Vol. II, No. 19

Politics

New Tax Credit Plan Unveiled

The Clinton Administration’s tax and spend plan to avert global warming is being resurrected in the form of the Energy Efficient Technology Tax Act. The legislation, introduced by Rep. Robert Matsui (D-Calif.), would provide $3.6 billion in tax incentives over five years and would cover buildings, industry, transportation, and electricity.

The package contains a ten percent tax credit for firms which invest in following measures:

 

• installation of combined heat and power thermal energy systems.

   

   

• replacement of circuit breakers that are prone to leak sulfur hexafluoride

   

   

• installation of perfluorocarbon and hydrofluorocarbon recycling equipment.

   

 

The plan would also extend the existing 1.5 cents per kilowatt tax credit for electricity produced from wind and biomass for 5 years on facilities that are placed in service before July 1, 1999.

Beginning in Jan. 1, 2003, purchasers of vehicles that are three times as fuel efficient as the base fuel economy for their class would receive a $4,000 tax credit. The tax credit would be phased out by 2010. Vehicles that get twice the base fuel economy for their class would receive a $3,000 tax credit beginning Jan. 1, 2000, with a phaseout occurring by 2006. The credit will apply to all types of passenger vehicles.

The plan also includes a tax credit of 20 percent of the purchase price of fuel cells, electric heat pump water heaters, natural gas water heaters, electric heat pumps, natural gas heat pumps, and advanced central air conditioners installed in buildings. The credit would be subject to a cap and would be available between Jan. 1, 1999, and Dec. 31, 2003.

Those who purchase new energy-efficient homes would get a tax credit equal to 1 percent of the purchase price up to $2,000 for the same period of time, and a $1,000 credit for homes purchased between Jan. 1, 2004 and Dec. 31, 2005. The bill also provides a 15 percent ($2,000 maximum) tax credit for solar rooftop systems and solar water heating systems.

Rep. Matsui did not expect the proposal to pass this year. Nevertheless, it “makes good economic sense at the same time it makes good environmental sense,” according to Vice President Al Gore. And Treasury Deputy Secretary Lawrence Summers said, “It’s not what people think of when they think of a good investment, but some of the highest-return investments are in energy efficiency” (BNA Daily Environment Report, September 11, 1998).

European Parliament Drops Its Opposition to Emissions Trading

In an effort to persuade the U.S. Congress to ratify the Kyoto Protocol, the European Parliament voted on September 4 to withdraw its demand to cap emissions trading under the treaty. Previously, the European Union had been demanding that most emission reductions come through domestic cuts. Emission trading, they argued, should only be supplemental. The Clinton Administration, on the other hand, favors unlimited emissions trading.

“This is designed to help our friends in the U.S. Congress who have been fighting a losing battle trying to get support for the Kyoto Protocol,” said Carlos Pimenta, a member of the European Parliament’s Environment Committee. “This is essential because we don’t have many friends in the U.S. Congress on this issue,” said Pimenta.

Green groups protested the move. “This is totally counterproductive,” said Delia Villagrassa, director of Climate Network Europe. “I completely reject the argument that it will help bring the U.S. Congress around on the Kyoto Protocol. The U.S. got what it wanted in Kyoto and that did not bring the U.S. Congress around.” Villagrassa argues that a cap on emissions trading is necessary to prepare the industrialized countries for deeper emissions reductions in the future (BNA Daily Environment Report, September 11, 1998).

Mexico Rejects Emissions Targets

As the Fourth Conference of the Parties to the U.N. Framework Convention on Climate Change approaches, greater pressure is being brought to bear on certain developing countries to adopt binding emissions targets. Mexico and Korea, for instance, are both members of the Organization for Economic Cooperation and Development, but as developing countries they are not on the climate treaty’s Annex I list. The U.S. and other OECD countries have been pushing them to adopt binding targets.

