Harrison Schmitt and William Happer wrote an excellent op-ed last week in the Wall Street Journal titled, “In Defense of Carbon Dioxide.” In the op-ed, Schmitt and Happer build a solid case for the benefits, as opposed to costs, occurring from an increase in the much maligned carbon dioxide.  Schmitt, who is an Adjunct Professor of Engineering at University of Wisconsin-Madison, has a distinguished reputation as an Apollo 17 astronaut and was formerly a US Senator from New Mexico. Happer is a Professor of Physics at Princeton University and was also the former director of the office of energy research at the Deparment of Energy.

According to Schmitt and Happer, rising levels of carbon dioxide in the atmosphere have not led to the dramatic temperature increases some models have anticipated. In fact, the increase in carbon dioxide has been beneficial. Schmitt and Happer explain:

The current levels of carbon dioxide in the earth’s atmosphere, approaching 400 parts per million, are low by the standards of geological and plant evolutionary history. Levels were 3,000 ppm, or more, until the Paleogene period (beginning about 65 million years ago). For most plants, and for the animals and humans that use them, more carbon dioxide, far from being a “pollutant” in need of reduction, would be a benefit. This is already widely recognized by operators of commercial greenhouses, who artificially increase the carbon dioxide levels to 1,000 ppm or more to improve the growth and quality of their plants.

Despite the strong argument both authors have made, several climate change alarmists have excoriated Schmitt and Happer.  In attempt to discredit the op-ed, these alarmists have resorted to using hackneyed arguments and insults to reaffirm their opposition to what they see as a flawed and misleading op-ed.  Gavin Schmidt called the op-ed, “idiotic”, and Phil Plait of Bad Astronomy, in a reference to the discredited “Hockey Stick Graph” claims the op-ed ignores the graph’s depiction of rising temperatures.

Contrary to the claims of these detractors, Schmitt and Happer’s op-ed is well-supported. According to numerous peer-reviewed studies, increases in carbon dioxide will lead to a “greening of the planet” as plants absorb the carbon dioxide allowing them to flourish well-beyond their current state.

Therefore, as Schmitt and Happer so ably demonstrate, it is imprudent for policymakers to continue to classify CO2 under the category of harmful “pollutants”.  By implementing such policies, we are being steered towards a disastrous outcome for our economic future.

Gina McCarthy — President Obama’s pick to succeed Lisa Jackson as EPA Administrator — is often described as a “straight shooter” and “honest broker.” As my colleague Anthony Ward and I explain in Forbes, McCarthy has a history of misleading Congress about the EPA’s greenhouse gas regulatory agenda.

Specifically, McCarthy and the Air Office over which she presides gave Congress and the electric power sector false assurances that the EPA’s greenhouse gas regulations would not require utilities planning to build new coal-fired power plants to “fuel switch” to natural gas. McCarthy also denied under oath that greenhouse gas motor vehicle standards are “related to” fuel economy standards, even though anyone with her expertise must know that the former implicitly and substantially regulate fuel economy.

McCarthy and the Air Office’s misleading statements about fuel switching discredited critics who claimed the EPA was waging a war on coal and would, if left to its own devices, ban new coal generation. The fiction that greenhouse gas emission standards are unrelated to fuel economy standards gave the EPA legal cover to gin up a regulatory nightmare for auto makers — the prospect of a market-balkanizing, state-by-state, fuel-economy ”patchwork“ – just so the White House, in hush-hush negotiations, could demand auto industry support for the administration’s motor vehicle mandates as the price for averting the dreaded patchwork. This is a complicated tale, which I will discuss in Part 2 of this series.

The bottom line is that if the EPA had not dissembled on fuel switching and not obfuscated on fuel economy, more Senators might have voted for legislative measures, sponsored by Sen. Lisa Murkowski (R-Alaska) in 2010 and Sen. James Inhofe (R-Okla.) in 2011, to rein in the agency. In addition to their well-publicized transparency concerns about the EPA under the leadership of Lisa Jackson and Gina McCarthy, Senators should also have separation of powers concerns.

Earlier this week, Sen. David Vitter (R-La.), Ranking Member of the Senate Environment & Public Works Committee, released a 123 page document containing McCarthy’s responses to hundreds of questions on a wide range of issues. In today’s post, I comment on McCarthy’s responses to Sen. Vitter’s questions about fuel switching. In Part 2 of this series, I will comment on McCarthy’s responses regarding the administration’s motor vehicle program.

The fuel switching issue is somewhat arcane, so it may be helpful if I provide a quick overview before commenting on McCarthy’s answers.

In April 2010, at an event hosted by the Johns Hopkins School of Advanced International Studies, McCarthy stated that best available control technology (BACT) standards for major greenhouse gas emitters would require only efficiency upgrades, not fuel switching from coal to gas. “We haven’t done it [fuel switching] in the past, and there’s been good reason why we haven’t done it in the past,” she reportedly said.

The Air Office’s permitting guidance for greenhouse gases, both as proposed in November 2010 and as adopted in March 2011, similarly states that the “initial list of control options for a BACT analysis does not need to include ‘clean fuel’ options that would fundamentally redefine the source.” In other words, coal power plants would not be lumped together with natural gas combined cycle (NGCC) power plants in the same industrial source category subject to the same emission standards. Accordingly, an applicant would not be required to “switch to a primary fuel type other than the type of fuel that an applicant proposes to use for its primary combustion process.”

Lest there be any confusion on this point, a Q&A document published along with the March 2011 guidance asks whether “fuel switching (coal to natural gas) should be selected as BACT for a power plant?” The document answers: “No.” It states that BACT for carbon dioxide (CO2) should “consider the most energy efficient design,” but “does not necessarily require a different type of fuel from the one proposed.”

In March 2012, however, the EPA proposed a ‘Carbon Pollution’ Rule that does exactly what McCarthy and the Air Office said the EPA would not do. The rule lumps coal power plants and NGCC plants into a single newly-minted industrial source category — “fossil fuel electric generating units.” Moreover, the rule requires fuel switching, proposing a new source performance standard (NSPS) — 1,000 lbs CO2/MWh — that nearly all new NGCC plants already meet (77 FR 22396) and exactly zero commercial coal power plants can meet.

