Marlo Lewis

Waxman-Markey: What’s new, what’s old?

by Marlo Lewis on May 15, 2009

Today, Reps. Henry Waxman (D-CA) and Ed Markey (D-MA) released a new 932-page version of their cap-and-trade bill and a summary explaining how emission allowances will be allocated.

President Obama had campaigned on a cap-and-trade plan in which 100% of the emission allowances would be auctioned. His FY 2010 Budget also calls for a 100% auction system (pp. 21 and 100), generating anywhere from $646 billion to nearly $2 trillion in revenues over ten years.

Of course, the last thing companies subject to emission caps want to do is pay $646 billion or more for the right to produce or use energy. So U.S. CAP, the main corporate lobby for cap-and-trade, lobbied for a system with mostly free rationing coupons, and that’s what they got.

Under the revised Waxman-Markey bill, from 2012 through 2025, the electricity sector will receive 35% of the allowances gratis and natural gas distribution companies will receive 9%, with free distributions phasing out from 2026 through 2030. In all, 85% of the rationing coupons are allocated free-of-charge to industry and other interests.

The bill instructs gas and electric utilities to use the free allocations to “protect consumers” from ”price increases.” This is odd. The whole point of cap-and-trade is to raise energy prices. As candidate Obama said in a moment of candor, electricity prices will “necessarily skyrocket.” That’s how cap-and-trade discourages consumption, which reduces emissions. It’s also how cap-and-trade rigs the market in favor of non-carbon energy, which also supposedly reduces emissions.

Perhaps what Waxman and Markey mean is that U.S. utilities will not be allowed to double-dip as European utilities did in Europe’s Emission Trading System (ETS). European utilities got emission allowances for free but claimed them as an expense and then passed the imaginary costs on to customers by raising electric rates (see pages 43-46 of Open Europe’s report on the ETS).

Does this mean Waxman-Markey would not have severe economic impacts of the sort the Heritage Foundation projects in its May 13, 2009 study? No!

The Heritage study estimates that by 2035, the Waxman-Markey cap-and-trade plan will:

  • Reduce aggregate gross domestic product (GDP) by $7.4 trillion,
  • Destroy 844,000 jobs on average, with peak years seeing unemployment rise by over 1,900,000 jobs,
  • Raise electricity rates 90 percent after adjusting for inflation,
  • Raise inflation-adjusted gasoline prices by 74 percent,
  • Raise residential natural gas prices by 55 percent,
  • Raise an average family’s annual energy bill by $1,500, and
  • Increase inflation-adjusted federal debt by 29 percent, or $33,400 additional federal debt per person, again after adjusting for inflation.

The Heritage folks are undoubtedly going to re-crunch the numbers in light of changes made to the bill.

However, the big picture should not change just because Waxman and Markey have decided to distribute 85% of the ration coupons free-of-charge. What chiefly determines any cap-and-trade scheme’s macro-economic and energy price impacts are the stringency of the caps, not how allowances are distributed under the caps.

As the caps tighten, the number of ration coupons declines, and so does the supply of carbon-based energy. As the supply falls relative to demand, energy prices increase, which then reduces economic output and employment.

So don’t be fooled! Electricity and fuel prices will reflect allowance prices, which will be determined by supply and demand, not by whether the allowance was initially auctioned or handed out for free. Think of it this way. The price at which a scalper can sell Super Bowl tickets outside the stadium is the same whether he buys the tickets himself or finds them on the ground.

It is therefore noteworthy that although the caps are identical in both versions of the bill from 2030 through 2050, the caps are generally less restrictive in the revised bill from 2012 through 2029. For example, the original version caps 2020 emissions at 4,873 million metric tons, the revised version at 5,056 mmt. 

I’m counting on our friends at Heritage to explain what these changes mean in terms of jobs, energy prices, and GDP. Once thing is certain. The bill is still a de facto energy tax; and if enacted, it will still be the biggest tax hike in American history.

