August 2010

Barring the trickery of a lame duck conference committee, cap-and-trade is dead in the 111th Congress. Some blame Obama for not taking a more hands-on role. Others blame environmental groups for waging a $100 million lobbying campaign without winning a single GOP convert to the Kerry-Lieberman cap-and-trade bill. Others blame the allegedly “well-funded denial machine,” even though proponents, who include major corporations like British Petroleum, must have outspent CEI and its free-market brethren by more than 100 to 1.

Today’s Climatewire (subscription required) features interviews with Exelon Corp. VP Betsy Moler and Phil Sharp, President of Resources for the Future, who lament that Republican lawmakers, the “inventors” of “market-based” environmental policy, have turned against their own “invention.” If I catch their drift, Moler and Sharp are trying to spin GOP opposition to cap-and-trade as self-contradictory, hence as unstable, hence as reversible. As Climatewire reports, Moler is not ready to “throw in the towel” and Sharp entertains the hope that a “new kind of coalition” will emerge in the next Congress.

Now, let’s look at this notion, peddled by Moler and Sharp, that Republicans betrayed themselves and besmirched their own legacy by blocking cap-and-trade. Here’s how it’s discussed in Climatewire:

In an interview, Moler said that her deep disappointment was the rejection by Republican leaders in Congress of a market-based strategy for raising the price of carbon emissions, to speed transitions by power plants, industry and consumers to cleaner energy.

The Democrats called it “cap and trade.” Republicans labeled it “cap and tax,” and the change in one word proved lethal.

“The thing that just amazes me, confounds me, surprises me is how successfully the Republican leadership and a lot of the people who would be potentially negatively impacted have been in vilifying what have historically been market-based solutions,” Moler said.

Inventors Turn on Invention

“Cap and trade is really a Republican instrument that grew out of a lot of the Republican thought leaders as a market-sensitive, market-friendly, anti-command-and-control mechanism” to reduce sulfur- and nitrogen-based air pollution in the 1990 Clean Air Act amendments. “Now, some of the same people who invented it have turned on it as an energy tax,” she said. “It’s a huge missed opportunity. I don’t know where you go next.”

Moler’sregret is seconded by Philip Sharp, president of Resources for the Future, who, as a Democratic House member from Indiana, stood with Moler in the 1990s in the energy deregulation campaign. Sharp was a pivotal factor in Congress’ adoption of the 1990 Clean Air Act amendments and the 1992 Energy Policy Act, which opened the way for FERC’s electricity market orders four years later.

“I’m not here to say cap and trade is the only way to do this,” Sharp said in an interview. “It worked magnificently with SO2 and a couple of other instances.” Scaling it up massively to deal with economywide carbon emissions is another question. “We don’t know we can manage it as effectively,” he said.

“But what is really unfortunate in the public debate is that the current Republican leadership has overthrown one of the great Republican successes in this country [under President George H.W. Bush], to capitalize on the flexibility of the marketplace” in achieving regulatory change, Sharp said.

“I don’t think people appreciate the extraordinary challenge that represented and the difficulty of getting it done” in the 1990s, he said. Now, with the demise of that approach, Congress has invited U.S. EPA to step in on the climate front “and regulate the living [daylights] out of everything and see how well a modern economy works doing that.”

Moler and Sharp miss several key points.

First, the Title IV acid rain cap-and-trade program enacted under President George H.W. Bush is not the “magnificent” success they suppose it is. As Kenneth Green, Steven Hayward, and Kevin Hasset of the American Enterprise Institute note, prices of tradable sulfur dioxide (SO2) emission permits have been highly volatile: “SO2 trading prices have varied from a low of $70 per ton in 1996 to $1500 per ton in late 2005. SO2 allowances have a monthly volatility of 10 percent and an annual volatility of 43 percent over the last decade.”

Second, utilities participating in the SO2 emissions trading program could meet all or part of their obligations by purchasing low-sulfur coal and/or installing scrubbers, a commercially-proven emission control technology. In contrast, there is no low-carbon coal, and no commercially-proven technology to “scrub” carbon dioxide (CO2) emissions out of power plant exhaust streams.

