August 2014

Two events last Wednesday morning demonstrate well the EPA’s dichotomous approach to collaboration: If you’re an environmental special interest that helped Obama get elected, EPA welcomes you with open arms; if you’re anybody else, EPA will spurn you.

The first such event was a House Science, Space, and Technology Committee hearing on EPA’s regulatory regime for climate change. Panelists included Charles McConnell, who was assistant secretary for fossil energy at the Energy Department until early 2013. His office was responsible for facilitating federal assistance in the development of carbon capture and sequester (CCS) technology. In fact, EPA proposed to require CCS technology in its controversial carbon rule for new coal-fired power plants, the Carbon Pollution Standard. You’d think that the agency would welcome the Energy Department’s assistance, given that the EPA possesses no expertise in CCS technology. Alas, you’d be wrong. McConnell told the committee that “a true collaborative effort would have been far different from what I observed.” According to Mr. McConnell, EPA viewed the interagency process as a “box-checking exercise” and he called the agency’s attitude “disingenuous.”*

Thus, EPA rejected collaboration with a sister agency. Moreover, as I’ve long noted on this blog, Obama’s EPA has had an unprecedentedly poor relationship with States, which are supposed to be the agency’s partners under the cooperative federalism framework established by the Clean Air Act and other enabling statutes.  And it goes without saying that this EPA treats “dirty” industry with contempt. The upshot is that this EPA refuses to play nice with either the public or the private sector.

The second Wednesday event served to demonstrate that there’s at least one sector to which EPA is solicitous, and that’s environmental special interests. At 11:30 AM, the Senate Environment & Public Works minority staff released an informative new report, “Billionaire’s Club,” that neatly explains the web of elite political donors, green groups, and EPA political appointees that together have effectively seized the reins of policy-making at the agency. I found particularly edifying the EPW report’s section on the “revolving door” between environmental special interests and EPA, a subject that has been broached before on this blog.

Further evidence to this end—that of demonstrating regulatory capture of EPA by green special interests—is lent by a July 6^th New York Times article, which reports that three lobbyists at the NRDC wrote the “blueprint” for EPA’s greenhouse gas regulations for existing power plants.   [click to continue…]

Cellulosic ethanol is a transportation “bio”fuel made from anything other than food. There was no cellulosic industry in the U.S. in 2007, when Congress decided to create one from scratch with the passage of the Energy Independence and Security Act. To this end, lawmakers simply mandated ever-increasing volumes of production, until 2022, when cellulosic ethanol is supposed to account for about 10% of the total market for transportation fuels.

In 2014, for example, the statutory mandate is 1.75 billion gallons. So how’s that working out for us?

No so well, according to Platts Senior Editor Herman Wang. In an interview in this Sunday’s Platts Energy Week with Bill Loveless, Mr. Wang estimates that the market has produced a paltry 50,000 gallons of cellulosic ethanol so far in 2014, or .003% of the requirement codified by law. Nor is there much hope of a production breakout in the second half of the year, as the industry is in total disarray, reports Mr. Wang.

This is an industry that has been billed a game changer in the U.S. transportation fuels sector, but reality has yet to catch up to the hype. Last year, there were signs this industry may be turning the corner. There was a company Kior that in March said it had generated its first renewable credits, called RINs…and in July, we had another company, Ineos Bio, say that they had produced there first commercial quantities. So things were looking up. Since then, it’s been bad news. Ineos bio has since said that it’s suffering what it called “unexpected startup problems.” And Kior had to shut down its facility due to finance problems…The EPA, which tracks biofuel production from month to month, just announced that in June, 0 gallons of cellulosic biofuels were produced. This is the second month in a row, there’s been no production.

In practice, EPA has been revising Congress’s impossible targets such that they become only somewhat less impossible. In 2011, for example, EPA revised the Congress’s 250 million gallon target to 6 million gallons, but, in fact, 0 gallons were produced. For 2012, Congress’s original target was greater than 500 million gallons but it was reduced down to 10.45 million gallons, which was still outrageous because the industry produced only 20,000. According to Mr. Wang, EPA revised the 2014 target to 17 million. This is, obviously, far higher than the 50,000 gallons that are likely to represent total production for 2014.