In June, Korea said that it may be willing to adopt some of the measures agreed upon by the Annex I countries. “Unfortunately, this would leave us alone in our position,” to oppose Annex I measures, said Mexico’s Gerardo Traslosheros, general director of Trade and Industrial Development. Mexico will continue to resist binding emissions targets, according to Traslosheros. However, “In the Clean Development Mechanism, there will be excellent opportunities for Mexico to explore,” said Traslosheros (BNA Daily Environment Report, September 11, 1998).

Economics

Efficiency Group Advocates Tougher Conservation Measures

A new report by the American Council for an Energy Efficient Economy (ACEEE) outlines “five major energy efficiency policy initiatives” to reach the targets set at Kyoto. These policies, they claim, will “stimulate widespread energy efficiency improvements in all key sectors of the economy,” and will “reduce greenhouse gas emissions at an economic benefit rather than cost to the nation.”

The first strategy involves “rapidly completing ongoing existing efficiency rulemakings” on selected appliances while establishing new standards for others. They also propose increasing the corporate average fuel economy standards on cars and light trucks to achieve a fleet average of 42 mpg by 2010 and 59 mpg by 2020. Incentives for purchasing fuel efficient cars as well as continued R&D on next-generation vehicle technologies are also supported. ACEEE claims that there is “a wide range of technologies that are already available for increasing fuel economy.”

ACEEE is concerned that increased competition will cause electric utilities to decrease their funding for energy efficiency programs, known as public benefit expenditures. Some states have established public benefit trust funds, through a small charge to electricity consumers, to ensure that these programs continue. ACEEE supports a national public benefits trust fund that would provide matching funds to states to encourage and expand public benefits activities.

The use of combined heat and power (CHP) systems, which convert as much as 90 percent of fuel into useful energy, should be encouraged through a variety of measures, according to ACEEE. They argue that many barriers, such as “environmental permitting, environmental regulations that do not recognize overall CHP impacts, utility policies that discourage CHP installation, and unfavorable tax treatment,” are preventing the implementation of CHP systems.

Finally, ACEEE favors a heat rate “cap and trade” system to induce fossil fuel power plants to become more efficient. “The trading system,” according to the report, “would provide credits to generators that are below the prevailing heat rate cap. The credits could be sold to less efficient generators, allowing the market to determine the most economically efficient way to meet the caps.” The cap would be progressively reduced over time.

These measures, claim ACEEE, would account for 61 percent of the emissions reductions need to reach the target set at Kyoto. The executive summary of the report is available on the Internet at www.aceee.org/pubs/e981.htm.

Energy Efficiency Measures Will Raise Energy Use

Proponents of reducing greenhouse gas emissions are putting a lot of stock in energy efficiency measures. Indeed, energy efficiency is a major aspect of the Clinton Administration’s global warming proposals. According to proponents, increased energy efficiency would allow us to reduce greenhouse gas emissions at little cost. Some even believe that on net, it would be beneficial. The Intergovernmental Panel on Climate Change claims that we could immediately reduce our energy use by 25 percent with existing technology, “without compromising comfort or performance.”

A leading green analyst is now arguing that these claims are false. Horace Herring at the Energy and Environment Research Unit of Britain’s Open University, argues that though energy efficiency reduces energy use for a particular task, it leads to an overall increase in energy use. This results from the rebound effect and the macroeconomic effect.

Reducing the costs of refrigeration, for example, can lead to the purchase of larger refrigerators that consume more energy. Reducing the cost of heating leads consumers to turn up the thermostat, and so on. This rebound effect is real and substantial.

Lowering the costs of running appliances through increased energy efficiency leads to the macroeconomic effect of increased purchases of appliances. As it becomes cheaper to run air-conditioning units, for example, more people will buy them.

“Both economic theory and history support this view,” says Herring. Increasing energy efficiency and increased energy use have always gone hand in hand. “Policy makers don’t want to confront this,” says Herring. “But unless they do, current European policies will be disastrous and there will be no hope of meeting targets for emissions reductions. There needs to be a lot more hard thinking, and much less mouthing of platitudes.” Herring favors carbon taxes and government spending on green investments (New Scientist, September 5, 1998).

