Marlo Lewis

That is the question posed this week on National Journal’s energy experts’ blog. My answer, available  here, is that “failure” will have multiple benefits:

– The U.S. economy won’t be hit by virtual or outright energy taxes in the midst of the worst economic downturn since the Great Depression, improving prospects for a recovery.

– Congress will not declare political warfare on coal, continuing America’s access to abundant, affordable base-load power.

– Congress will not adopt carbon tariffs, avoiding an era of trade warfare between the United States and emerging industrial powerhouses such as China and India.

– The U.S. Government will lack a bully pulpit for pressuring poor countries to ban coal-based power, allowing them to escape from energy poverty.

Is tax-and-dividend (aka “carbon fee and green check”) a morally compelling alternative to cap-and-trade?

Is it the path to presidential greatness?

Will it be good for the economy?

Will China adopt it if we do?

Yes to all of the above, climatologist James Hansen argues in the Huffington Post.

No, says your humble servant, today on MasterResource.Org.

Today on MasterResource.org, the free-market energy blog, I explain how EPA, by granting the California waiver, finding endangerment, and perhaps even by pulling its punches in the Massachusetts v. EPA Supreme Court case, has positioned itself to regulate fuel economy, set climate and energy policy for the nation, and amend the Clean Air Act – powers never delegated to the agency by Congress. 

It is time to rein in this rogue agency. The Congressional Review Act Resolution of Disapproval introduced by Sen. Lisa Murkowski (R-AK) is the way to do it.

“France today abandoned all plans to introduce a carbon fuel tax aimed at combating global warming,” the Daily Mail reports. The article continues:  

 
The policy u-turn will be viewed as a huge disappointment to the green lobby around the world.

 
Many had hoped that if a major western economy like France took the lead in taxing harmful emissions, then other countries would follow suit. 

 
But the scrapping of the tax plan was announced by Prime Minister Francois Fillon who said it could only be introduced across Europe so as to ‘avoid harming the competitiveness of French companies’.

He told a meeting of MPs in Parliament that the priority for the country was getting its stagnating economy working again following the international financial crisis.

Last year President Nicolas Sarkozy said a tax on the use of oil, gas and coal would make his country one of the greenest in the world.

 
It was provisionally set at pounds 15 per per tonne of emitted carbon dioxide (CO2), and would apply to homes as well as businesses. 

 
Mr Sarkozy said money from the new tax – which would amount to some pounds 4billion a year – would be spent on green initiatives.

But there was stiff opposition from across the political spectrum, with critics saying the tax was just a ploy to boost ailing state finances. 

 
In polls, two-thirds of French voters said they were opposed to the new levy, fearing they would struggle to pay higher bills. The government was forced to amend its proposals after they were rejected by the high court in December.

France has 44.4 million registered voters, and polls indicate that two-thirds are opposed to carbon taxes. Can 30 million Frenchmen (and women) be wrong?

The article concludes by noting that, “Mr Fillon told the meeting of MPs today that the government’s priorities were now ‘growth, jobs, competitiveness and fighting deficits’.” Now, if we could only get Sens. Kerry, Graham, and Lieberman to smell the coffee! They too would drop their proposal for “linked fees” (i.e. carbon taxes) like yesterday’s french fries.

A new Harvard University study (Analysis of Policies to Reduce Oil Consumption and Greenhouse-Gas Emissions from the U.S. Transportation Sector) offers a sobering assessment of what it will take to meet the emission reduction targets proposed by President Obama and the Waxman-Markey cap-and-trade bill.

Saruman’s rebuke to Gandalf — “You have elected the way of pain!” – nicely captures the key policy implication of this study (although the researchers, of course, do not put it that way).

Congressional proponents of cap-and-trade policies typically favor cost-control measures (price collars, safety values, offsets) designed to keep emission permit prices from exceeding $30/ton of CO2 in 2010 and $60/t of CO2 in 2030. Although an economy-wide permit price of $30-$60/t CO2 would significantly reduce GHG emissions from the electric power sector, it would have only a “marginal impact” on transport-sector emissions, which account for about one-third of all U.S. GHG emissions.