Third, unlike sulfur, which is an impurity or contaminant in coal and oil, carbon is intrinsic to the chemistry of fossil fuels. Consequently, whereas emission control requirements for SO2 do not logically entail an unlimited agenda aiming at total abolition of the fuel, emission control requirements for CO2 do imply abolition as the ultimate objective. Such extremism is reflected in the apocalyptic rhetoric of the global warming movement, in petitions demanding that EPA establish national ambient air quality standards (NAAQS) for CO2 at 350 parts per million and for other greenhouse gases at pre-industrial levels (not even a global depression lasting several decades would be sufficient to lower CO2 concentrations to 350 ppm), and in Al Gore’s campaign to “repower America“ with “zero-carbon energy” within “ten years.” More pertinently, pull-out-the-stops, sky-is-the-limit regulation lurks in the Waxman-Markey and Kerry-Lieberman bills’ escalator clauses, which all but ensure that the explicit emission reduction target (83% below 2005 levels by 2050) would be superseded by more aggressive requirements.

Fourth, just because a “market-based” approach is more efficient, in principle, than command-and-control regulation does not in any way obligate Republicans to support Waxman-Markey or Kerry-Lieberman if those same Republicans oppose all regulatory climate policies.

Fifth, every Republican in the Senate voted for the Murkowski resolution to block EPA regulation of greenhouse gases via the Clean Air Act. So it’s silly to say that Republicans “invited U.S. EPA to step in on the climate front ‘and regulate the living [daylights] out of everything. . .’” President Obama threatened to veto both the Murkowski resolution and the much weaker Rockefeller bill, which would merely postpone EPA regulation of stationary sources of greenhouse gases for two years. It’s the Democratic leadership, not the GOP, that has “invited” EPA to make climate policy through the regulatory back door.

Finally, Republicans betray themselves (ask President George “Read My Lips; No New Taxes” Bush) when they vote for rather than against higher taxes. Because carbon is intrinsic to the chemistry of fossil fuels, a carbon cap-and-trade scheme is a virtual broad-based energy tax. The same cannot be said of the SO2 program, which was merely a virtual pollution tax. Moler and Sharp would like GOP lawmakers to believe they can win elections by becoming the Party of Energy Taxes. Fortunately, most Republicans don’t need much coaching to realize that is complete bunk.

I’m posting* three relatively obscure items by which CEI and friends killed a mischievous Trojan Horse strategy for Kyoto-style regulation variously known as credit for early action, credit for voluntary reductions, and transferable credits. The items in question are:

  • Indiana Rep. David McIntosh’s legislation to block funding for an early action credit program.
  • CEI’s comment to the Department of Energy explaining why it does not have legal authority to award regulatory credits for voluntary greenhouse emission reductions.
  • My unsolicited testimony to the Senate Energy and Natural Resources Committee advising the Senate not to give DOE the authority it lacks.

The brainchild of Sen. Joe Lieberman, the Environmental Defense Fund, and the Pew Center on Global Climate Change, early action crediting was designed to establish the framework for a future cap-and-trade program while growing a corporate lobby of energy-rationing profiteers.

An early credit scheme works as follows. Companies “volunteering” to reduce their emissions before Congress enacts a mandatory program receive regulatory credits they can later apply to meet their obligations under a cap-and-trade scheme. This would quickly corrupt the politics of energy policy. Every “early actor” would have an incentive to lobby for a cap in order to transform his otherwise worthless credits into tradable emission permits worth millions of dollars.

In addition, early credit schemes are zero-sum rather than ‘win-win,’ and coercive rather than truly voluntary. To avoid credit inflation (bursting the cap in ‘cap-and-trade’), the supply of emission allowance in a future mandatory program must be reduced by the exact number credits awarded for ‘early action.’ This means that in the mandatory period, those who did not act early would have to pay higher prices for a smaller supply of emission allowances and/or buy ‘surplus’ credits from the early actors.

Consequently, many firms would ‘volunteer’ just to avoid being pushed to the shallow end of the credit pool under a future mandatory regime. This dynamic would further increase the number of companies motivated to lobby for mandatory reductions in order to monetize their investment in early credits.