“Mini-Kyoto” in Oregon

Under a new Oregon law, electricity utilities who wish to construct new power plants will be required to prove that they will offset a part of the carbon dioxide emissions.

Under this new plan, the Portland General Electric Company will pay $2.5 million to offset more than 4 million tons of carbon dioxide emissions if it builds phase two of its Coyote Springs Cogeneration Project in Boardman. PGE will be required to offset the carbon dioxide before it begins construction of the plant (Climate Business, September 3, 1998).

Science

Hottest August Ever?

With the passing of another month, Vice President Al Gore appeared to tell us that it was the hottest one ever. Figures provided by the National Oceanographic and Atmospheric Administration show that August’s global average temperature was 61.4 degrees Fahrenheit. The previous August record was set in 1997 at 61.1 degrees F. As we noted in our last issue, these data are based upon a new, non-peer reviewed temperature index.

Things were not so dire in the United States, however. The 1998 January through August period has been the fifth-wettest on record – the wettest occurring in 1979 – and the fourth warmest – the warmest occurring in 1934 (The Associated Press, September 11, 1998).

Urban Heat Island Effect Still Skews Surface Data

A lot of the hype over record setting temperatures may have more to do with the location of thermometers than the heating up of the planet. Sacramento, California, for example, experienced a record 16 days of 100-degree plus temperatures. It turns out, however, that Sacramento was probably a lot cooler than thermometer readings showed.

According to Channel 13 (KVOR) meteorologist Tom Loffman, “the National Weather Service has its thermometer on a roof where the sun hits and makes it too hot. I’ve been pestering those people for years with little success.” The NWS is finally going to move the thermometer to a different location, leading Loffman to predict that “Next year there won’t be any more record highs.”

Roger Papas, an NWS meteorologist agrees. The rooftop is “not a good place,” he said. “It’s particularly bad because there’s a tar roof, and where (the thermometer) sits there’s like a penthouse structure near it.”

The NWS office is also going to move its gauges and thermometers in Washington, D.C. A similar move in San Francisco lowered temperature readings considerably.

“One thing I find a little suspicious is that in the seven years I’ve been in Sacramento there have been maybe 30 record highs and no record lows,” said Mark Finan chief meteorologist at Channel 3 (KCRA). “It stays so much warmer in the downtown area, you’re not going to get record lows. If we do get a cold snap this winter, we might set some records.”

How many more of NWS’s thermometer locations are corrupted by hot urban locations (Sacramento Bee, September 12, 1998)?

Etc.

National Ad Campaigns Defend Energy Use, Sound Science

The Competitive Enterprise Institute launched a national television and radio advertising campaign to oppose Kyoto-related energy use restrictions. The campaign, aired nationally and in Detroit and Washington DC, focuses on both the morality of energy use and on the growing scientific dissent about the global warming theory (CEI press release, September 16, 1998).

Frontiers of Freedom sponsored a separate radio advertisement campaign that questions the scientific basis of the Kyoto Protocol. “Uncertain Science, Certain Costs” points out that the global warming theory is highly speculative and has not been confirmed by scientific evidence (Frontiers of Freedom press release, September 10, 1998).

THE COOLER HEADS COALITION

Alexis de Tocqueville InstitutionAmericans for Tax ReformAmerican Policy CenterAssociation of Concerned TaxpayersCenter for Security PolicyCitizens for a Sound EconomyCommittee for a Constructive TomorrowCompetitive Enterprise InstituteConsumer AlertDefenders of Property RightsFrontiers of FreedomGeorge C. Marshall InstituteHeartland InstituteIndependent InstituteNational Center for Policy AnalysisNational Center for Public Policy ResearchPacific Research InstituteSeniors Coalition60 PlusSmall Business Survival CommitteeThe Advancement of Sound Science CoalitionThe Heritage Foundation