Post image for Social Cost of Carbon: How to Make Fossil Fuels Look Unaffordable No Matter How Low the Market Price

In a recent post, I discussed how the pseudo-science of social cost of carbon (SCC) estimation can be used to repackage uneconomic renewables as a bargain at any price. A White Paper by electric power industry analyst Bob Kapplemann makes the same point but, in addition, explains it by the numbers.

As background, the SCC is an assumption-driven guestimate of the long-term damage allegedly resulting from an incremental ton of carbon dioxide (CO2) emissions. In May 2013, the Obama administration’s Interagency Working Group on the Social Cost of Carbon published “updated” SCC estimates that were about 60% higher than its 2010 estimates.

Kappleman’s concise (4-page) White Paper contains three tables. Table 1 illustrates the current wide range of SCC estimates ($12-$129/metric ton CO2 in the administration’s 2013 update; $306/ton according to the Natural Resources Defense Council).

Table 2 illustrates how easily SCC estimation can make low-cost power look unaffordable. The administration attributes over $210 million a year in social costs to a 600 MW pulverized coal power plant and over $74 million a year to a natural gas combined cycle plan. In the case of the coal plant, the CO2 portion of the costs is 75% and in the case of the gas plant, CO2 is 97% of the costs.

Table 3 illustrates how easily SCC estimates can make wind, solar, and biomass look cheaper than energy from coal-fired power plants, and make “even radical reductions” in existing coal-fired generation look economically justified.

Let’s look at the tables and the accompanying figure explanations.

SCC White Paper Table 1

Figure explanation: As discussed previously, in addition to using non-validated climate sensitivity assumptions and completely speculative damage functions, the Interagency Working Group, flouting OMB best practices, further inflated its SCC estimates by not using a 7% discount rate and by not estimating the domestic SCC.  [click to continue…]

Post image for EPA Scales Back Ethanol Mandate for First Time!

For the first time in the history of the federal Renewable Fuel Standard (RFS) program, the Environmental Protection Agency today proposed to scale back the government’s overall biofuel blending target for the forthcoming year. Specifically, the EPA is proposing to cut the 2014 blending target from 18.15 billion gallons to 15.21 billion gallons.

Market realities forced the agency’s hand. Like all central planning schemes, there comes a point where even the commissar has to admit that it’s just not working.

Two factors compelled the EPA to make this adjustment. One is that the RFS requires obligated parties – refiners, blenders, and fuel importers – to sell 1.75 billion gallons of cellulosic ethanol in 2014. However, despite years of research and taxpayer support, commercial production of cellulosic biofuel was only 20,000 gallons last year.

The second factor is the blend wall — the maximum quantity of ethanol that can be sold each year given legal or practical constraints on how much can be blended into each gallon of motor fuel. The most common blend today is E10 — motor fuel with up to 10% ethanol. Although the EPA approved the sale of E15 in October 2010, potentially increasing by 50% the total amount of ethanol sold annually, lack of appropriate fueling infrastructure, warranty and liability concerns, and consumer skepticism effectively limit the standard blend to E10.

The EPA’s proposal is a welcome step in the right direction but does not go nearly far enough. Nobody likes the RFS program except the special interest groups who directly profit from it. Even as environmental policy, the RFS is a bust, as an extensive AP investigation published this week confirms.

Even if the RFS did not inflate food prices, increase pain at the pump, exacerbate world hunger, expand aquatic dead zones, or contribute to habitat loss, Congress should still repeal it, because the RFS flouts the core constitutional principle of equality under law. [click to continue…]

Post image for Re-Revised King James Bible for the Green Investor

Why do wind and solar power generate a mere 3.46% and 0.11% of U.S. electricity, respectively, despite billions of dollars in taxpayer and ratepayer subsidies and Soviet-style production quota for renewable electricity in 29 states?

The chief reason is the inherent economic and technical drawbacks of high-cost, low-density, intermittent energy.

A more politically-correct explanation these days is the so-called Valley of Death — a period when a high-tech startup firm may perish from poor or negative cash flow before it has had a chance to commercialize its invention.

Although most technology startups fail, the Valley supposedly got even deadlier for greentech companies in recent years. As Bloomberg BusinessWeek reporter Christopher Martin put it, “Hundreds of U.S. cleantech startups find themselves stuck on the road to serious revenues because of the toxic combination of a stalled economy, scarce funding, and Washington’s failure to enact comprehensive climate and energy legislation.”

The Department of Energy’s Stimulus loan guarantee program, administered under Section 1705 of the 2005 Energy Policy Act, was designed to plug the “funding gap” and shepherd greentech companies through the Valley of Death. Yet several recipients of DOE loan guarantees failed, most notably solar panel manufacturer Solyndra, which burned through more than half a billion taxpayer dollars before filing for bankruptcy. What went wrong?

Solyndra’s execs were counting on Congess to enact the Waxman-Markey legislation, with its cap-and-trade scheme and renewable electricity mandates. Like President Obama, they believed regulations handicapping fossil fuels would make renewable energy “the profitable kind of energy” in America. Rigging energy markets may indeed enrich campaign contributors; it can only make society as a whole poorer. But I digress.