Had Congress enacted an early action program, or had the Department of Energy succeeded in awarding early credits under its own authority, a coalition like the U.S. Climate Action Partnership would likely have formed earlier than it did and be stronger than it is today.

H.R. 2221, introduced by Rep. McIntosh in the 106th Congress, upstaged, and preempted Republican support for, H.R. 2520, New York Rep. Rick Lazio’s companion bill to Sen. Lieberman’s early action  bill (S. 547). McIntosh lined up 32 co-sponsors compared to Lazio’s 15. Credit for early action became politically radioactive with anti-Kyoto House Republicans. Without a viable House companion bill, Sen. Lieberman’s bill went nowhere.

Three years later, on Valentine’s Day 2002, President Bush naively brought early crediting back from the political graveyard by directing the Department of Energy to “give transferable credits to companies that can show real emission reductions.” DOE convened several comment periods and stakeholder meetings over the next three years to figure out how to transform the existing Voluntary Reporting of Greenhouse Gases Program, established by Sec. 1605(b) of the 1992 Energy Policy Act, into a crediting program.

Through this comment and others, CEI helped persuade DOE’s General Counsel that Sec. 1605(b) provided no authority to implement an early credit program. Dozens of rent-seekers spent hundreds of billable hours trying to game the rules of a revised 1605(b) program, only to have DOE’s GC pull the rug out from under them in the 11th hour.

Our un-invited testimony in April 2005 clarified for Senators Larry Craig (R-Idaho) and Chuck Hagel (R-Neb.) why they should withdraw S. 388, a bill that would give DOE the authority it lacked. The late John Berthoud, then President of the National Taxpayers Union, clinched the argument by confirming for Sen. Craig that blocking transferable credits was an issue of key importance to the free market coalition.

* Updated 2/23/2015

In a blistering letter published earlier in the week, the head of Texas’s environmental agency and the State’s attorney general told the U.S. Environmental Protection Agency (EPA): ”Texas has neither the authority nor the intention of interpreting, ignoring, or amending its laws in order to compel the permitting of greenhouse gas regulations.”

The letter, by Texas Commission on Environmental Quality (TCEQ) Chairman Bryan Shaw and Attorney General Gregg Abbott, comes hard on heels of EPA’s denial of 10 petitions (including one from the State of Texas) to reconsider EPA’s endangerment rule. That rule — the agency’s response to the Supreme Court’s 5-4 decision in Massachusetts v. EPA – is both trigger and precedent for potentially dramatic and far-reaching Clean Air Act restrictions on fossil energy production and use.

More pertinently, Shaw and Abbott sent their letter on August 2, 2010, the deadline EPA had set in its Final Tailoring Rule (p. 31582) for States to explain how they plan to apply Clean Air Act permitting programs to stationary sources of greenhouse gases. Instead, the Texas officials all but told EPA to go jump in the lake. 

Tailoring Absurdity

EPA adopted the Tailoring Rule to fix a problem of its own making. By adopting the endangerment rule, EPA obligated itself to establish greenhouse gas emission standards for new motor vehicles. The standards make carbon dioxide (CO2) a “regulated air pollutant,” which in turn makes any “major stationary source” of CO2 “subject to regulation” under the Clean Air Act’s Prevention of Significant Deterioration (PSD) pre-construction permitting program and Title V operating permits program. 

The problem is that literally millions of  hitherto unregulated entities qualify as “major” sources of CO2 under those programs. The “major” source “applicability threshold” for PSD is a potential to emit 250 tons per year (tpy) of a regulated air pollutant. The threshold for Title V is even lower — a potential to emit 100 tpy. Whereas only large industrial facilities emit bona fide air pollutants in those quantities, millions of small entities never before subject to Clean Air Act permitting requirements — big box stores, office buildings, apartment complexes, restaurants, hospitals, schools — emit CO2 in the threshold amounts.

Applying the Clean Air Act to greenhouse gases thus produces what EPA itself describes as “absurd results.” For example, EPA and its State counterparts would have to process an estimated 41,000 PSD permits per year (up from 280) and 6.1 million Title V operating permits per year (up from 15,000). The ensuing “permit gridlock” would clog up environmental enforcement, stifle new construction, and force millions of firms to either operate illegally or close down. All on President Obama’s watch; all in the midst of a deep recession.