Digital economy increases emissions: Mark Mills gets last laugh

by Marlo Lewis on May 14, 2009

Back in 1999 and 2000, a fierce debate raged as to whether digital networks and devices increase or decrease electricity consumption and emissions.  Does the growth of the digital economy jeopardize the Kyoto agenda by increasing emissions? Or is the Internet a “green” force reducing our energy and carbon intensity?

On one side of the debate, researchers at the Lawrence Berkeley National Laboratory argued that the Internet could help reduce emissions by, for example, promoting telecommuting, online shopping, and efficient supply-chain management. On the other side, technology analyst Mark Mills and co-author Peter Huber argued that the rapid proliferation of digital devices and networks was increasing demand for high-quality (largely coal-based) power.

The Berkeley Lab researchers directed a lot of fire at Mills’s ”ballpark” estimate that Internet-based equipment and networks already accounted for 8% of U.S. electricity demand. I won’t try to settle that part of the controversy.

However, a just-published study by the International Energy Agency (IEA) shows that Mills was right about the big picture. Climatewire (subscription required) gives the gist of the study in its headline: “Soaring electricity use by new electronic devices imperils climate change efforts.” Herewith a few highlights:

  • Efforts by countries worldwide to reduce greenhouse gas emissions and increase energy security are in trouble if nothing is done to check the energy gobbled by both information and communication technologies and consumer electronics.
  • Energy used by computers and consumer electronics will double by 2022 and increase threefold by 2030.
  • The projected increase is equivalent to the current combined total residential electricity consumption of the United States and Japan.
  • To operate these new devices, households around the world will spend around $200 billion in electricity bills and require the addition of approximately 280 Gigawatts (GW) of new generating capacity between now and 2030.
  • The number of people using PCs will exceed 1 billion over the next seven months, and nearly 2 billion television sets are in use worldwide, averaging more than 1.3 sets per each household with access to electricity.
  • More than 3.5 billion people will be mobile phone subscribers by 2010.
  • In many households in OECD countries, electronic devices–a category that includes televisions, desktop computers, laptops, DVD players and recorders, modems, printers, set-top boxes, portable telephones, answering machines, game consoles, audio equipment, clocks, battery chargers, mobile phones and children’s games–consume more electricity than do traditional large appliances.
  • Household use of electronic devices is the major reason that residential electricity consumption is increasing in most countries.
  • Computers, related equipment and consumer electronics are responsible for close to 15 percent of total residential electricity consumption today, a share similar to that of other major appliance categories such as water heating or refrigeration.
  • Even with improvements foreseen in energy efficiency, consumption by electronics in the residential sector is set to increase by 250 percent by 2030.
  • “The share of electricity consumption by these appliances is therefore increasing to the extent that they will most likely comprise the largest end-use category in many countries before 2020, unless effective steps are taken,” said IEA Executive Director Nobuo Tanaka in a press release.
  • “These estimates suggest that total residential electricity consumption will increase more than many previous forecasts, and therefore pose a serious challenge to all governments with policy ambitions to increase energy security and economic development, and to mitigate climate change,” states the report.

Criticism of Huber and Mills got pretty nasty at times. But, as the old adage says: He who laughs last, laughs best.

“Bush holdover” is career civil servant hired during Clinton

by Marlo Lewis on May 14, 2009

Team Obama was embarrassed earlier this week when a leaked interagency memorandum  acknowledged that EPA’s proposed finding that greenouse gases endanger public health and welfare could impose severe economic burdens on small business. The memorandum said, in part: 

 Making the decision to regulate CO2 under the CAA [Clean Air Act] for the first time is likely to have serious economic consequences for regulated entities throughout the U.S. economy, including small businesses and small communities.  Should EPA later extend this finding to stationary sources, small businesses and institutions would be subject to costly regulatory programs such as New Source Review.

An unnamed Administration official dismissed the memo on the grounds that it was written by a “Bush holdover.”

Rep. Darrell Issa (R-CA), Ranking Member on the House Government Reform and Oversight Committee, takes issue with the Administration’s spin on two counts. First, the “holdover” put-down is an ad hominem argument–as if merely being associated with Bush is sufficient to discredit whatever the memo author has to say.