As a consequence, by 2020, total annual GHG emissions under Waxman-Markey would be only 7% below 2005 levels — far short of both the Waxman-Markey target (15.4% below 2005 levels) and President Obama’s somewhat less aggressive target (14% below 2005 levels).

To reduce transportation GHG emissions 14% below 2005 levels by 2025 would require gasoline prices “in the range of $7-9/gal,” the researchers estimate. They acknowledge that such prices are ”considerably higher than the American public has been historically willing to tolerate.” Yep, $7-9 a gallon would set a new record for pain at the pump!

By itself, the $30-$60/t CO2 carbon price would increase motor fuel prices by “only” $0.24-0.46/gallon. Not enough pain! To make driving hurt enough to save the planet (okay, hurt enough to produce undetectable effects on global temperatures), policymakers would also have to adopt a $0.50/gal motor fuel tax in 2010 that increases 10% a year until it reaches $3.36/gal in 2030. Even then, it won’t hurt enough unless crude oil prices increase to $124/barrel (in real dollars) by 2030. Crude oil prices as high as $198/barrel would work even better, the researchers opine.

Exactly how would “the way of pain”  produce these transport-sector emission reductions? Some of the reductions would come from consumers buying higher mpg vehicles, and some from technological innovation spurred by market demand for such vehicles. Most of it however, comes from people driving less — i.e., pain avoidance behavior!

A by-the-numbers explanation: In the base case (no carbon price, no new transportation taxes), vehicle-miles traveled (VMT) is projected to grow 39% by 2030. The economy-wide carbon price would reduce VMT by only 1% compared to the base case, and maybe not even that much due to the “rebound effect” of fuel-economy regulation (when the average vehicle gets more miles to the gallon, the average motorist travels more miles). But, add a generous serving of pain at the pump, and Voila – instead of growing 39%, VMT grows 25%. We’re saved!   

A few other tidbits from the Harvard study: 

• Economy-wide CO2 prices must be more than twice as high (250%) as oil price increases to result in the same increase in the price of gasoline. For example, a $50/barrel increase in the price of oil is comparable to a CO2 price of $130/t.
• Tax credits for advanced vehicles (diesels, hybrids), ranging from $3000 to $8000 per vehicle, require excessive government expenditures ($22-38 billion per year, on a par with the 2008 U.S. auto bailout).
• Such subsidies are also counter-productive, because they blunt automakers’ incentive to increase the fuel economy of conventional vehicles, which occupy a larger share of the market.
• If Congress is unwilling to elect the way of pain (impose transportation taxes and steeper CO2 prices), covered entities will increasingly purchase offsets rather than reduce emissions to comply with the Waxman-Markey cap. Specifically, they will purchase an estimated 730-860 tons of CO2-equivalent offsets in 2020 and more than 2 billion tons in 2027 — breaching the proposed statutory limit.
• A $30-$60/t CO2 carbon price combined with $7-$9/gallon gasoline would reduce GDP only 1% in 2030. However, this conclusion depends on the assumption that Congress adopts a textbook perfect revenue-neutral carbon tax, in which all emission permits are auctioned, and all revenues are retured to taxpayers. 
• The actual GDP losses would be higher: ”Given the politics surrounding the debate in Washington, D.C., revenue neutrality is likely to be an elusive goal and thus our analysis may understate the economic impacts, since only a small number of the permits are likely to be auctioned.”

The Harvard study makes even more obvious what should no longer be controversial. Congress has not yet adopted tough controls on GHG emissions not because a “well-funded denial machine” is “confusing the public,” but because Members of Congress seek above all else to get re-elected, and inflicting pain on voters is not a smart way to win their support!

Gallup’s annual update of Americans’ attitudes on things environmental found that 48% of Americans believe the seriousness of global warming is generally exaggerated, up from 41% in 2009, and 31% in 1997, when Gallup first posed the question.

Similarly, the percentage of those who believe global warming is going to affect them or their way of life in their lifetimes has dropped from 40% in 2008 to 32% today.