Rather than draw the reasonable conclusion that Congress did not intend to regulate greenhouse gases via the Clean Air Act, EPA decided that Congress must have intended for the agency to ”tailor” — that is, amend — the Act so the agency can regulate greenhouse gases without wrecking the economy. So, while the law specifies 100/250 tpy as the applicability thresholds for the permitting programs, the Tailoring Rule sets the cutoff at 100,000 tpy over the next two years and at not less than 50,000 over the next six years.

In addition, under the Tailoring Rule, modifications to an existing source won’t be considered “significant” — that is, won’t trigger the PSD process — unless the changes increase emissions by 75,000 tpy.

The Texas environmental chairman and AG aren’t buying it:

You have declared that EPA’s decision to enact automobile tailpipe emission limits for greenhouse gases pursuant to Title II of the federal Clean Air Act renders such gases immediately ”subject to regulation” for all purposes under the Act, including Title I Prevention of Significant Deterioration (PSD) pre-construction permitting program  and the Title V operating permit program. Simultaneously, however, you recognize that permitting greenhouse gases under the Act is “absurd.” . . . We agree.

They continue:

In order to avoid the absurd results of EPA’s own creation, you have developed a “tailoring rule” in which you have substituted your own judgment for Congress’s as to how deep and wide to spread the permitting burden.

And a bit later:

Instead of acknowledging that congressionally set emission limits [applicability thresholds] preclude the regulation of greenhouse gases, you instead re-write those statutorily-established limits . . . .

Problem Unsolved

Okay, now we get to the meat of the matter. PSD and Title V are mostly administered by States, not by EPA, and most State Implementation Plans (SIPs) define “major” emitting facility exactly as the Clean Air Act does. This means that even if the Tailoring Rule shields small entities from PSD and Title V regulation by EPA, it would not shield them from regulation by State agencies. EPA discussed this problem in its Proposed Tailoring Rule (p. 33542). ”Virtually all of [the EPA-approved SIPs] establish the PSD permitting threshold at the 100/250-tpy level,” EPA noted. Indeed, ”a few States have adopted lower permitting threshold levels.” In addition, “virtually all EPA-approved SIPs establish the significance level” for modifications triggering PSD “at zero” emissions in the case of previously unregulated air pollutants — not at 10,000 tpy, as EPA initially proposed, much less at 75,000 tpy, as the Final Rule stipulates.

Initially, EPA proposed to withdraw federal approval from those portions of SIPS incorporating the older thresholds and significance levels. This would mean, however, that the lower thresholds would “remain on the books under State law, and sources therefore remain subject to them as a matter of State law” (Proposed Tailoring Rule, p. 55343). In short, the regulatory nightmare would continue. For further discussion, see Peabody Energy’s comment on the Proposed Tailoring Rule.

Of course, States have the option to revise their SIPs and amend their clean air laws. But that could take years. Thus, notwithstanding EPA’s “tailoring,” small entities would find themselves “subject to regulation” under State PSD and Title V requirements on January 1, 2011, when the agency’s greenhouse gas tailpipe emission standards go into effect. As the Final Tailoring Rule observes, “Commenters stated that States would need to undertake a regulatory and/or legislative process to change the threshold in their state laws which they could not complete before the laws would otherwise require issuance of operating permits to GHG sources” (p. 31583).

Semantics Rule?

So what is EPA’s solution? Instead of changing the definition of “major stationary source,” EPA is changing the definition of “subject to regulation.” The agency, “by interpretation,” now defines “subject to regulation” as not including a “major source” of greenhouse gases unless the source has a potential to emit 100,000 tpy on a CO2-equivalent basis. EPA crows that “we find no substantive difference” between how the initially-proposed rule and how the final rule “tailors” the permitting requirements. EPA says that States similarly, “by interpretation,” can redefine “subject to regulation,” allowing them to exempt small sources from PSD and Title V without changing their SIPs or laws: 

Whether we add [higher] GHG thresholds directly to the definition of “major source” (as we proposed), or alternatively, expressly add and define the term “subject to regulation” [so that it only applies to sources emitting at least 100,000 tpy], both approaches revise the definition of “major source” to implement the Tailoring Rule. Accordingly, we adopt the later approach to facilitate state implementation of the final rule through an interpretation of existing state part 70 programs.