What makes this volta face all the more unexpected is that BACT standards, which apply to individual facilities on a case-by-case basis, are generally more stringent than NSPS, which set minimum emission control standards for categories of industrial sources. In regulatory parlance, NSPS provide the ”floor” for BACT determinations. If the EPA would not use BACT to require fuel switching, then it would seem unreasonable – even paranoid – to suspect the EPA of planning to use NSPS for that purpose.

The timeline of these actions is critical. In June 2010, the Senate voted on Sen. Murkowski’s resolution (S.J.Res.26) to overturn the EPA’s Endangerment Rule, the prerequisite for all EPA global warming regulations. The resolution fell short by four votes (47-53). In April 2011, the Senate voted on Sen. Inhofe’s legislation to overturn all EPA global warming regulations except those auto companies had already made investments to comply with. The bill failed on a 50-50 tie vote. Had McCarthy and the EPA been candid about their anti-coal agenda in 2010 and 2011, more Senators might have voted for those measures.

In any case, agencies are not supposed to provide false or misleading information to influence how Members of Congress vote.

Let’s now see how McCarthy addresses these issues. Vitter’s questions are in bold type, McCarthy’s responses are indented, my comments are in blue.

BACT standards apply to individual sources on a case-by-case basis. They generally are more stringent – and by law may not be less stringent – than Clean Air Act new source performance standards (NSPS), which the EPA establishes for categories of industrial sources. In other words, NSPS are the “floor” or minimum emission control standards for BACT determinations. Is that correct?

Response: Yes. The Clean Air Act specifies that BACT for a source cannot be less stringent than an applicable NSPS. Thus, when EPA completes an NSPS for a source category, BACT determinations that follow for applicable sources would need to consider the levels of the pollutant standards and the supporting rationale of the NSPS.

Comment: The EPA’s ‘Carbon Pollution’ Rule proposes NSPS for CO2 from “fossil fuel electric generating units.” The standard is 1,000 lbs CO2/MWh. The EPA estimates that most NGCC power plants already meet that standard, whereas the most efficient commercial coal power plants emit 1,800 lbs CO2/MWh (77 FR 22417).  

If BACT does not require fuel-switching, we should have no reason to expect that NSPS would require fuel switching or “redefine the source” to impose identical CO2 control requirements on coal boilers and on gas turbines. Is that correct?

Response: EPA’s GHG Permitting Guidance (March 2011) says: “… a permitting authority retains the discretion to conduct a broader BACT analysis and to consider changes in the primary fuel in Step 1 of the analysis.” Thus, EPA never ruled out the possibility that a permitting agency could require that an applicant consider natural gas, or other cleaner fuels, when proposing a coal-fired EGU.

Comment: McCarthy omits the first word of the quoted sentence: “Ultimately.” The unexpurgated sentence reads: “Ultimately, a permitting authority retains the discretion to conduct a broader BACT analysis and to consider changes in the primary fuel in Step 1 of the analysis” (emphasis added). ”Ultimately” suggests something that might happen several years down the road, not the agency’s next move, and then only as a matter of “discretion” in individual cases, not as the industry-wide default position. The guidance document’s weasel words, which occur in only one sentence out of a 96-page text, do not obviate the fact that McCarthy and the EPA misled Congress and industry about the scope of the agency’s regulatory ambition.

[McCarthy continues:] However, it is important to note that under the proposed carbon pollution standard for new power plants, companies would not be required to build natural gas combined cycle units; they would be required to meet a standard of 1000 lbs/MWh, which can be met either through the use of natural gas or by burning coal along with carbon capture and storage [CCS].

Comment: This is a distinction without a difference. No commercial coal plants with carbon capture and storage exist, and none is being built without substantial taxpayer support. The levelized cost of new coal plants already exceeds that of new NGCC plants, and “today’s CCS technologies would add around 80% to the cost of electricity for a new pulverized coal (PC) plant, and around 35% to the cost of electricity for a new advanced gasification-based (IGCC) plant,” according to the EPA (77 FR 22415). Since building an NGCC plant is far cheaper than building a coal plant with CCS, the proposed 1,000 lbs CO2/MWh standard is a de-facto requirement to fuel switch from coal to gas. Offering an alternative no one will choose because it is prohibitively costly does not make fuel switching optional. 

[McCarthy concludes:] The agency is still actively considering a wide range of comments on this issue, and any final decision will reflect careful consideration of the issue.

Comment: In other words, the agency is still trying to figure out how to tweak the NSPS in light of detailed legal criticism so that the rule still puts the kibosh on new coal generation without being tossed out in court.

In their guidance establishing what could be considered Best Available Control Technology (BACT) for regulating GHGs in the permitting process, EPA stated that fuel-switching from coal to natural gas would not and could not be considered BACT: Since NSPS are traditionally interpreted to set the BACT “floor” for permitting purposes, how can a NSPS that eliminates the ability to construct new coal units without the implementation of commercially infeasible carbon capture and storage (CCS) be consistent with EPA’s previous guidance?

Response: As explained in responses to related questions, the statement that “EPA stated that fuel-switching from coal to natural gas would not and could not be considered BACT” is not entirely correct. While EPA did not propose that CCS represented BSER [best system of emission reduction], EPA stated in the preamble of the proposed NSPS rule that “CCS is technologically feasible for implementation at new coal-fired power plants and its core components (CO2 capture, compression, transportation and storage) have already been implemented at commercial scale.” [77 FR 22414].

Comment: This response does not address the criticism that even if one sentence of the guidance document anticipates that permitting agencies may “ultimately” exercise the “discretion” to require fuel switching in individual cases, the EPA gave no hint that next year it would require all new fossil fuel power plants to be either NGCC or non-economical coal with CCS. Note, too, that “implemented at commercial scale” is not the same as commercially viable, i.e., sustainable without taxpayer subsidies.

