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Vol. VI, No. 24

Cooler Heads Digest

Title

Vol. VI, No. 24

Politics

Government Lacks Legal Authority to Award Emissions Credits

On February 14, 2002, President Bush directed the Department of Energy to improve the “accuracy, reliability and verifiability” of a program that allows companies to voluntarily report reductions in greenhouse gas emissions under Section 1605(b) of the Energy Policy Act of 1992.  The President also asked for recommendations on how “to ensure that businesses and individuals that register reductions are not penalized under a future climate policy, and to give transferable credits to companies that can show real emission reductions.”  On May 6, DOE requested public comments on how to modify the program in accordance with the President’s directive.

In response, 80 comments from industry, government, and non-profits were received.  A major issue that has arisen is whether section 1605(b) provides the legal authority necessary for penalty protection or to award emission credits.  The Natural Resources Defense Council, an environmental lobby, and the Northeast States for Coordinated Air Use Management do not think so.  The Electric Power Industry Climate Initiative (EPICI) claims that it does.

Marlo Lewis, senior fellow at the Competitive Enterprise Institute, dismantles EPICI’s legal argument in a new report.  According to Lewis, EPICI’s entire argument is based “on the alleged implications of Senator Joseph Lieberman’s (D-Conn.) floor statement prior to the Senate vote on the 1992 Energy Policy Act, on a semblance of ambiguity in the text, and on Congress’s silence (the absence of express prohibitions against penalty protection and credit for voluntary reductions).”

There is no ambiguity in the text of 1605(b), according to Lewis.  EPICI claims that the statement that a reporting entity may use the greenhouse gas registry to “demonstrate achieved reductions of greenhouse gases,” implies protecting baselines or qualifying for credits.  Clearly, if that were the intent, then “demonstrating” reductions would be necessary, but that does not imply protection or crediting.

Even if the statute were ambiguous, the last place a court would look to clear up the ambiguity would be floor statements made during congressional debates.  Yet that is essentially what EPICI resorts to to make its case.  Lewis contends that EPICI has misinterpreted Lieberman’s statement.  Lieberman argued that 1605(b) would have some of the same effects as a penalty protection program, but nowhere does he imply that it is a penalty protection program.

Moreover, asks Lewis, why did Senator Lieberman and the Clinton administration seek legal authority for penalty protection through credit for early action legislation in the 105th and 106th Congresses if it was already available through 1605(b)?  Because, says Lewis, neither Lieberman nor Clinton interpreted 1605(b) as providing such authority.

Finally, EPICI makes the outlandish argument that the federal government does have the authority since 1605(b) does not prohibit it from providing penalty protection or awarding credits for early emissions reductions.  Lewis notes that their argument boils down to, “DOE may do whatever Congress has not prohibited it from doing,” which turns “the central principle of administrative law on its head.”  The full report can be obtained at www.cei.org.

Bush Administration Considers CAFE Increase for SUVs

Officials in the Bush Administration are reviewing a proposal by the National Highway Traffic Safety Administration to raise Corporate Average Fuel Economy standards on sport utility vehicles and light trucks by a half mile per gallon each year for the model years 2005 to 2007.

Some of the impetus for the proposal may be due to the mistaken notion that the U.S. should become energy independent, given the possibility of war with Iraq and the precarious relations with other oil-exporting countries.  Environmental activists, including leftist religious groups, are conducting a major campaign to force automakers to build more fuel-efficient cars.  The “What Would Jesus Drive?” campaign is spearheaded by a group of religious leaders that has managed to secure meetings with executives from General Motors and Ford Motor Co.

John Graham, director of the White House’s Office of Information and Regulatory Affairs, may play a major role in the final decision.  He “sharply criticized the federal fuel-economy program when he was in the private sector, arguing that it encouraged auto makers to produce smaller vehicles that can be more dangerous to occupants in a crash (Wall Street Journal, November 20, 2002).”

Economics

Offshore Wind Farm Poses Significant Economic and Environmental Costs

Energy analyst Glenn Schleede has once again exposed the problems with wind power in comments he has submitted to the U.S. Army Corps of Engineers, which is conducting an economic and environmental analysis of a proposed offshore wind farm.

The wind farm proposed by Winergy LLC would be located five miles off the coast of the eastern shore of Virginia.  In a preliminary analysis, the Corps determined that the project would not require an Environmental Impact Statement.  Schleede disagrees, saying that the Corps has “underestimated the potential environmental impact-including onshore impact” of the project.

The wind farm would produce approximately 2.5 billion kWh of electricity per year, assuming a generous 30 percent capacity factor.  The wind turbines themselves would cover 57 square miles of the Atlantic Ocean, yet would produce slightly less electricity than a “new baseload 350 MW gas-fired combined cycle generating unit,” which would “occupy only a few acres.”  Moreover, the amount of electricity produced would only equal approximately 3.3 percent of the total electricity produced in Virginia.

Schleede points out several potential adverse effects that should be mitigated as a condition to awarding any permits, including impacts that would not be limited to the 57 square miles of ocean.  “Feeding such a potentially large (975 MW, at times), highly variable (from 0 to 975 MW), and often unpredictable amount of electricity into an onshore transmission line and electric grid would be a significant burden on existing onshore transmission capacity and the stability of a regional electric system that must be kept in balance (e.g., voltage, frequency).” 

The addition of wind capacity would likely “impair rather than enhance electric system reliability,” says Schleede.  The Corps should also take into account the need for backup generation and transmission capacity as part of the full costs of the wind farm.

The Corps should also have a firm grasp of wind energy economics and especially the role of federal subsidies, says Schleede.  “In some cases, the value of the subsidies may exceed the revenue ‘wind farm’ owners receive from the electricity that they sell.  Schleede estimates that Winergy’s proposed wind farm would receive an annual tax credit of more than $46 million.  The project would also qualify for accelerated depreciation and would be able to write off the entire $900 million in estimated capital costs in 6 years.  Yet the annual revenue from selling electricity would be only a little over $52 million.  Schleede also notes that tax sheltering through accelerated depreciation often leads to early sale or abandonment of wind farms.

Finally, Schleede argues that rather than being environmentally benign, wind farms entail significant environmental costs.  He notes the opposition to wind farms is growing around the world, “often due to the adverse impact of ‘wind farms’ on environmental, ecological, scenic, and property values.”

Stanford Launches Energy Project

On Nov. 20, Stanford University announced the creation of the Global Climate and Energy Project (G-CEP).  The purpose of the project is to “engage in research to develop technologies that foster the development of a global energy system where greenhouse emissions are much lower than today.”  It may also be seen as addressing the challenge posed by the article in the November 1 issue of Science, which we reported in the last issue.