If you are confused as to how redefining “subject to regulation” can produce the same substantive result as redefining “major source” yet not similarly require States to change their SIPs or laws, you are not alone. It’s this attempt to turn law into a semantic game that the Texas officials refuse to play.

They write:

In the Tailoring Rule you have asked TCEQ to report to you by August 2, 2010 whether it would “interpret” the undefined phrase “subject to regulation” in TCEQ Rule 116.12 consistent with the newly promulgated definition of EPA Rule 51.166 in all its specifics and particulars. . . .In other words, you have asked Texas to agree that when it promulgated its air quality permitting program rules for pollutants “subject to regulation” in 1993, that Texas really meant to define the term “subject to regulation” as set forth in the dozens of paragraphs and sub-paragraphs of EPA Rule 51.166, first promulgated in 2010.

TCEQ Rule 116.12 was last amended in 2006. It “adopts” the Clean Air Act “by reference” — but only as the Act existed at the time of adoption. To adopt subsequent changes made by EPA, TCEQ would have to amend Rule 116.2 through a formal rulemaking process. Adopting such changes by mere act of “interpretation” would delegate more authority to EPA than the Texas Constitution allows.  

In addition, the Texas officials argue, “TCEQ is also precluded from adopting EPA’s newly-minted definition of “subject to regulation” by the “express terms of the Texas Government Code, which requires public notice of agency rulemaking.” They explain:

When the TECQ promulgated Rule 116.12 in 1993, or even when it last amended the rule in 2006, it had no intention of enacting a permitting program for greenhouse gases. Consequently, TCEQ had no reason to (nor did it) give public notice of any such intent. Obviously, Texans concerned with greenhouse gas permitting could not have known to participate and comment on the decision to require permits for pollutants “subject to regulation” in 2006, when the EPA first discovered greenhouse gases were “subject to regulation” in 2010. It should go without saying that the nearly infinite expansion of Texas’ permitting programs to include greenhouse gases with no state-level rulemaking at all would not satisfy Texas or federal law requiring notice and an opportunity to be heard.

Of course, one could say that the whole point of the Supreme Court’s decision in Massachusetts v. EPA, which pushed the agency to issue an endangerment rule, and the ensuing cascade of CO2 controls was to bypass the democratic process and confront the public with regulatory fait accompli.

Another Bite at the Apple?

It will be interesting to see how all this plays out. If Texas sticks to its guns, EPA may simply take over the Texas PSD program, in whole or in part, through a federally-imposed Federal Implementation Plan (FIP). Florida, for example, told EPA it could not make the regulatory changes in time, so EPA would just have to take over the Florida program. EPA reportedly is working on a “backstop rule” authorizing the agency to take over State permitting of greenhouse gases on a temporary basis (Environmental NewsStand, August 5, 2010, subscription required).

However, what if Texas still refuses to cooperate? Would EPA sue? Such a case might work its way up to the Supremes. The Court might then have to face the core issue it ducked in Mass. v. EPA – whether Congress intended for EPA to regulate greenhouse gases under the Clean Air Act as a whole, including PSD, Title V, and the national ambient air quality standards (NAAQS) program. The Court would have an opportunity to reconsider Mass. v. EPA in light of the absurd results to which it has led. A long shot — but a consummation devoutly to be wished.