McCarthy does not address the convoluted weirdness of the rule. The Clean Air Act defines “performance standard” as a “standard for emissions of air pollutants which reflects the degree of emission limitation achievable through the application of the best system of emission reduction which . . . the Administrator determines has been adequately demonstrated.” The EPA picked 1,000 lbs CO2/MWh as the standard because that is a typical emissions rate of new NGCC power plants. But NGCC is a type of power plant, not a system of emission reduction. Gas turbines have been “adequately demonstrated” only as power sources – not as emission reduction systems for coal boilers. To my knowledge, the EPA has never before selected a performance standard such that one type of facility can comply only by being something other than what it is.

Why propose something so contorted? The EPA does not anticipate any quantifiable climate or health benefits from the NSPS (77 FR 22430). The rule’s only discernible purpose is to ban construction of new coal generation. The greenhouse gas permitting guidance document concealed that purpose.

The Air Office’s PSD and Title V Permitting Guidance for Greenhouse Gases, both as proposed in November 2010 and as adopted in March 2011, similarly states that the “initial list of control options for a BACT analysis does not need to include ‘clean fuel’ options that would fundamentally redefine the source.” In other words, an applicant would not be required to “switch to a primary fuel type other than the type of fuel that an applicant proposes to use for its primary combustion process.” In addition, a Q&A document published along with March 2011 guidance asks whether “fuel switching  (coal to natural gas) should be selected as BACT for a power plant?” The document answers: “No.” It goes on to state that BACT for CO2 should “consider the most energy efficient design,” but “does not necessarily require a different type of fuel from the one proposed.” These documents suggest that the EPA will not require fuel switching in BACT determinations. Was that a reasonable conclusion for Congress and electric utilities to draw at the time?

Response: That is a reasonable interpretation, and EPA continues to believe that its BACT guidance is reasonable for the specific purposes for which the guidance is intended.

Comment: Bingo! If the conclusion that the EPA would not require fuel switching is a reasonable interpretation of the BACT guidance, then Congress and electric utilities had no reason to expect the agency to require fuel switching only one year later, much less do so via a form of regulation — NSPS — that is generally less stringent than BACT. In hindsight, the BACT guidance was the setup for a bait-and-fuel-switch.

Some Senators wonder how they can trust Gina McCarthy to be a “straight shooter” as EPA administrator given the agency’s FOIA failures, reliance on secret data in rulemakings, and use of private email accounts to conduct official business. These issues are significant but so is the agency’s trickery on greenhouse gas regulation of stationary sources.

Note also that the proposed 1,000 lb CO2/MWh performance standard is substantially similar to the NSPS proposed in section 116 the Waxman-Markey cap-and-trade bill, which would require a 50% reduction in CO2 emissions from new coal plants permitted before Jan. 2020. The Waxman-Markey legislation narrowly passed in the House but companion legislation died in the Senate. The ‘Carbon Pollution’ Rule sure looks like an attempt to end-run the legislative process and enact a policy Congress has rejected.

Looking at this from a wider angle, Senators might ponder what would have happened if Reps. Waxman and Markey, instead of introducing a cap-and-trade bill, had introduced legislation authorizing the EPA to do exactly what it is doing now — regulate greenhouse gases through the Clean Air Act as it sees fit. Such a bill almost certainly would have been dead on arrival. Under the leadership of Lisa Jackson and Gina McCarthy, the EPA has morphed into a Super Legislature, ‘enacting’ climate and fuel economy policies Congress has not approved and would reject if introduced as legislation and put to a vote. The Senate cannot confirm McCarthy as EPA Administrator without rewarding the agency’s regulatory overreach.

Nor can it do so without encouraging the agency to fool and trick Congress, as it did during the Senate debates on the the Murkowski resolution and Inhofe legislation, when statements by McCarthy and the Air Office seemingly disavowed any ambition to “bankrupt” investors in new coal power plants. Whatever their party affiliation or views on climate change, Senators should dislike being hoodwinked.

Is the Clean Air Act so badly flawed that it will cripple environmental enforcement and economic development alike unless the EPA and its state counterparts defy clear statutory provisions or, alternatively, spend $21 billion annually to employ an additional 320,000 bureaucrats?

That is a central issue in a recent lawsuit by Southeastern Legal Foundation (SLF), the Competitive Enterprise Institute (CEI), a host of lawmakers and several companies, who are petitioning the Supreme Court to review an appellate court decision upholding the EPA’s global warming regulations.

I discuss some of the legal issues today in a column on Forbes.com. My conclusion: The Court’s reading of the Clean Air Act in Massachusetts v. EPA (2007) and the EPA’s reading of the Act in regulating greenhouse gas emissions from “major” stationary sources cannot both be right — and both may be wrong!

Unless the Court is prepared to take ownership of the bizarre notion that the the Clean Air Act was wired from the start to self-destruct four decades later, it should either overturn the EPA’s regulation of stationary sources, revise its decision in Mass. v. EPA, or both.

The Soviet-style production quota for ethanol, pompously titled the Renewable Fuel Standard (RFS), is in trouble. The RFS requires more ethanol to be sold than can actually be blended into the nation’s motor fuel supply. This “blend wall” problem will get worse as RFS production quota and federal fuel economy standards ratchet up, forcing refiners to blend more and more ethanol into a shrinking motor fuel market.

Here’s the math. Total domestic U.S. motor fuel sales in 2011 stood at 134 billion gallons. Although the U.S. population is increasing, overall motor gasoline consumption is projected to decline by 14% as fuel economy standards tighten between now and 2025. Already, the 2013 blending target for “conventional” (corn-based) biofuel – 13.8 billion gallons — exceeds the 13.4 billion gallons that can be blended as E10 (a fuel mixture containing 10% ethanol).

By 2022, the RFS requires that 36 billion gallons of biofuel be sold in the domestic market, including 21 billion gallons of “advanced” (low-carbon) biofuel, of which 16 billion gallons are to be “cellulosic” (ethanol derived from non-edible plant material such as corn stover, wood chips, and prairie grasses). Because commercial-scale cellulosic plants still do not exist, the EPA repeatedly has had to dumb down the cellulosic blending targets.