The ongoing debate on DOE’s role as green venture capitalist (socialist?) inspired my colleague, Heritage Foundation economist David Kreutzer, to compose a psalm. I post it here with his permission.

[click to continue…]

Post image for Tenth Circuit Ruling Bodes Poorly for Legal Challenges to Impending GHG Rule

In March 2012, EPA disapproved Oklahoma’s Regional Haze plan to improve visibility and, in its stead, imposed a federal plan that cost $1.8 billion more, but which failed to achieve a perceptible improvement over the state’s plan. Oklahoma Attorney General Scott Pruitt sued over EPA’s all-pain, no-gain Regional Haze plan in the Denver-based 10th Federal Circuit Court of Appeals, which, in July, sided with EPA in a two-to-one majority decision. Subsequently, AG Pruitt petitioned to have the entire 10th Circuit Court hear the state’s appeal. On October 31st, the court denied AG Pruitt’s petition without explanation. The state’s final recourse is to appeal to the U.S. Supreme Court.

The 10th Circuit’s ruling, if it stands, establishes a troubling precedent that could adversely affect future legal challenges to EPA’s impending greenhouse gas regulations for existing power plants. Under the Regional Haze program, EPA is required to issue “guidelines” pursuant to which States must submit visibility improvement plans. Oklahoma argued that it followed the guidelines, so EPA was required to approve the state’s plan. EPA argued that the State did not follow the guidelines.  Under administrative law, courts grant EPA a tremendous degree of deference; the question before the 10th Circuit was: How much deference should EPA afford States? The answer, according to the court, is none. If EPA reasoned that the State didn’t follow the guidelines, then the agency’s word carries the day. (Click here to read why the court’s reasoning was flawed).

The legal structure of the section of the Clean Air Act for Regional Haze is nearly identical to the provision of the act that allegedly authorizes EPA to regulate greenhouse gases from existing power plants. As such, the 10th Circuit Court’s ruling suggests that States will have minimal leeway in complying with EPA guidelines for regulating greenhouse gases from existing coal-fired power plants. Environmentalist organizations are lobbying EPA to use the guidelines to impose a cap-and-trade scheme on the States.

Post image for Keystone XL Pipeline: What Are the Core Issues?

In the protracted conflict over the Keystone XL Pipeline, too much attention is paid to peripheral issues and not enough to the core issues.

Peripheral issues include whether the pipeline will create many or few jobs, lower or raise Midwest gasoline prices, reduce or increase the risks of oil spills, reduce or increase incremental greenhouse gas emissions.

Why are those issues peripheral?

Let’s begin with oil spill risk and gas prices. Surely if Keystone is built, there will be incidents of leaks and spills. There will also be regional effects on gas prices. But look at the big picture. The State Department (ultimately, President Obama) is supposed to make a “national interest determination” about the pipeline. The U.S. already has more than 2.5 million miles of oil and gas pipelines.

Oil and gas pipelines map U.S.

Can anyone argue with a straight face that the U.S. national interest is harmed by those pipelines? That adding another 1,179 miles of pipeline will push America over some kind of national interest ‘tipping point’? That we would be better off shipping all oil and petroleum products by truck, train, and barge? Or that we’d be even better off if there were no oil companies?

Humanity has been there, done that. It’s called medieval squalor. [click to continue…]

Post image for Gone with the Wind: Is an Energy Technology Sustainable If It Cannot Sustain Itself?

If this past year is any indication, wind energy may become little more than a dream remembered. That is, unless the government continues to step in to support the industry. According to the American Wind Energy Association (AWEA), only seventy mw of wind power was added to the nation’s power supply; the slowest increase since recordkeeping began in 2005. The cause of the decrease in the rate of expansion is attributed to uncertainty building up at the end of last year over whether there would be an extension of the Federal Wind Production Tax Credit (PTC) in 2013.

Tom Kiernan, the CEO of AWEA, describes last year’s uncertainty as engendering a boom-bust cycle, delaying the planning of new projects for 2013. What Kiernan says, however, is misleading.  It is not the uncertainty over the wind PTC that created this problem. The problem comes from the wind energy boom generated by the cash grant program of the American Recovery and Reinvestment Act, or section 1603.

As Lisa Linowes explains on MasterResource.org:

 We’ve long known that Section 1603, the cash grant program enacted under The American Recovery and Reinvestment Act of 2009 (ARRA), fueled a wind bubble that was certain to burst, and it did.

Under 1603, roughly 30,000 megawatts of new wind was installed, more than doubling the wind capacity in the country. As much as 90% of the 13,000+ MW of wind installed last year alone can be attributed to Section 1603, not the PTC.


In order to receive the grant, projects needed to be in-service by the end of 2012. Developers raced to meet the deadline which flushed the industry’s project pipeline.

This is a clear example of the knowledge problem; government inefficiently allocating resources (in this case, wind subsidies) when the market would provide a better solution. [click to continue…]

Post image for Study Finds Cap-and-Trade Did Not Cause Business Flight from EU (but is no vindication of Kyoto-style policy)

A study by Netherlands-based consulting firm Ecorys finds that during 2005-2012, no EU firms relocated overseas to avoid costs associated with the European emissions trading system (ETS).