In the News

The Ethanol Tax Credit-Even Worse Than You Think
Harry de Gorter & Jerry Taylor,, 6 August 2010

Enviros Scheme for a Backdoor Kyoto
Evan Lehman, ClimateWire, 6 August 2010

Will New Jersey Governor Do the Right Thing on Cap-and-Trade
Phil Kerpen, Fox Forum, 4 August 2010

The Car of the Future? SUV Sales Back to 50%
Henry Payne, Planet Gore, 4 August 2010

Cap-and-Trade: It’s the Cost, Stupid
Vincent Carroll, Denver Post, 4 August 2010

Snobby and Foolish Electric Car Subsidies
Charles Lane, Slate, 1 August 2010

The Death of Cap & Tax
Wall Street Journal editorial, 1 August 2010

He Auto Know Better
Iain Murray, Washington Examiner, 30 July 2010

News You Can Use

NOAA: 70% of Gulf Oil Spill Is Gone

The National Oceanic and Atmospheric Administration this week released a study estimating that 70% of the oil released into the Gulf of Mexico as a result of the Deepwater Horizon tragedy has evaporated, burned, or been skimmed. White House Press Secretary Robert Gibbs told reporters that, “that many of the doomsday scenarios that we talked about and repeated a lot have not and will not come to fruition.”

Inside the Beltway

The Incredible Shrinking Senate Energy Bill

When the Senate first took up energy and climate legislation last September, it quickly died under the inept stewardship of Sen. Barbara Boxer (D-CA). Then Sen. John Kerry (D-MA) picked up the baton. For almost 7 months, he conducted negotiations for a comprehensive energy and climate bill, culminating in late spring with the release of the American Power Act, a cap-and-trade energy rationing scheme. Kerry’s cap-and-trade, however, received a tepid welcome from his own caucus, primarily due to the fact that Democratic Senators were wary of enacting an energy tax so close to the November Congressional elections. In an effort to build support for the Kerry’s bill, Senate Majority Leader Harry Reid (D-NV) convened weekly meetings of Democratic Caucus in June, but those discussions led to nowhere. So Reid dropped the climate provisions, and instead opted for a simpler anti-energy bill that focused on the BP oil spill. Reid reasoned that legislation to punish BP would prove politically popular, but he went too far, and moderate Democratic Senators from Gulf Coast states started to gravitate to a GOP alternative that was less economically harmful to the oil and gas industry. Thus abandoned by members of his party, Reid this week decided to shelve his BP spill bill. Let’s hope it stays mothballed.

Did Lisa Jackson Promise To Delay GHG Regs?

The Cooler Heads Digest repeatedly has warned of the Obama administration’s economically devastating plan to regulate greenhouse gases under the Clean Air Act. For background on this complicated issue, read this briefing by CEI’s Marlo Lewis. Suffice it to say, the EPA is expected to impose greenhouse gas emissions requirements on power plants and industrial users of energy in January. But now this timeline is in doubt, as a result of a little-noticed speech that EPA Administrator Lisa Jackson gave last week in Alaska. According to the Alaska Journal of Commerce, Jackson said that regulating carbon emissions from stationary sources such as refineries, factories and power plants is “something the economy cannot deal with right away.” In the time since Jackson’s Alaska trip, there has been no further word from EPA about its timeline for greenhouse gas regulations, but it stands to reason that her logic precludes expensive carbon controls in January if the economy doesn’t improve markedly during the next five months.

[Myron Ebell will return next week]

Across the States


Supporters of a California ballot initiative that would suspend implementation of AB 32, the State’s 2006 global warming law, until unemployment decreased to 5.5% (it is now almost 11%) wanted to label it the “California Jobs Initiative,” but Attorney General Jerry Brown, a longtime environmental alarmist, chose a less flattering name last February-“Suspends air pollution control laws requiring major polluters to report and reduce greenhouse gas emissions that cause global warming.” This week Sacramento Judge Timothy Frawley ruled that Brown imparted too much bias into the title, and ordered that the initiative be renamed, “Suspends implementation of air pollution control laws (AB 32) requiring major sources of emissions to report and reduce greenhouse gas emissions that cause global warming, until unemployment drops to 5.5% of less for a full year.”


Texas Attorney General Greg Abbott and Department of Environmental Quality Chairman Bryan Shaw this week sent a strongly worded letter to Environmental Protection Agency Administrator Lisa Jackson, rejecting the Obama administration’s intention to regulate greenhouse gases with the Clean Air Act. When the Congress created wrote the Clean Air Act, in 1970, it was trying to limit particulate pollution that causes smog. Greenhouse gases, however, are emitted in much greater quantities than particulate pollution. As a result, the Clean Air Act, if applied literally to greenhouse gases, would result in the regulation of every mansion, apartment building, and office complex. That is, it would be a regulatory nightmare. To avoid having to regulate the entire economy, the EPA wants to rewrite the Clean Air Act. Of course, this is legally dubious-the executive is not allowed to play the role of the legislature. And it is this Constitutional conflict that precipitated the Texas letter.