Eventually, though, the EPA will have to mandate the sale of at least a few billion gallons of advanced biofuel, just to keep up the pretense that the RFS is something more than corporate welfare for corn farmers. In any event, by 2015, refiners will have to sell 15 billion gallons of corn-ethanol — roughly 1.6 billion gallons more than can be blended as E10.

A side effect of the blend wall is the recent “RINsanity” of skyrocketing biofuel credit prices. The EPA assigns a unique Renewable Identification Number (RIN) to every gallon of ethanol produced and a credit for each gallon sold as motor fuel. Refiners who cannot blend enough ethanol to meet their quota can use surplus credits accumulated during previous years or purchased from other refiners.

Because the blend wall makes the annually increasing quota more and more difficult to meet, RIN credits are suddenly in high demand. Credits that cost only 2-3 cents a gallon last year now sell for about 70 cents. Consumers ultimately pay the cost — an extra 7 cents for each gallon of E10 sold, or an additional $11.7 billion in motor fuel spending in 2013, according to commodity analysts Bill Lapp and Dave Juday. Ouch! Ethanol was supposed to reduce pain at the pump, not increase it.

The ethanol lobby offers two fixes for the blend wall. Neither is workable. The EPA thinks it has another card up its sleeve.

One option long advocated by the biofuel industry is for Congress to “incentivize” sales of E85 (motor fuel blended with up to 85% ethanol). Every gallon of ethanol sold as E85 represents up to 8.5 gallons of ethanol the refiner does not have to sell as E10. In theory, a robust market for E85 would enable refiners to meet the rest of their quota obligation within the E10 blend wall.

However, the chief obstacle to market penetration of E85 is not, as the ethanol lobby contends, the absence of political support such as flex-fuel vehicle mandates and tax breaks to install E85-capable storage tanks and blender pumps. The main barrier is simply that E85, due to its inferior energy density and poor fuel economy, is a money loser for consumers.

FuelEconomy.Gov, a Web site jointly administered by the EPA and the Department of Energy, makes this painfully clear. At today’s prices, the typical owner of a flex-fuel vehicle would spend up to $750 a year more to drive with E85 instead of regular gasoline.

The ethanol lobby’s other solution is for the EPA to approve the sale of E15 by conventional retail outlets. Approving E15 would allow refiners to increase by 50% the quantity of ethanol blended in each gallon of motor fuel sold. In October 2011, the EPA authorized the sale of E15 for newer automobiles (model years 2001 and later). But so far only a handful of retail outlets offer the fuel. As Platts explains, “Liability issues related to misfueling, the cost of outfitting a retail station to carry the fuel, and concerns raised by some auto manufacturers who won’t honor warranties if E15 is used, have dampened the market for the fuel.”

So what is the EPA’s clever new idea? Double down on E15 — literally. The EPA’s recently proposed Tier 3 Vehicle Emission and Fuel Standards Rule contains what New York Times reporter Matthew Wald calls an “audacious suggestion.” A major objective of the rule is to reduce the sulfur content of gasoline, and ethanol contains no sulfur. Under the proposed rule, automakers could “request” the EPA to certify vehicles “optimized” to run on high-octane fuels such as E30. The agency envisions a triple play, in which E30 lowers sulfur emissions, improves fuel economy, and pushes ethanol sales beyond the E10 blend wall (p. 28):

This could help manufacturers that wish to raise compression ratios to improve vehicle efficiency, as a step toward complying with the 2017 and later light-duty greenhouse gas and CAFE standards (2017 LD GHG). This in turn could help provide a market incentive to increase ethanol use beyond E10 by overcoming the disincentive of lower fuel economy associated with increasing ethanol concentrations in fuel, and enhance the environmental performance of ethanol as a transportation fuel by using it to enable more fuel efficient engines.

Ethanol contains less energy than gasoline by volume but, according to the EPA, a vehicle “optimized” to run on E30 could get better mileage than today’s vehicles. Wald explains:

Using high-octane premium-grade gas in an engine that does not require it offers no benefit. But in engines designed to squeeze the fuel-air mixture to very high pressures before igniting it with the spark plug, high-octane fuel burns predictably and can produce more horsepower. . . .Ethanol contains only about two-thirds as much energy as gasoline, gallon for gallon. But if it is burned in engines designed for high cylinder pressures, it will produce competitive horsepower.

Are E30-optimized vehicles commercially viable? The proposed Tier 3 rule provides no data on either the consumer cost of such vehicles or the fuel economy gains. Even if the lifetime fuel savings outweigh the increase in vehicle cost, that is not usually the decisive factor for most consumers, otherwise hybrid sales would be larger than 4% of the vehicle market.

One thing is clear. E30 would face an even bigger infrastructure challenge than E15 does. A March 2012 API study found that “very few” service stations would be able to sell E15 with existing equipment: “Equipment modifications could be as little as new hanging hardware (i.e., hose, nozzle, etc.) or as much as an entirely new fuel dispensing system.” More extensive modifications, such as new dispensers and a new storage tank, would likely be required to sell E30.

That’s a major expense for most service stations, which typically are small businesses with razor thin profit margins on the fuel they sell. According to the National Association of Convenience Stores (NACS):

The cost of a new fuel dispenser is approximately $20,000. An average store has four dispensers, so the cost could be as much as $80,000 to upgrade the dispensers alone. If underground equipment is also replaced, permitting and other related costs would increase expenses significantly.

In April 2012, NACS estimated that the nation’s 120,000 convenience stores would have to spend $22 billion on retrofits if they had to sell blends in the range of E30 and higher.

What would it take to mobilize that much capital? Consumer demand for E30-optimized vehicles is unlikely to surge to the point where the industry on its own would make the requisite investments. Given the debt crisis, Congress is unlikely to pony up billions in tax breaks to subsidize construction of a national E30 infrastructure.

Yet the EPA seems determined to shatter the E10 blend wall. The EPA’s “audacious suggestion” is thus most likely a beachhead for more aggressive moves down the line. Don’t be surprised if future Ethanol Protection Agency rules effectively mandate that new vehicles be designed to run on E30.