Among the causes for these changes in opinion, Gallup mentions, “publicity surrounding allegations of scientific fraud relating to global warming evidence.” I’d like to propose another, related factor: humor.

My colleague Julie Walsh flags a funny statement by Sen. Joe Lieberman (I-CT), quoted earlier this week (Mar. 9) in Greenwire (subscription required). Although Lieberman, Sen. John Kerry (D-MA), and Sen. Lindsey Graham (R-SC) want to include cap-and-trade in their draft climate and energy legislation, they are reluctant to use the term.

Greenwire reports:

Lieberman also downplayed the use of the term “cap and trade” when it comes to limiting emissions, even though that is generally the plan with their bill. “We don’t use that term anymore,” he said. “We’ll have pollution reduction targets. Remember the Artist Previously Known as Prince?”

According to earlier reports, Graham et al. may propose to combine an electric utility sector cap-and-trade program with carbon taxes on transportation fuels. If so, then Kyotoism is truly dead. Electric utilities are gung-ho for cap-and-trade only if it’s economy-wide, so they can sell the free emission permits they would get under a bill like Waxman-Markey to other sectors receiving fewer or zero freebies.

Also, Waxman-Markey is a non-starter in the Senate because millions of Americans now understand that cap-and-trade is a stealth tax on energy. Combining carbon taxes with cap-and-trade is hardly the bold alternative and fresh start Graham, Kerry, and Lieberman are promising. Indeed, if this is what’s on offer, it’s even more obviously a tax, and should be even easier to shoot down!

The Artist Formerly Known As Prince was still Prince even before he changed his name back to Prince! And an energy tax by any other name is just as foul.

That’s the topic of this week’s National Journal energy blog. In my contribution, I argue that EPA has been playing a mischievous game that endangers democracy, and that Sen. Lisa Murkowski’s legislation to veto the agency’s endangerment finding would remove this threat. 

In a Feb. 22 letter to Sen. Jay Rockefeller (D-WV), EPA Administrator Lisa Jackson warns that enactment of the Murkowski legislation would scuttle the joint EPA/National Highway Traffic Safety Administration (NHTSA) greenhouse gas/fuel economy rulemaking, which in turn would compel the struggling auto industry to operate under a “patchwork quilt” of state-level fuel-economy regulations.

Ms. Jackson neglects to mention that the patchwork threat exists only because she, reversing Bush EPA Administrator Stephen Johnson’s decision, granted California a waiverto implement its own GHG/fuel economy program. Had Jackson reaffirmed Johnson’s denial, there would be no danger of a patchwork, hence no ostensible need for the joint EPA/NHTSA rulemaking to avert it.

As my blog post explains, EPA should not have approved the waiver in the first place. The California GHG/fuel economy program violates the Energy Policy and Conservation Act, which prohibits states from adopting laws or regulations “related to” fuel economy. Worse, the waiver creates a reverse right of preemption whereby states may nullify federal law within their borders — an affront to the Supremacy Clause. 

Specifically, the waiver would allow California, and other states opting into the California program, to nullify within their boundaries the reformed national fuel economy program that Congress enacted in the 2007 Energy Independence and Security Act (EISA). That leads straight to a patchwork of state-by-state compliance regimes inimical to a healthy auto industry.

The game EPA is playing is a classic case of bureaucratic self-dealing.

First, EPA endangers the U.S. auto industry by authorizing states to flout federal law and the Constitution. Then, EPA proposes to avert disaster via a rulemaking that just happens to put EPA in the driver’s seat in regulating fuel economy – a power Congress never delegated to EPA when it enacted and amended the Clean Air Act.

Nor is that all. The joint GHG/fuel economy regulation will compel EPA to regulate CO2 from stationary sources – another power Congress never delegated to EPA. By expanding its control over the transport sector, EPA will then have to expand its control over manufacturing, power generation, and much of the commercial and residential sectors, too, because all emit CO2.

In addition, the motor vehicle GHG rule sets the stage for EPA to “tailor,” that is amend, the Clean Air Act so that the agency can delay imposing pre-construction and operating permit requirements on small business, which would surely ignite a political backlash.