Around the World

International Climate Negotiations in Bonn Reach New Depths of Futility

The United Nations Framework Convention on Climate Change this week held negotiations in Bonn in advance of the 16th Conference of the Parties to the UNFCCC this winter in Cancun, Mexico. A legally binding treaty to reduce global greenhouse gas emissions proved so contentious that it isn’t even on the agenda for Cancun-despite the fact that such a treaty has been the UNFCCC’s goal for almost two decades. Nonetheless, delegates still found reasons for acrimony. According to the Guardian, the “US, China and many developing countries all added pages to draft texts in a series of tit-for-tat moves,” and as a result, Peter Wittoeck, the lead diplomat for the European Union, warned that there is a danger of the negotiating text “exploding.”

The Cooler Heads Digest is the weekly e-mail publication of the Cooler Heads Coalition. For the latest news and commentary, check out the Coalition’s website,

The environmental left is in some disarray following the Deepwater Horizon oil spill.  After all, BP had trumpeted for years the idea that it was ‘Beyond Petroleum.’  Shell and ChevronTexaco had mounted similar campaigns.  All had collected numerous awards for their commitment to sustainability and other objectives of the green lobby.  Yet here was BP responsible for worst environmental disaster many people had seen.  The hand-wringing is palpable among the Corporate Social Responsibility mavens.  Here’s the conclusion of one group, EthicalCorp:

Many in the CSR community have discussed the disaster in the context of the oil industry at large. BP, they reason, was certainly ahead of its competitors in discussing the responsibility of an energy company to address climate change and invest in alternative energy.

But it’s critical to remember that being “best in class” when your industry’s core products and services are fundamentally unsustainable, is a total misnomer. There is no such thing as an ‘eco-friendly’ oil company.

The remedy, it seems, is ideological purity:

Let’s start with the term ‘CSR’ itself. Like ‘sustainability’, it’s clearly lost a lot of its meaning and needs to be rethought—and possibly thrown out altogether. Continuing to frame corporate efforts on sustainable development as ‘CSR’ also keeps those efforts in the CSR department, instead of driving their integration into core business operations.

But what about ethical rankings and indices? If they actually worked well, they could have a significant impact on investment decisions. As Innovest concluded in its 2000 oil industry risk report—which ranked BP #2 out of the 13 oil companies on the S&P 500 for its “superior environmental management program”—investors could use the ranking as “a valuable indicator of future performance in the oil industry based on environmental criteria.”

Firstly, no oil company should be found on any of these ethical, CSR or sustainability-related lists.

And it shouldn’t require the biggest ecological disaster in American history, for example, to displace BP from the Dow Jones Sustainability Index.

Secondly, ranking and index criteria need to be made more visible and more robust. Yes, most tell us they are based on publicly available data. But most of them also rely on sourcing that data from corporate commitments—what companies say they are doing or plan to do.

Some are even based solely on information found in the CSR reports of those companies. All rankings and indices need to be driven by externally verified data from a solid variety of sources.

And what about marketing? The high-profile communications campaigns from the energy industry need to be automatically subject to greater scrutiny, and more robust regulation.

Shell’s new CSR campaign, “Let’s Go”, bears an uncanny resemblance to “Beyond Petroleum”, focusing on broad claims such as “Shell is helping to deliver cleaner-burning natural gas to more countries than any other energy company.”

The viewer of these ads is given no context for the claim—what other energy sources natural gas burns cleaner than, for example, or how delivering the gas to “more countries” is a relevant metric for sustainability leadership. This is unacceptable.

It seems that companies’ green marketing materials will no longer be enough for the CSR industry.  They will require much more to deliver their seal of approval – so much, it appears – that energy companies will no longer be able to achieve them without completely divesting themselves of their most profitable activities.