The Senate Environment and Public Works Committee has scheduled a vote on the nomination of Gina McCarthy to be Administrator of the Environmental Protection Agency for the morning of Thursday, 9th May. All the Democrats on the committee will vote for McCarthy. Since they hold a ten to eight majority over Republicans, it is certain that the committee will send the nomination to the Senate floor for a confirmation vote.

What is less certain is whether Senator David Vitter (R-La), ranking Republican on the committee, will have the committee’s seven other Republicans with him in voting against McCarthy. If he does, then the next question is whether Vitter will lead an effort to block a floor vote.

It takes 60 votes to invoke cloture to end debate and move to a vote. So Vitter needs to round up 41 votes to block McCarthy’s confirmation. There are 45 Republicans in the Senate. If Vitter leads the effort against McCarthy, it is likely that he will have two or three Democrats with him. But there are also a number of Republicans who might defect. Several of them don’t like McCarthy, but believe that deference should be given to the President’s nominees unless they are manifestly unqualified or corrupt.

The argument for blocking McCarthy’s confirmation is simply that it is one of the very few shots that Senators will have during the 113th Congress to push back the EPA’s ongoing regulatory onslaught against affordable energy. McCarthy, as Assistant Administrator for Air and Radiation for the past four years, has been in charge of writing and promulgating the several Clean Air Act regulations that are designed to close coal-fired power plants. In my view, those Senators who oppose the EPA’s agenda should not be voting to promote the point person for implementing that agenda. She also misled both the Congress and the public about the design and impact of two of the most expensive regulations—new fuel economy targets and the Carbon Pollution Standard. My colleagues Marlo Lewis and Anthony Ward explain her duplicity here.

[Below is a guest post by Bill Lapp & Dave Juday]

Millions of American motorists across all income levels could be impacted this year by an indirect fuel tax that could amount to as much as $11.5 billion, all due to failures of the Renewable Fuel Standard (RFS) — the nation’s flawed biofuels mandate.

Under the RFS, which was expanded under the 2007 Energy Independence and Security Act (EISA), two broad categories of biofuels — conventional biofuel from corn, and so-called advanced biofuel from sources including Brazilian sugar ethanol and biodiesel made from vegetable oil and rendered animal fats — were to be steadily phased into the gasoline supply over 15 years.   Now, just five years into the schedule, the program is nearing its breaking point.  The barometer indicating the pressure under which the biofuels mandate operates is an arcane mini-cap-and-trade system for biofuel compliance credits known as renewable identification numbers (RINs).

Basically, the system works like this.  Each gallon of biofuel is assigned a 38-digit code known as a RIN, which effectively act as a serial number that tracks that gallon of biofuel through the supply chain, from production to the retail fuel market. RINs are detached from the biofuel once it is purchased or blended by a refiner, and eventually are turned into the US Environmental Protection Agency (EPA) by refiners to demonstrate their compliance with the RFS.   Alternatively, refiners with excess RINs can sell them on a secondary market to other refiners who are short of their compliance obligations.

Consider, conventional ethanol RINs that sold at about four cents per gallon in December — and at about one cent a year ago — rose to a high of $1.06 in March.  Currently they are about 70 cents.  Likewise, advanced ethanol and biodiesel RINs are also now trading at 75 cents and 80 cents respectively.

With a 10 percent blend of biofuels mandated by the RFS and an average cost of RINs at more than 70 cents, the implicit cost could reach more than 7 cents per gallon for every retail gallon of gasoline and diesel fuel purchased. Across the whole fuel supply, this could equate to an annual hidden tax on motorists of more than $11.5 billion. And that could grow.  As Goldman Sachs has warned, “we believe that the risk to RIN prices is skewed to the upside over the near term.”

This inflated cost of compliance has garnered the attention of Congress.   In a letter to the EPA, Senator Ron Wyden (D-Oregon), Chairman of the Energy and Natural Resources Committee, inquired about this volatility.  He wrote, “given that ethanol is an increasingly important factor in the cost and supply of motor fuel in the US, it is critical that the committee have a better understanding of the causes and effects of RIN market volatility and developments.”  The basic answer to Wyden’s inquiry is that the RFS is structurally flawed, and current RINs prices are an internal warning sign.

The conventional biofuels component of the RFS effectively mandates the blending of corn-based ethanol. For 2013, the Environmental Protection Agency (EPA), which administers the mandate, has proposed that 13.8 billion gallons of corn-based ethanol be blended into the U.S. gasoline supply, as prescribed by the RFS. By 2015, the RFS mandates that corn-based ethanol blending must rise another 1.2 billion gallons to a total of 15 billion gallons.

This is problematic as the majority of motor fuel marketed in the U.S. is effectively limited to 10 percent ethanol.  While the EPA has approved e-15 blends for certain automobiles, there are a number of practical hurdles till in place.  These include efforts to prevent mis-fueling, state level regulatory compliance, auto warranties that are voided by using fuels with more than 10 percent gasoline, the cost of installing infrastructure to handle higher blends, and the liability that goes with all these issues.

Blending 13.8 billion gallons of conventional ethanol in 2013 exceeds the 10 percent effective cap on ethanol in place under the Clean Air Act; so would blending 15 billion gallons in 2015.  That was a significant matter overlooked during the approval of RFS in 2007.  Effectively under the RFS, the fuel supply will require more corn-based ethanol than is legally allowed under the Clean Air Act, and practically allowed by the nation’s fuel infrastructure.

As the infeasibility of blending enough ethanol to meet the RFS has become more apparent in recent months, refiners’ demand for ethanol RIN credits has skyrocketed, leading to the substantial price hike.  That has been exacerbated by last year’s drought which reduced corn production and in turn ethanol production.  Less ethanol production means fewer RINs generated, and thus places an even bigger squeeze on the fuel market next year as the mandated amount of biofuels rises again.

As for the advanced biofuels component of the RFS, a major obstacle to compliance is the absence of cellulosic biofuel, one of the very fuels the EPA presumes to regulate through the policy.  Indeed, virtually zero cellulosic ethanol was produced in 2012, despite the EISA original mandate that 500 million gallons be used. In other words, Congress mandated the use of a fuel that did not exist, and still does not practically exist even six years after the passage of the law.

