Thank You, Pew!

You've got to hand it to the <?xml:namespace prefix = st1 /><?xml:namespace prefix = st1 ns = “urn:schemas-microsoft-com:office:smarttags” />Pew Center on Global Climate Change–their timing is impeccable. Pew's latest big-splash report, U.S. Energy Scenarios for the 21st Century, hit congressional offices just as members began debating amendments to the Senate energy bill (S. 14). What can policy makers, journalists, and corporate CEOs–Pew's primary audience–learn from this report? What policy conclusions should Senators draw from it? Read on.<?xml:namespace prefix = o ns = “urn:schemas-microsoft-com:office:office” />


Directing the Pew Center is former Clinton-Gore administration Kyoto Protocol negotiator Eileen Claussen, so it is hardly surprising that Energy Scenarios endorses the substance–if not the details–of the Kyoto Treaty. Like many previous Pew publications, Energy Scenarios calls for mandatory caps on U.S. emissions of carbon dioxide (CO2). But this report contains an unexpected twist. It confirms what free-market analysts have said all along–Kyoto and its ilk are nothing more than energy rationing schemes, a license for politicians and bureaucrats to restrict people's access to energy.


The report examines three scenarios–possible future development paths–of the U.S. energy supply system from 2000 through 2035, and the increase in carbon emissions under each scenario.


·         In “Awash in Oil and Gas,” U.S. consumers enjoy secure access to abundant supplies of oil, natural gas, and coal, at low prices.


·         In “Technology Triumphs,” state policy interventions, technology breakthroughs, and changing consumer preferences converge to accelerate commercialization of high-efficiency, low-emission, and zero-emission energy technologies.


·         In “Turbulent World,” disruptions in foreign oil production, terrorism at home, and global warming-triggered extreme weather events wreak havoc on fuel prices, energy supply, and public confidence. This new and protracted “energy crisis” prompts policy makers to fund a crash program “on the scale of the Apollo 'moonshot,' to shift America from oil dependence to a hydrogen economy.”


Assigning probabilities to these scenarios would be a fool's errand, and the Pew report's authors do not attempt to do so. However, that does not mean all the scenarios are equally plausible.


For many decades, hydrocarbon fuels have become cleaner, more abundant, and more affordable. This simple fact makes “Awash in Oil and Gas” the most plausible by far of the three Pew scenarios. Further, the other two scenarios are based on questionable assumptions.


“Turbulent World” assumes the correctness of the dubious theory of catastrophic global warming. It also implies that U.S. military dominance, the toppling of Saddam Hussein, and the War on Terror leave America no less vulnerable to terrorism and the “oil weapon” than in the early 1970s, when price and supply controls hobbled U.S. energy markets, the Soviet bloc trained and harbored terrorists, and Moscow vied with Washington for influence, allies, and military bases in the Middle East.


Even more problematic, “Technology Triumphs” and “Turbulent World” assume that political planners are wise enough to pick the technologies of the future, and to steer private and public sector investments accordingly.


“Technology Triumphs” is the least plausible scenario, because it postulates decades of “strong economic growth” even though political interventions, not market signals and incentives, direct the development of U.S. energy supply systems.  


Nonetheless, Pew's scenarios are instructive, because they illustrate that Kyoto-style caps on carbon emissions are incompatible with the energy requirements of a modern economy.


In “Awash in Oil and Gas,” market forces determine the U.S. energy supply mix, and Americans are free to “consume whatever they can afford to buy.” In this hypothetical future, Persian Gulf countries increase oil production for export, Russia and Mexico accelerate oil field development, North American producers expand production from Canadian oil sands, Canada and Mexico increase natural gas exports to the United States, energy companies develop oil and gas resources in Alaska and the Rocky Mountain West, coal maintains a key role in electricity generation, the electron-fueled digital economy permeates homes and offices, and gasoline-powered vehicles rule the roads.


Not coincidentally, the U.S. economy sustains “significant GDP growth.” America is prosperous, mobile, and productive–in no small part because of declining energy costs.


