November 2008

Last year my colleague Marlo Lewis wrote an insightful, incisive piece on the troubling rhetoric of RFK Jr. Read it here. It should be mandatory for all Senators responsible for confirming the EPA administrator.

So is the danger to the American economy. Waxman represents Hollywood. That is, he answers to movie stars, who are invariably clueless, but especially so about all tings “green.” As the Chairman of the Energy and Commerce Committee, Waxman would try to placate his Hollywood constituents by advancing laws that would condemn all Americans to energy poverty so as to reduce their carbon footprint. Of course, Waxman’s movie star backers are too rich to feel the pinch of expensive energy policies, but the rest of us will.

The Udall first cousins will replace Senator Pete Domenici in New Mexico and Senator Wayne Allard in Colorado, both of whom are retiring.  Domenici and Allard have been leaders in the effort to allow more oil and natural gas production on federal lands and waters, and both opposed the Lieberman Warner cap-and-trade bill that would ration use of coal, oil, and natural gas.  Since the U. S. gets 85% of its total energy from those three fuels, rationing will force people to pay more and thereby to use less, which will lower greenhouse gas emissions. 

But in winning the open seat in Virginia, Democrat Mark Warner replaces Republican John Warner, chief sponsor of the Lieberman-Warner Climate Security Act, the cap-and-trade bill that crashed on the Senate floor in early June. Senator Elizabeth Dole lost her North Carolina seat to Kay Hagan.  Dole was a sponsor of Lieberman-Warner. 

Senator John Sununu lost to Jeanne Shaheen in New Hampshire, and Senator Gordon Smith appears to have lost to Jeff Merkley in Oregon.  Both Sununu and Smith voted for cloture on Lieberman-Warner.  It might be fair to say that, although the switch to Democrats in New Hampshire and Oregon doesn’t increase the vote count for cap-and-trade, it does increase the enthusiasm for it.

To sum up the Senate, it appears that cap-and-trade has picked up two votes.  A majority of Senators now probably support some version of cap-and-trade, but not the sixty required to invoke cloture and proceed to a final vote.  What cannot be gauged yet is how hard and effectively President Obama might push Democrats to support cap-and-trade or how much slippage there might be among squishier Republicans.  In regard to the latter, the good news is that Senator James Inhofe of Oklahoma was elected handily to a third term and will continue to lead opposition to energy-rationing policies and global warming alarmism as the ranking Republican on the Environment and Public Works Committee.

In the House, I think there was a small majority in this Congress for cap-and-trade in general.  With the Democratic gains, there is probably now a majority for some specific bill, such as the Dingell-Boucher draft bill.  However, where Democrats have defeated Republicans in States that depend on coal for most of their electricity, it should not be assumed that the new Representative will be a vote for cap-and-trade.  Regional economic interests will still play a strong role in the debate to come.

Cap-and-trade is closer to enactment in the 111th Congress than it was in the 110th Congress.  In my estimation, it would have been closer had Senator McCain been elected President.  McCain is much more committed to the global warming issue than Obama.  His support for a deal with the House and Senate Democratic leadership would have made it difficult for the Republican leadership to oppose it effectively.  But Republican congressional leaders now have every reason to oppose cap-and-trade energetically. 

There are three external factors that work against enacting cap-and-trade in the 111th Congress.  First, since the Kyoto global warming treaty was negotiated in 1997, atmospheric concentrations of carbon dioxide have continued to rise, but the global average temperature has remained flat.  There may still be some warming, but it isn’t showing up yet, which suggests that the climate is not as sensitive to carbon dioxide levels as Al Gore claims.  Second, the European Union ratified Kyoto and has been spending lots of money and has implemented a cap-and-trade program to reduce emissions, yet emissions continue to rise.  Emissions in many EU countries have been rising faster in percentage terms than in the U. S.  Reality is often slow to penetrate Congress, but at some point they will not be able to ignore these two facts.

The third factor is the credit crunch and the looming recession.  As Senators found out in June when Lieberman-Warner came to the floor, it wasn’t easy to vote for a bill that would raise electricity and gasoline prices when people were angry about skyrocketing gas prices.  Similarly, it won’t be easy to vote for higher energy prices when people are concerned about losing their jobs and paying their bills during an economic downturn.  So cap-and-trade still has a long way to go to enactment. 

There has been a flurry of activity by conservative activists the past few days to publicize Senator Obama’s comments about bankrupting the coal industry, which were made some time ago but have only attracted attention now.  What he said in an interview with the San Francisco Chronicle in January was:

“So if somebody wants to build a coal-powered plant, they can; it's just that it will bankrupt them because they're going to be charged a huge sum for all that greenhouse gas that's being emitted. 

This comment is an indication that Senator Obama has a realistic view of the direct effects of his proposal.  Cap-and-trade is energy rationing.  Since coal produces more carbon dioxide than oil or natural gas, it will be hit first.  The consequence is that people in coal States are going to have to pay a lot more for electricity.

Higher electricity prices will lower spending on other things, thereby putting people out of jobs, and drive energy intensive industries to other countries, again thereby putting people out of jobs.  Since utilities were having a hard time keeping up with increasing demand until the economy started to slow down, it is also almost certain that discouraging new coal plants will lead to regional blackouts if the economy does pick up again. 

It is not clear whether Senator Obama has enough basic economics to understand this.  Or maybe he believes what he’s been told by environmental pressure groups, namely that there are plenty of cost-competitive alternatives to replace the coal that provides over half of our country’s electricity.  Or maybe he doesn’t care or indeed thinks it’s a good thing to reduce economic growth.   

Senator McCain also supports cap-and-trade legislation, but has been much less realistic about its direct effects.  He has talked about how making energy more expensive and requiring clean coal technology (that is, equipment to sequester and store carbon dioxide emissions) will create jobs and boost economic growth.  That cannot possibly happen.  His economic ignorance appears to be almost total. 

But the key point is that both presidential candidates strongly support a major policy that will not lower energy prices, but raise energy prices significantly.  Too bad it wasn’t discussed in the campaign.  It will be interesting to see how the American people react to this surprising news in a few months.

First, Germany and France agreed to weaken the fuel efficiency standards in order to protect Germany’s powerful auto industry. Next, Germany unilaterally declared that it would exempt its energy-intensive industries from the most onerous provisions of a continent wide cap-and-trade scheme. Last month, Poland led a group of coal-dependent states including Greece, Hungary, Slovakia, Romania and Bulgaria, opposing the Commission’s proposal to price coal out of the electricity generation market by 2013. These rebellious states have since been joined by Italy, which fears that the EU’s climate plan would harm the competitiveness of Italian industry on the international market. Together, these states won the right to amend the Commission’s plan to make it more “cost-effective.”

And this week, member states significantly weakened a directive to generate 20% of the EU’s energy from renewables by 2020 by allowing for a progress review in 2014. The review would allow member states to pull the plug on the directive if the directive proves too expensive because the technology is not yet there.