The EISA mandate for cellulosic ethanol this year is one billion gallons; EPA projects that 14 million gallons – or 1.4 percent of the original mandate – will be produced this year.  Even though EPA has waived the full requirement for cellulosic ethanol, they have not lowered the overall advanced category in which cellulosic is included.  Thus, the RFS creates even more demand for other advanced fuels such as biodiesel and imported Brazilian sugar ethanol, propping up their RIN values.

Under the RFS, oil refiners, fuel blenders and importers bear the regulatory burden of meeting the mandates. That burden can be summed-up as a requirement to sell a fuel that is not available in the marketplace, and a fuel with more corn-based ethanol than the system can bear.  Moreover, with RFS mandates scheduled to rise from 16.5 billion gallons of combined ethanol and biodiesel to 33 billion gallons over the next eight years, the cost to consumers could be expected to double by 2021 if the situation is not addressed.

Back in 2007, the RFS was touted as a nearly a utopian policy — it would help America achieve energy independence at virtually no cost, according to biofuel advocates.  Yet, our biofuels policy has inevitably driven us toward a series of costly unintended consequences.  Congress should reform our biofuels policy and eliminate this hidden tax on consumers before it before it grows significantly worse.

Bill Lapp is President of Advanced Economics Solutions, a commodity market risk management advisory firm in Omaha, Nebraska.  Dave Juday is the principal of The Juday Group a commodity market and policy analytical firm in Washington, D.C. 

In a recent interview with CBC Radio, global warming alarmist and former NASA Climate Science director, James Hansen, compared conservatives to “Neanderthals”.

Hansen’s remarks were prompted in response to comments made by Joe Oliver who is a conservative politician and the Canadian Minister of Natural Resources.  Speaking at the Center for Strategic Studies last week, Oliver heaped opprobrium on the scientist. In his speech he declared, “”It does not advance the debate when people make exaggerated comments that are not rooted in the facts. And [Hansen] should know that.”

Instead of addressing these concerns, Hansen responded with insults.

Such vitriol from Hansen speaks volumes about the character, or absence of character, of some global warming alarmists.  Instead of discussing the issues themselves, this “distinguished” scientist resorts to stereotyping an entire group of people as the equivalents of slow-witted, unsophisticated cave men.

This week National Journal’s Energy Experts Blog poses the question: “What’s holding back energy & climate policy.” So far 14 wonks have posted comments including yours truly. What I propose to do here is ‘revise and extend my remarks’ to provide a clearer, more complete explanation of Capitol Hill’s energy lethargy.

To summarize my conclusions in advance, there is no momentum building for the kind of comprehensive energy legislation Congress enacted in 2005 and 2007, or the major energy bills the House passed in 2011, because:

• We are not in a presidential election year so Republicans have less to gain from passing pro-energy legislation just to frame issues and clarify policy differences for the electorate;
• Divided government makes it virtually impossible either for congressional Republicans to halt and reverse the Obama administration’s regulatory war on fossil fuels or for Hill Democrats to pass cap-and-trade, carbon taxes, or a national clean energy standard;
• Democrats paid a political price for cap-and-trade and won’t champion carbon taxes without Republicans agreeing to commit political suicide by granting them bipartisan cover;
• The national security and climate change rationales for anti-fossil fuel policies were always weak but have become increasingly implausible thanks to North America’s resurgence as an oil and gas producing province, Climategate, and developments in climate science;
• Multiple policy failures in Europe and the U.S. have eroded public and policymaker support for ’green’ energy schemes;
• It has become increasingly evident that the Kyoto crusade was a foredoomed attempt to put policy carts before technology horses; and,
• The EPA is ’enacting’ climate policy via administrative fiat, so environmental campaigners no longer need legislation to advance their agenda.

Divided Government, Messaging Bills, Cap-and-Trade Casualties

Divided government can produce gridlock, yet the latter need not induce legislative torpor. In the 112th Congress, the House passed several energy- or climate-related bills drafted by the Energy and Commerce Committee. Those include the Energy Tax Prevention Act (H.R. 910), Farm Dust Regulation Prevention Act (H.R. 1633), North American-Made Energy Security Act (H.R. 1938), Jobs and Energy Permitting Act (H.R. 2250), Coal Residuals Reuse and Management Act (H.R. 2273), Transparency in Regulatory Analysis of Impacts on the Nation Act (H.R. 2401), Cement Sector Regulatory Relief Act (H.R. 2681), Pipeline Infrastructure and Community Protection Act (H.R. 2937), Resolving Environmental and Grid Reliability Conflicts Act (H.R. 4273), Domestic Energy and Jobs Act (H.R. 4480), American Manufacturing Competitiveness Act (H.R. 5865), Hydropower Regulatory Efficiency Act (H.R. 5892), and No More Solyndras Act (H.R. 6213). All died in the Senate.

This flurry of legislative activity can in part be explained by the political dynamics of the 2012 presidential election cycle. By holding hearings on and passing those bills, Republicans sought to frame the issues and clarify policy differences for the electorate. A central objective was to focus public attention on which party supports and which opposes creating jobs through domestic energy production. House Republicans may launch another ambitious energy offensive as we get closer to the 2014 mid-term elections and/or the 2016 presidential contest, but not likely before then.

Why though is there is no momentum on the other side of the aisle for the “comprehensive energy and climate legislation” once proudly championed by the Obama administration and environmental activists?

Starting with the most obvious reasons, 29 Democrats who voted for the Waxman-Markey cap-and-trade bill in June 2009 got pink slips from their constituents in November 2010. Key to defeating Waxman-Markey was its exposure as a stealth energy tax (“cap-n-tax”). This prompted a search for “other ways to skin the cat,” as President Obama put it, but finding other ways to fool the public was not easy.

With few options to pick from, some climate activists now advocate carbon taxes. But why should the public support an open, unvarnished energy tax when what doomed cap-and-trade was its outing as a sneaky energy tax? Cap-and-trade was in part an attempt to avoid a repeat of the political losses Democrats sustained in 1994 because of Al Gore’s Btu energy tax legislation in 1993. Most Democrats in Congress are reluctant to tax carbon unless the GOP gives them bipartisan cover, but most Republicans realize that if they cave on carbon taxes, they will demoralize and divide their base.