As I explain here, the absence of a breakthrough by the cellulosic industry presents a quintessential example of how the government is incapable of creating markets by command. This point is demonstrated visually in the graphic below, which plots the statutory requirements against EPA’s revised targets (which themselves are a proxy for actual production). As is readily evident, the gulf is widening between the congress’s command and reality. [click to continue…]

The International Monetary Fund (IMF) has just published a 277-page report advocating carbon taxes. Titled Getting Energy Prices Right: From Principle to Practice, the report is described by IMF officials as “an effort to push countries into action well ahead of new treaty negotiations,” according to Climatewire ($).

I have ordered a copy from Amazon.Com, but it won’t arrive until Monday. In the meantime, let’s review some of the arguments put forward by IMF spokespersons in media coverage of the report.

My overall impression is that the report doesn’t offer any new rationales for carbon taxes that I haven’t already rebutted in previous posts (here, here, and here).

For starters, IMF assumes that, despite “many controversies and uncertainties,” the social cost of carbon (SCC) is a knowable quantity, enabling benevolent central planners to ‘get energy prices right’ and, therefore, improve overall economic efficiency. To quote IMF Managing Director Christine Lagarde, setting corrective taxes to make businesses and consumers pay for environmental damage is “not rocket science” and “straightforward in principle.”

In reality, the SCC exists only in the eye of the beholder. It is a guesstimate derived from non-validated climate parameters, made-up damage functions, and (usually) below-market discount rates. Worse, SCC analysis is computer-aided sophistry designed to make uneconomic renewables look like a bargain at any price and make fossil energy look unaffordable no matter how cheap.

For the U.S., ‘getting energy prices right’ reportedly means hiking motor fuel taxes by an additional $1.60/gal. That implies an SCC of nearly $180/metric ton of carbon dioxide (CO2).* Yet the U.S. Interagency Working Group, on whom IMF relied last year for SCC estimates (and probably still does today), proposes a central estimate of $33/ton.

Ms. Lagarde says the costs to be “corrected” include not only local pollution and CO2 but also traffic accidents and congestion. Accidents and congestion are real costs but they have nothing to do with the carbon content of gasoline or motor-fuel emissions. If every car on the road today were replaced with an all-electric vehicle, there would still be accidents and congestion. [click to continue…]

Two Wednesdays ago, the Senate Environment & Public Works Committee held a hearing on EPA’s illegitimate Clean Power Plan, about which I reported in last week’s Cooler Heads Digest. For the details, check out the Digest; for this post, my purpose is only to draw attention to the brilliant opening statement made by Sen. John Barrasso (R-WY). He took aim at the role special interests played in crafting the rule. Below, I’ve provided a partial transcript:

On July 6th of this year, the NYT wrote a piece about the outsized role that the Natural Resources Defense Council had in developing the EPA’s new regulations to curb power plant emissions…The article says it was a remarkable victory for the NRDC. Now, for those outside the beltway, NRDC is a $120 million a year lobbying machine, backed by Hollywood elites. It is absolutely shameful to me that the EPA, under the direction of this administrator, would allow a team of lawyers and lobbyists to draft their regulations…

…EPA has decided to push a rule that was drafted behind closed doors by powerful, wealthy Washington lawyers and lobbyists at the NRDC. Let’s be clear, NRDC is a wealthy, elite, powerful lobbying machine with more influence over decision making in Washington than any ordinary U.S. citizen. They have millions which gives them access. The EPA has turned a deaf ear on those that don’t.

…If I’m wrong, then NRDC and the EPA and its Administrator can and should provide all records and documents that are requested by Members of this Committee and my House colleagues on how these new regulations for coal-fired power plants were crafted. Because right now, it sure looks like a trio of high powered Washington lobbyists write their regulations for them.

If what the [New York] Times is reporting is what the EPA Administrator has called “preposterous,” then the EPA must comply with any committee and FOIA requests for these docs. Comply [with these requests], so we can know the truth. If the answer is no, that you will not comply, or that there are more record keeping mishaps, broken hard drives, or lost files, then we’ll know the truth as well.

Sen. Barrasso’s challenge is a welcome development. I wish his staff good luck and Godspeed in its efforts to uncover the extent to which special interests were given the run of the mill at EPA after having helped get the President elected. Alas, the staff’s task will prove a slog, something we know from experience.

[click to continue…]