Second, and more importantly, it is untrue! The so-called Bush holdover, Issa reports, is “a career civil servant who was originally hired during the Clinton Administration and worked at one time for a Democratic Member of Congress. Shawne Carter McGibbon is now Acting-Chief Counsel, keeping the office running until a Chief Counsel for Advocacy is confirmed by the Senate.”

Kudos to Mr. Issa for setting the record straight–and to Ms. McGibbon for speaking truth to power.

Suitable for framing: Barton op-ed on Waxman-Markey

by Marlo Lewis on May 12, 2009

Energy and Commerce Ranking Member Joe Barton (R-TX) hits a home run in this oped, which says everything you need to know about the Waxman-Markey cap-and-tax bill.

Annual biofuel subsidies will hit $60 billion in 2022 — Earth Track

by Marlo Lewis on May 12, 2009

Doug Koplow of Earth Track, assisted by researchers with Friends of the Earth, has produced a new study, A Boon to Bad Biofuels, on the taxpayer cost of federal biofuel tax credits and mandates. The numbers are staggering.

In 2008, federal support for ethanol and biodiesel totalled more than $9.5 billion. The subsidy system has two main components:

  1. The Renewable Fuels Standard (RFS), which mandates increased blending of biofuels into the national motor fuel supply, ramping up from 9 billion gallons in 2008 to 36 billion in 2022.
  2. Tax credits including the Volumetric Ethanol Excise Tax Credit (VEETC), which pays out $0.45 for each gallon of corn ethanol; a parallel program for biodiesel worth $1.00 per gallon; and a production tax credit that pays $1.01 for each gallon of cellulosic ethanol produced.

“In their current form, these tax credits scale linearly with production, without limit,” notes Koplow. This means that the $9.5 billion in subsidies in 2008 increases six-fold to $60 billion in 2022, “due both to more production and to a shift to more heavily subsidized cellulosic fuels.” The cumulative cost from 2008 to 2022: $420 billion, nearly 40% of which will go to the corn industry.

But wait, there may be more. As a candidate, Obama proposed to up the RFS to 60 billion gallons by 2030. If this proposal is adopted, “subsidies would top $120 billion per year by the end of the period, for a cumulative subsidy during the 2008-2030 period of more than $1 trillion.”

Kudos to Koplow and his colleagues at Friends of the Earth for this important contribution.

How long will Sen. Barrasso’s “hold” on Regina McCarthy hold?

by Marlo Lewis on May 11, 2009

in Blog

Maybe forever! 

On April 30, Sen. John Barrasso (R-WY) placed a hold on the nomination of Regina McCarthy as Assistant Administrator of the EPA Office of Air and Radiation. “The nominee has failed to address serious concerns” about how the EPA would regulate greenhouse gases (GHGs) under the Clean Air Act, once the Agency finalizes its endangerment finding, Barrasso stated. 

The endangerment finding will compel EPA to establish GHG standards for new motor vehicles. This will make carbon dioxide (CO2) a pollutant “subject to regulation” under the Act’s Prevention of Significant Deterioration (PSD) pre-construction permitting program. An estimated 1.2 million previously unregulated buildings and facilities emit enough CO2 each year (250 tons) to qualify as “major stationary sources” under the PSD program. All would become vulnerable to new controls, monitoring, paperwork, penalties, and litigation. In 2003, the average PSD permit cost each applicant $125,120 and 866 burden hours to obtain.

Last week, Sen. Barrasso asked Ms. McCarthy how she would protect small businesses from PSD lawuits. The nominee replied that she will “request that I be informed if any such notice is filed with regard to a small source, and I will follow up with the potential litigants.” Barrasso commented: “The solution to this problem is not to have government officials go around asking litigants not to sue. That is not a solution and entirely unrealistic. I expect more.”

Short of amending the Clean Air Act, however, there may be no solution–which means Sen. Barrasso may have to keep the “hold” on for a very long time. The law clearly states that an entity must obtain a PSD permit before it builds or modifies a facility with the potential to emit 250 tons per year (TPY) of a regulated air pollutant, and all kinds of non-industrial facilities–office buildings, big box stores, apartment complexes, enclosed malls, heated warehouses, even commercial kitchens–actually emit 250 TPY of CO2.