Even aside from partisan calculations, few members of Congress want to take responsibility for raising energy prices during a period of high unemployment and anemic economic growth.

Obsolescent Worldviews

Probing a bit deeper, we find that once-fashionable alarms about climate change and foreign oil dependence no longer have the intellectual cachet they did a few years ago. The period from 2005 through 2007 was not only a high watermark of U.S. oil import dependence, it was also a time when Al Gore’s An Inconvenient Truth, the Bali Road Map, and the IPCC’s Fourth Assessment Report (AR4) set the terms of national debate on climate change. A lot has happened since then.

Washington’s angst about oil embargoes, supply disruptions, and the link between Mideast oil and terror was always overblown, as Cato Institute scholars Jerry Taylor and Peter Van Doren explain:

• Because oil is a globally-traded commodity, the U.S. can circumvent any likely embargo by purchasing oil via third parties. Indeed, U.S. oil imports actually increased after the 1973 Arab oil embargo – from 3.2 million barrels per day in 1973 to 3.5 mbd in 1974.
• Petro-states have more to lose from catastrophic disruptions than do their customers, which is why there hasn’t been one since the Iranian Revolution.
• There is no correlation between OPEC profits and cross-border incidents of Islamic terror. The likely explanation is that terrorist attacks are low-budget operations (the 911 plotters spent less than half a million dollars) and therefore are not much affected by changes in oil prices or petro-state revenues.

In recent years, the national security rationale for regulating America ‘beyond petroleum’ has become increasingly implausible, as advances in unconventional oil and gas production transform North America into a major producing region. Imports as a share of U.S. petroleum consumption declined from 60% in 2005 to 45% in 2011. More than half of those imports came from the Western hemisphere, and Canada’s share was more than double that of Saudi Arabia. In both 2011 and 2012, petroleum products were the top U.S. exports. Some experts now view hydraulic fracturing and directional drilling as a source of U.S. geopolitical influence, arguing for example that the ‘shale revolution’ undermines Russia’s leverage over Europe.

A March 2012 Citi report concluded: “With no signs of this growth trend ending over the next decade, the growing continental surplus of hydrocarbons points to North America effectively becoming the new Middle East by the next decade; a growing hydrocarbon net exporting center.” Analyses by Citi, Wood McKenzie, and IHS Global Insight support the assessment of Manhattan Institute scholar Mark Mills that “unleashing the North American energy colossus” could create millions of new jobs by 2020 and provide hundreds of billions in cumulative new federal, state, and local tax revenues.

In short, a bright future for hydrocarbon energy now competes in the public mind with yesteryear’s gloomy forecasts of increasing oil depletion and dependency.

As for climate alarm, the Climategate emails exposed some of the world’s most prestigious climatologists as schemers using the pretense of scientific objectivity for political purposes. This blow to their credibility also tarnished the UN-sponsored climate treaty negotiations.

Also deflating the push for coercive energy transformation is the lack of any net global warming over the past 16 years. There are competing explanations, but a plausible hypothesis, based on recent studies ably summarized by Cato Institute climatologist Chip Knappenberger, is that Earth’s climate is less sensitive to greenhouse forcing than “consensus” science had assumed. What cannot be denied is that there is a disconnect between the IPCC’s best estimate of projected warming and observations over the past decade.

In addition, numerous studies (summarized here and here) undercut the credibility of scary climate change impact forecasts. A few examples:

• King et al. (2012): The rate of Antarctic ice loss is not accelerating and translates to less than one inch of sea-level rise per century.
• Weinkle et al. (2012): There is no trend in the strength or frequency of land-falling hurricanes in the world’s five main hurricane basins during the past 50-70 years.
• Chenoweth and Divine (2012): There is no trend in the strength or frequency of tropical cyclones in the main Atlantic hurricane development corridor over the past 370 years.
• Bouwer (2011): There is no trend in hurricane-related damages since 1900 once economic loss data are adjusted for changes in population, wealth, and the consumer price index.
• NOAA: There is no trend since 1950 in the frequency of strong (F3-F5) U.S. tornadoes.
• National Climate Data Center: There is no trend since 1900 in U.S. soil moisture as measured by the Palmer Drought Severity Index.
• Hirsch and Ryberg (2011): There is no trend in U.S. flood magnitudes over the past 85 years.
• Davis et al. (2003): As U.S. urban air temperatures have increased, heat-related mortality has declined.
• Goklany (2010): Global deaths and death rates related to extreme weather have declined by 93% and 98%, respectively, since the 1920s.
• Range et al. (2012): There is no evidence of carbon dioxide-related mortalities of juvenile or adult mussels “even under conditions that far exceed the worst-case scenarios for future ocean acidification.”

Skeptical blogs continually disseminate such findings to policymakers and the public.

During last year’s summer drought, NASA scientist James Hansen made a big splash with a study in Proceedings of the National Academy of Sciences and a Washington Post op-ed arguing that global warming was the cause of the four biggest hot spells of the past 10 years. However, as noted in skeptical blogs, meteorological analyses of the European heat wave of 2003, the Russian heat wave of 2010, the Texas-Oklahoma drought of 2011, and the Midwest drought of 2012 attribute those events principally to natural variability.

Policy Failures

Last week the European Parliament refused to stop the EU carbon market from crashing. This debacle, a setback to all who tout Europe as a model for U.S. climate and energy policy, was all but inevitable.

For months EU policymakers had been groping for the carbon price sweet spot. Were carbon prices too low or too high? The answer: both! Prices were criticized by environmental activists as too low to incentivize hoped-for technology innovation but criticized by industry as too high for Europe to stay competitive in the global marketplace. EU governments had to establish a “carbon compensation fund” to keep domestic manufacturers from off-shoring their operations. European manufacturers still would not support intervention to prop up falling carbon prices. So the EU Parliament decided to just let carbon prices crater, embracing in deed if not in speech the carbon policy advocated by G.W. Bush. Ha!