So thanks to the endangerment finding, EPA not only gets to play in NHTSA’s fuel-economy sandbox, and extend its tentacles throughout the economy, it also gets to play lawmaker, violating the separation of powers.

In light of all the new powers EPA now expects to wield, it is hardly surprising that EPA never made the strong case against Clean Air Act regulation of CO2 in Massachusetts v. EPA. Here’s what EPA should have argued:

• EPA cannot regulate GHG emissions from new motor vehicles under Sec. 202 of the Clean Air Act without regulating CO2 under the Act as a whole. 
• Aplying the Act as a whole to CO2 leads ineluctably to “absurd results” that contravene congressional intent.
• Therefore, Congress could not have intended for EPA to regulate GHG emissions under Sec. 202.

Did EPA throw the fight in the 11th round? I dunno, but losing the Massachusetts case was surely sweet victory to those in the agency who long to regulate America into a ”clean energy future.” The Massachusetts decision laid the groundwork for EPA to deal itself into a position to bypass the people’s elected representatives, impose its will on the auto industry, and, in time, dictate national climate and energy policy.

What happens if Congress enacts Sen. Murkowski’s resolution, nixes the endangerment finding, and mothballs the GHG/fuel economy rule? The authority to make law and national policy returns to where the framers of the Constitution intended — the people’s elected representatives.

Instead of exercising its “judgment,” as required by Sec. 202 of the Clean Air Act, to determine whether greenhouse gas (GHG) emissions endanger public health and welfare, EPA largely deferred to the judgment of an external agency not subject to U.S. data quality and freedom of information laws — the United Nations Intergovernmental Panel on Climate Change (IPCC).

The IPCC developed three lines of evidence for its conclusion that GHG emissions are causing dangerous global warming. The first is based on the IPCC’s understanding of the physics of the climate system. The second is the claim that recent decades are unusually warm compared to previous centuries during the current interglacial period known as the Holocene. The third line of evidence is the asserted agreement between observations and computer model simulations.

Peabody Energy’s 240-page petition for reconsideration assesses these lines of evidence in light of new information not in EPA’s possession when it drafted the endangerment finding. Much of this new information is contained in the thousands of emails and other files that produced the Climategate scandal. The files and emails provide an insider’s look at the professional (or unprofessional) behavior of leading climate scientists at the UK’s Climate Research Unit and their colleagues in the United States. This scandal has led to the resignation (allegedly temporary) of Dr. Phil Jones as director of the CRU and an official determination that the CRU violated the UK’s freedom of information act. 

Peabody concludes that the Climategate files undermine each of the IPCC’s principal lines of evidence, and confirm what many climate “skeptics” had long suspected:

The CRU information reveals that many of the principal scientists who authored key chapters of the IPCC scientific assessments were driven by a policy agenda that caused them to cross the line from neutral science to advocacy. Indeed, they went far beyond even what is acceptable as advocacy, as they actively suppressed information that was contrary to the “nice, tidy story” that they wished to present, they refused to disclose underlying data concerning the studies in which they were involved to third parties who might use the information to critique those studies, they engaged in a wide variety of improper and indeed unethical tactics to manipulate the type of scientific information that appeared both in the IPCC reports and in the peer-reviewed scientific journals upon which the IPCC largely relied, and they relied on inaccurate and unverified information from secondary source material that was included anyway to advance the authors’ advocacy agenda. Moreover, the Information Commissioner’s Office of the United Kingdom (“U.K.”), the agency that oversees and enforces the U.K.’s freedom of information laws, after investigation, recently concluded that CRU broke those laws in refusing to respond to information requests.

EPA’s only reasonable course of action, Peabody argues, is to reopen the endangerment proceeding:

EPA has effectively delegated its judgment under section 202(a) of the CAA to an international body that acted contrary to basic U.S. standards of information quality, integrity and transparency. In the interests of good science and policy, and as required by law, EPA must now reconsider its Endangerment Finding in light of the CRU revelations. The importance of low-cost, reliable energy to the economy is too high for EPA to begin regulation based on such an uncertain foundation.