In his press release, Barrasso cites a Wall Street Journal article stating that Kassie Siegel, Director of the Center for Biological Diversity’s Climate Law Institute, plans to sue EPA if the Agency does not apply PSD requirements to small sources. Siegel denied this in an email to Greenwire (subscription required): “The Center for Biological Diversity is not going to sue the EPA to regulate small sources of carbon dioxide, nor is anyone else.” But she cannot possibly know that no NIMBY activist somewhere will not file a PSD suit to block or delay construction of new Wal-Mart stores, strip malls, fast food restaurants, etc.

Besides, as Borrasso pointed out in a press release last Friday, in its comment on EPA’s Advanced Notice of Proposed Rulemaking, the Center for Biological Diversity lauds the PSD program as “an effective tool for reducing GHG emissions” precisely because ”it applies to a wide array of sources that will emit in excess of the applicable statutory thresholds of 250 or 100 tons per year.”

The Center further comments that, “the asserted belief of EPA officials that the statutory requirements are burdensome or not ‘efficient’ as they should be simply does not excuse the agency from following the law. The EPA has no authority to weaken the requirements of the statute simply because political appointees don’t like the law’s requirements.”

The Center files lots of lawsuits, and they just established a $17 million litigation fund to ensure that U.S. environmental statutes are “fully implemented” to reduce GHG emissions. In keeping with this, the Center’s ANPR comment argues that EPA “must” establish National Ambient Air Quality Standard (NAAQS) for CO2 of no more than 350 parts per million. Even outright de-industrialization of the United States would likely be insufficient to meet that standard. Maybe that’s why the Center has no plan to sue EPA to regulate small sources. If the Center successfully sues EPA to set NAAQS for CO2 at 350 ppm, there won’t be many businesses left to regulate.

David Bookbinder, chief climate council for the Sierra Club, similarly dismissed Borrasso’s concerns about PSD regulation of small sources. Asked what his response to Borrasso would be, Bookbinder told BNA (subscription required): “Nothing you could print.”

Yet earlier this year, the Sierra Club decided not to put a stay on Bush EPA Administrator Stephen Johnson’s interpretative rule limiting PSD to air pollutants currently subject to emission controls–a category that does not include CO2. Bookbinder acknowledged to Greenwire that if Johnson’s rule were simply overturned, EPA would have to regulate small sources of CO2. He explained: ”The Clean Air Act has language in there that is kind of all or nothing if CO2 gets regulated, and it could be unbelievably complicated and administratively nightmarish for both EPA and the states if they were to yank the Johnson memo and not have something in place that makes it clear that we’re going after only the very large sources.”

The real nightmare would be for the firms regulated, not the regulators. Like Siegel, Bookbinder presumes to speak for all potential litigants. In reality, neither Sierra Club nor Center for Biological Diversity has a monopoly on Clean Air Act litigation. The law is clear–250  tons is the threshold for regulation. And all it takes is one NIMBY activist to file the citizen suit that forces EPA to follow the law.

President Obama could quickly fix the whole problem if he wanted to. All he’d have to do is offer legislation to preclude EPA regulation of greenhouse gases under the Clean Air Act. Nearly all Republicans and many Democrats in Congress would vote for it, because it would protect our ailing economy from litigation-driven regulatory excess.

But Obama will not do this, because he wants to use the threat of EPA regulation under the Clean Air Act as a legislative hammer to beat opponents of the Waxman-Markey cap-and-tax bill into submission. This is too clever by half, however, as I argue here and here. If EPA does bring the might and fury of the Clean Air Act down upon CO2 emitters, Obama will have to take major responsibility for the increase in energy prices, the lost jobs, and the shuttered businesses.

Eco-sailors rescued by oil tanker

by Marlo Lewis on May 6, 2009

in Blog

“An expedition team which set sail from Plymouth [England] on a 5,000-mile carbon-emission free trip to Greenland have been rescued by an oil tanker,” BBC News reports. The crew’s solar and wind powered vessel capsized three times in stormy weather (68 mph winds). So far, at least, nobody has blamed global warming for the bad weather.

