal generation grows by less than 20 percent of what it would in the absence of a carbon constraint.

Regulatory climate strategies put the policy cart before the technology horse. Not until markets are capable of producing vast quantities of affordable energy without emissions would it be reasonable for Congress to consider mandatory emission cuts.

 

Policymakers concerned about global warming should do three things. First, as Bjorn Lomborg recommends , encourage worldwide R&D investment in non-carbon-emitting energy technologies. This should be the focus of post-Kyoto diplomacy. Second, eliminate tax and other political barriers to innovation and capital stock turnover . Third, for a fraction of Kyoto's cost , target international assistance on those threats to human health and welfare where we know how to do a lot of good for each dollar invested. This would not only save millions of lives today, it would also help developing countries become wealthier and less vulnerable to climate-related risk.

 

4. Cooler Heads Digest Calls for Content

Have stories we may want to include in our weekly news roundup? Is your organization working on something other members of the Coalition might be interested in? Let us know by contacting Julie Walsh at jwalsh@cei.org .