As it happens, the oil companies realized this a few years ago.  Tom Bower’s book Oil reveals how BP, Shell and others quietly shelved their environmentally-focused campaigns after the release of An Inconvenient Truth.  as bower characterizes the thoughts of Shell’s Chief Executive, Jeroen van der Veer, “Posturing for publicity purposes was harmless, but relying on the profitability of renewables was foolish.”

It’s taken several years for the CSR types to notice.  If they are now openly hostile to energy companies, then ‘posturing for publicity purposes’ is really no longer an option.  The cry of “hypocrite” is a powerful one.

So what is left?  We at CEI have been arguing for years that corporations need to do what they did en masse in the 1930s, the last time corporations came under as heavy attack as they are now, and legitimize their activities.  They need to point out the good that they are doing, how oil creates opportunities and wealth we would not have without it, for instance.  Apologetic advertising or pretending to be something they are not needs to be a thing of the past.

Truth in advertising, indeed.

One of the central insights of Free-Market Environmentalism is that people treat the environment as a luxury good.  They are willing to pay for it when they have spare money, but not when they don’t.  That’s why treating the environment as a tax, which is how statist environmentalism works, arouses resentment, while treating it as a privately-owned asset, like FME does, promotes stewardship and conservation.

There’s more evidence for this view from a new study, Environmental Concern and the Business Cycle: The Chilling Effect of Recession.  Here’s the abstract:

This paper uses three different sources of data to investigate the association between the business cycle—measured with unemployment rates—and environmental concern. Building on recent research that finds internet search terms to be useful predictors of health epidemics and economic activity, we find that an increase in a state’s unemployment rate decreases Google searches for “global warming” and increases searches for “unemployment,” and that the effect differs according to a state’s political ideology. From national surveys, we find that an increase in a state’s unemployment rate is associated with a decrease in the probability that residents think global warming is happening and reduced support for the U.S to target policies intended to mitigate global warming. Finally, in California, we find that an increase in a county’s unemployment rate is associated with a significant decrease in county residents choosing the environment as the most important policy issue. Beyond providing the first empirical estimates of macroeconomic effects on environmental concern, we discuss the results in terms of the potential impact on environmental policy and understanding the full cost of recessions.

The paper’s authors are obviously concerned that the recession means that statist environmental policies are less likely to be enacted.  It would be helpful if, instead of thinking so linearly, environmental academics could think what opportunities this gives to advance free-market environmentalism.  It is clear that low-cost environmentalism is much more likely to be supported during a recession than high-cost environmentalism.  because free-market environmentalism shifts the burdens of environmental protection from the masses to those who are willing to pay, it should be much more attractive to people during a recession.  It is indicative of the ideological blinkers of the environmental establishment that this possibility does not occur to the authors.

Don’t Mess with Texas

by William Yeatman on August 3, 2010

in Blog

Texas Attorney General Greg Abbott and Department of Environmental Quality Chairman Bryan Shaw yesterday sent this strongly worded letter to Environmental Protection Agency Administrator Lisa Jackson, regarding the Obama administration’s intention to regulate greenhouse gases.

Some background: As has been noted repeatedly by my colleague Marlo Lewis, the Obama administration’s plan to regulate greenhouse gas emissions is a runaway train. In a nutshell, the administration wants to pick and choose which sections of the Clean Air Act apply to greenhouse gases, but that’s not how the legislation works. In fact, the Clean Air Act is written such that one provision tripwires another, which tripwires another, and so on and so forth, until the whole Act applies. When the Congress created this of belt-and-suspenders approach to regulation, in the 1970s, it was trying to limit particulate pollution that causes smog. Greenhouse gases, however, are emitted in much greater quantities than particulate pollution. As a result, the Clean Air Act, if applied literally to greenhouse gases, would result in the regulation of every mansion, apartment building, and office complex.That is, it would be a regulatory nightmare. To avoid having to regulate the entire economy, the EPA wants to rewrite the Clean Air Act. Of course, this is legally dubious–the executive is not allowed to play the roll of the legislature. And it is this Constitutional conflict that precipitated the Texas letter.