The irony of an oil tanker rescuing anti-fossil fuel crusaders was of course not lost on the BBC. The moral of the story should be obvious. Environmentalism is a luxury made possible by the comparative wealth and safety of a civilization powered predominantly by coal, oil, and natural gas. Restricting and, ultimately, prohibiting fossil energy use is a recipe for disaster and death.

So, have any of the eco-sailors had a change of heart or even second thoughts about the alleged evils of fossil fuels? The BBC report does not say, which probably means none did.

So, Mr. Waxman, how much global warming will your bill avert?

by Marlo Lewis on May 6, 2009

in Blog

The Waxman-Markey cap-and-trade (energy tax) bill aims to reduce U.S. greenhouse gas emissions 20% below 2005 levels by 2020, 42% below by 2030, and 83% below by 2050. The cumulative cost in reduced GDP would likely total trillions of dollars. How much bang would we get for the buck?

Today, on Masterresource.org, climate scientist Chip Knappenberger shows by the numbers that the Waxman-Markey bill “will have virtually no impact on the future course of the earth’s climate.”

To calculate the climatic effects of the bill, Chip uses the MAGICC* climate model developed by the National Center for Climate Research, and assumes a climate sensitivity of 3°C (in other words, a doubling of atmospheric greenhouse gas concentrations above pre-industrial levels is assumed to produce 3°C of warming).

MAGICC reveals that an 83% reduction in U.S. emissions “will only produce a global temperature ’savings’ during the next 50 years of about 0.05ºC.”  Translating a bit, the temperature reduction is nine hundredths of one degree Fahrenheit, or two years of avoided warming.

* Model for the Assessment of Greenhouse-gas Induced Climate Change

Flex-fuel mandates: throwing bad regulation after bad

by Marlo Lewis on May 5, 2009

Rent-seeking–the whoring after market-rigging rules and subsidies–is a true addiction, an appetite that grows with feeding. For the ethanol lobby, it’s not enough that government props up their product with Soviet-style production quota, protective tariffs, a 45-cent-per-gallon blenders tax credit, R&D handouts, and other support. Like the Johnny Rocco character portrayed by Edward G. Robinson in the Bogart and Becall classic Key Largo, the ethanol lobby always wants “more.”

And there are always well-meaning politicians happy to oblige. Rep. Eliot Engel (D-NY) and Sen. Sam Brownback (R-KS) have introduced bipartisan legislation (HR 1476, S. 835) requiring each automaker to ensure that at least 50% of the vehicles it manufactures or sells are flex-fuel by 2012 and at least 80% by 2015. A flex-fuel vehicle is one that can run on either regular gasoline or E-85 (a blend containing 85% ethanol), or anything in between.

Supporters acknowledge that flex-fuel technology will add about $100 to the purchase price of a new car. But, they claim, this expense will be more than offset by the reduction in fuel costs. That’s an interesting theory. However, according to www.fueleconomy.gov, a Web site jointly administered by DOE and EPA, it costs hundreds of dollars more annually to fill up a flex-fuel vehicle with E-85 than with regular gasoline. No wonder so few people buy flex fuel vehicles!

When will mandatists learn? If the combination of flex-fuel vehicles and E-85 is such a great bargain, consumers will demand them, and profit-seeking companies will produce and deliver them for sale, all without regulatory coercion. Alternatively, if the flex-fuel/E-85 package is not a good buy, no amount of government meddling can make it so.

For further discussion, see my post today on www.Masterresource.org.

Is Texas the new California?

by Marlo Lewis on April 24, 2009

in Blog

Texas, once known for its oil tycoons and cattle barons, is now a stage on which renewable-energy moguls preen and strut. But whereas demand for Texas oil and cattle was market-driven, the State’s renewable boom is a creature of politics.  Robert L. Bradley, Jr., an historian of political capitalism, chronicles the lastest chapter in the Lone Star State’s patronage of Big Green here.

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