Thank you, Pew, for recognizing the vital contribution of affordable energy to prosperity and growth.


In this scenario, U.S. carbon emissions grow more than 50 percent between 2000 and 2035, as we might expect in a world “awash in oil and gas.” What is surprising is that U.S. carbon emissions also grow substantially in the other scenarios, notwithstanding multiple interventions by federal and state policymakers to redirect the evolution of energy markets.  


In “Technology Triumphs,” state governments set “rigorous” efficiency standards for appliances, enact caps on CO2 emissions from power plants, and introduce more renewable portfolio standards (policies requiring specified percentages of electricity to come from wind, solar, and biomass technologies). States also enhance electric power generation and transmission efficiencies through tax preferences and other policies. Specifically, they promote investment in “combined heat and power” (on-site electric generating units that harness exhaust heat to support space and water heating, air conditioning, and various industrial processes) and “distributed generation” (small-scale units located at or near customer sites that avoid energy losses incident to long-range transmission). States also subsidize fuel cell research and effectively raise federal fuel economy standards by requiring new cars, minivans, and light trucks to reduce emissions of CO2 per mile traveled.


These actions, combined with breakthroughs in solar photovoltaic manufacturing and a shift in consumer preference from “sprawling” to compact residential development, slow the growth of vehicle miles traveled, expand markets for hybrid cars, accelerate power sector fuel switching from coal to natural gas, and lay the building blocks of a hydrogen economy.


“Technology Triumphs” is really a “Politics Triumphs” scenario with state governments implementing nearly all of the Kyoto crowd's favorite “technology forcing” schemes to “green” U.S. energy markets. For years we've heard that such measures are so cost-effective that they would make Kyoto-style carbon reduction targets almost painless to reach. Indeed, Clinton-Gore officials used to say that Kyoto would make America more competitive by creating opportunities for U.S. firms to lead the world in exports of energy-efficiency, renewable-energy, and emission-control technologies.


But the Pew report inadvertently pours cold water on such statist techno-fantasies. In the “Technology Triumphs” scenario, U.S. carbon emissions “rise 15 percent above the year 2000 levels by 2035”–about 35 percent above the U.S. Kyoto target–despite multi-state regulation of CO2 emissions from vehicles and power plants, mature markets for hybrid cars, widespread efficiency upgrades in the power sector, a successful launch of the hydrogen economy, and the proliferation of “energy smart” communities and houses.


Interventionist policies also figure prominently in the “Turbulent World” scenario–a future in which oil price shocks, supply disruptions, terrorist attacks on large energy facilities, and weather-related disasters discourage private-sector investment and depress growth. Responding to those challenges, federal policy makers enact a national renewable portfolio standard, increase new-car fuel economy standards to 50 mpg, promote distributed generation, and subsidize CO2 capture and sequestration technologies. Above all, in 2010, the federal government launches an Apollo-scale program to commercialize fuel cell and hydrogen technologies. Notwithstanding these measures, volatile energy prices, and a poorly performing economy, carbon emissions “grow to almost 20 percent above the 2000 level in 2035”–about 40 percent above the U.S. Kyoto target.


What does this all mean? The Pew report gets one thing right, “In the absence of a mandatory carbon cap, none of the base case scenarios examined in this study achieves a reduction in U.S. carbon dioxide emissions by 2035 relative to current levels.” And it emphasizes, “This is true even in the scenario with the most optimistic assumptions about the future cost and performance of energy technologies.”


In other words, there are no magic technologies just around the corner that could simultaneously reduce carbon emissions and meet the energy requirements of a modern economy. To reduce emissions, the report's authors argue, it is necessary to enact “a mandatory carbon cap.” It is necessary to make energy scarcer and less affordable. It is necessary to ration energy.


Thank you, Pew, for demystifying the debate over Kyoto and cap-and-trade. Clearly, what the Pew Center on Global Climate Change and other members of the environmental establishment want is energy rationing–a world in which governments control and restrict their people’s access to energy.