Fiscal realities have also forced EU governments to scale back green energy subsidies. USA Today reported last month: “European governments have now realized this growth – which saw consumers footing the bill for investors’ soaring profit margins – was out of control: The UK and Czech Republic have already cut their subsidies in half, while Italy imposed a cap on new renewable energy providers. Germany cut subsidies by up to 30% and announced a major overhaul of the program Thursday.” In this respect, too, Europe has become a model of what U.S. policymakers should avoid.

The Obama administration, predictably, has decided to double down on renewables. The President’s Budget proposes to make the controversial renewable energy production tax credit (PTC) “permanent.” That, however, is a tacit confession wind and solar will never stand on their own feet without subsidy, despite the wind industry telling us for years that it is on the verge of becoming competitive with coal and gas. With the nation $16.8 trillion in debt, the President’s $23 billion PTC initiative is likely D.O.A. in the House.

The growing list of Stimu-Losers also undermines congressional support for green venture socialism. Besides Solyndra, failed or troubled recipients of DOE loans or guarantees include Beacon Power, Evergreen Solar, Range Fuels, Amonix, A123 Systems, Nevada Geothermal Power, Abound Solar, and, recently in the news, Fisker Automotive. According to a Privco report, Fisker lost over $1.3 billion in private and taxpayer capital, spending $660,000 for each $103,000 electric vehicle it produced before firing three-quarters of its employees.

Lawmakers from both parties have even begun to reconsider and challenge the once popular Renewable Fuel Standard (RFS) program. This 15-year central plan increases consumers’ pain at the pump, expands aquatic dead zones, makes food less affordable to the world’s poorest people, plows up millions of acres of wildlife habitat, and puts at least as much carbon in the atmosphere as the gasoline it displaces. Although the RFS still has defenders in Congress, hardly anyone on the Hill today talks about beefing up the RFS with flex-fuel vehicle mandates or subsidized biofuel pipelines, blender pumps, and storage tanks.

Can’t Get There from Here

Green activists blame “oil-fueled, coal-powered” politicians for Congress’s ‘failure’ to address climate change. The real reason, however, is that nobody knows how to sustain a modern economy with wind turbines, solar panels, and biofuel.

The Breakthrough Institute developed this point in its Death of Cap-and-Trade blog posts. Because affordable energy is vital to prosperity and much of the world is energy poor, it would be economically ruinous and, thus, politically suicidal to make people abandon fossil fuels before cheaper alternative energies are available. That, however, is exactly what “comprehensive energy and climate legislation” aimed to do.

As the Breakthrough folks argue, if you’re worried about climate change, then your chief policy objective should be to make alternative energy cheaper than fossil energy. Instead, the green movement attempted to make fossil energy more costly than alternative energy, or to simply mandate the switch to alternative energy regardless of cost. Al Gore’s call in 2008 to “re-power America” with zero-carbon energy within 10 years epitomizes this folly. More “moderate” variants would only do less harm, less rapidly.

EPA Is Legislating Climate Policy

Lastly, energy is on the legislative back burner because the EPA is already enacting the green movement’s agenda via administrative action. Why risk voter ire over controversial climate legislation when it is easier to sit back and watch the EPA take the heat or implement regulations few people outside of Washington even know about?

This situation is likely to persist as long as divided government persists. Many Democrats are content to let the EPA run roughshod over the separation of powers and implement policies the people’s representatives would reject if introduced as legislation and put to a vote. Many Republicans fear to challenge the EPA, knowing how difficult it is to overcome a presidential veto and how easily efforts to reclaim Congress’s authority to determine climate policy can be villified as attacks on science and children’s health.

It may not be a popular fact, but a fact it is: the environment is getting cleaner, and it has since about the mid-20th century. The question is, what caused this improvement? How can we keep it going? Over at Topix.com, my colleague Geoffrey McLatchey and I argue that the best answer for both questions is wealth creation:

Economic growth and environmental quality are not opposing values. They go hand-in-hand. Something happens to a country when its per capita GDP reaches about $5,000 (U.S. per capita GDP is about $48,000). At that point, families are certainly not rich. But they don’t have to worry as much about where their next meal will come from. They can afford to begin to take care of other needs, such as building sewage systems and other pollution-reducing infrastructure. Instead of using wood for heating and cooking, people can turn to more efficient fossil fuels, which means less deforestation. Farmers can afford to adopt modern techniques that produce more food with less land, leaving more left over for wildlife.

That’s the good news. The even better news is that greater progress is on the horizon. The number of people living in absolute poverty halved between 1990 and 2010, and the number continues to dwindle. Remarkably, this is happening even as global population increases. As more countries pass the $5,000-per capita benchmark, ecosystems around the world will benefit.

Read the whole thing here. Even if people do concede to the data and admit that the world’s environmental situation isn’t doom-and-gloom, they often give credit to the EPA. A glance at my recent EPA report card will hopefully disabuse people of that notion. Innovation, not regulation, is what will keep the environment healthy. That’s the lesson people should take from Earth Day.

President Barack Obama submitted his proposed Fiscal Year 2014 budget to Congress on 10th April, 66 days after the legal deadline.  The law does not subject the President to any penalties for missing the 4th February deadline, but no previous President has submitted his proposed budget more than a few days late.  The budget proposes to increase federal spending by nearly five percent over the current fiscal year.

Subsidies for renewable energy and energy efficiency total $23 billion over ten years.  Astonishingly, the President proposes to make wind, solar, and geothermal subsidies permanent.  According to a White House fact sheet: “To provide a strong, consistent incentive to encourage investments in renewable energy technologies and to help meet our goal to double generation from wind, solar, and geothermal sources by 2020, the Budget would make permanent the tax credit for the production of renewable electricity.  The Budget makes the Production Tax Credit refundable so new, growing firms can benefit and provide renewable electricity generation.”

For decades, the leaders in the wind and solar industries have told Congress that they just need a few more years of subsidies before they become competitive with energy produced from conventional sources.  Last December, during the debate over whether to extend the wind subsidy for another year, the American Wind Energy Association came forward with a plan to phase out the subsidy over six years. The Obama Administration has concluded that wind and solar will never become competitive with coal and natural gas.