Note: The study does not spin this finding as evidence that carbon regulation is good for business or poses no risks to EU economies.

Why haven’t firms moved out of Europe to avoid the higher costs imposed by the ETS?

The main reason is simply that the direct costs of the ETS have been “very limited.” According to a Greenwire article on the study, “emission allowances this year slumped to a record low of $3.36 a metric ton in April amid a record surplus of permits due to the global recession.”  For perspective, that works out to gasoline tax of 3.3 cents per gallon.

Permit prices were low because allocations were higher than required to meet projected demand – and then demand plummeted due to the recession and “lower production.”

Reducing costs even further is the fact that “most allowances were allocated to installations for free.”

A second reason the ETS did not trigger a business exodus is that relocating a company is itself costly. The ETS increased electricity prices, and this was “quite a relevant factor” to industry. However, “Most industry has heavy upfront investments (sunk costs) so they will not quickly move production. The lead-times for moving industrial production facilities are easily over 10 years.”

A third reason – strangely not mentioned in the study – is that EU governments enacted “compensation funds” to subsidize ETS-covered manufacturers and keep them from offshoring their operations. [click to continue…]

Post image for Will the Bureau of Land Management Blow the Obama Administration’s Cover — and Openly Declare War on Coal?

“The Bureau of Land Management is scrapping its decision to lease more than 600 acres of land to Peabody Energy Corp,” reports Manuel Quiñones in today’s Greenwire (subscription required).  The article continues:

WildEarth Guardians, an environmental group active in fighting coal leases around the country, appealed BLM’s decision to the Interior Board of Land Appeals (IBLA) in August.

But in a surprise move, instead of standing by its decision, based on an environmental assessment (EA) and finding of no significant impact (FONSI), BLM this month agreed with the need for more study. And yesterday IBLA judges agreed with sending the case back to BLM.

So the BLM will have to redo the EA to address what WildEarth Guardians, in their petition, call the “potentially significant indirect and cumulative impacts of the proposed lease.” What happens then?

My guess is the project will be approved. Team Obama is waging a war on coal but, for obvious political reasons, continues to deny it. BLM would totally blow the administration’s cover if, after revising the EA, it rejects the lease.

Clearly, WildEarth Guardians would like nothing better than for BLM to reject the lease on climate change grounds:

“We can’t possibly begin to tackle global warming by stripping more coal from the ground,” said WildEarth Guardians climate and energy chief Jeremy Nichols in response to the latest developments.

“With New Mexico bearing the brunt of climate change in the Southwest, including diminished rivers, extreme weather and soaring fire risks, every ton of coal kept in the ground is a ton of progress made toward safeguarding the people and places of the Southwest,” he said. [click to continue…]

Post image for EPA Meetings on Coal Regulations Exclude Those Living in Coal Producing Regions

Following EPA’s  proposal to implement regulations forcing coal power plants to reduce emissions, EPA Administrator Gina McCarthy announced that her agency would be holding eleven public listening sessions around the country to discuss EPA’s plans and to receive feedback from the public (Atlanta, GA, Boston, MA, Chicago, IL, Dallas, TX, Denver, CO, Lenexa, KS, New York, NY, Philadelphia, PA, San Francisco, CA, Seattle, WA, Washington, DC). Coal power plant operators have repeatedly said these regulatory standards cannot be met without either adopting a technology (carbon capture ans sequestration) that doesn’t yet exist, or switching to another fuel. Notably, only one meeting is being held in a city located in a state ranked in the top ten coal producing state.

It would seem the administration has no intention of promoting legitimate debate as it excludes the very people who are affected most by these regulations.

Congress is outraged by the omission of impacted states from EPA’s listening tour destinations. Last Friday, 41 House representatives sent a letter to the EPA demanding to know why the proposed meeting sessions are not in the regions they affect.

These closed and existing power plants are not located in any of the areas you are holding these listening sessions. In all fairness, residents and businesses in rural areas deserve to be heard just as much.

There’s a simple reason EPA would prefer to not listen to people from coal-reliant regions: The agency’s regulations threaten jobs for no purpose, other than the placation of a special interest.

If the administration is sincere about addressing the concerns of the public, they should be holding these public listening sessions in cities located in states with the highest coal production such as Charleston, Cheyenne, Frankfort, Harrisburg, and Helena. These are the cities most accessible to people affected by the regulations and where people stand the greatest risk to lose their entire way of life.

Post image for Social Cost of Carbon: How to Repackage Uneconomic Renewables as a Bargain at any Price

As a pretext for expanding political control of the economy, redistributing wealth, and bilking consumers for the benefit of special interests, nothing beats the pseudo-science of social-cost-of-carbon estimation.

A new study by economists Laurie Johnson, Starla Yeh, and Chris Hope, The Social Cost of Carbon: Implications for Modernizing Our Electricity System, has the unintentional virtue of exposing what a menace SCC analysis has become.

Before examining the Johnson, Yeh, Hope (JYH) study, let’s review some preliminaries. [click to continue…]