Friday, October 02, 2009

No Good Choices

I find myself in a foul mood concerning climate change, after a week that has seen US choices for managing our greenhouse gas emissions narrow to a trio of unappealing options. The long-awaited draft of a Senate bill on climate change issued by the Environment and Pubic Works Committee turned out to mirror most of the bad features of the distorted Waxman-Markey bill narrowly passed by the House in June. Adding insult to injury was the announcement by the Administrator of the EPA that her agency was preparing to regulate the greenhouse gases from large emitters--power plants, refineries, and other industrial facilities--as point-sources under the Clean Air Act as soon as next year. This leaves us with three poor choices: 1) a cap & trade system harnessed to the yoke of Congressional patronage and pork, 2) command-and-control regulations likely to extract emissions reductions from the highest-cost sources and thus having the most adverse impact on the economy, and 3) a status quo that will likely result in our emissions resuming their steady climb, once the economy recovers.

With regard to the Kerry-Boxer bill, designated as the "Clean Energy Jobs and American Power Act"--no catchy "ACES" acronym there--I haven't had time to wade through its 801 pages, so I'll keep my comments brief. Contrary to the conclusion reached by the editors of the Washington Post, the bill does include a cap & trade mechanism for greenhouse gas emissions, though I can understand why they might not have looked for it under the obscure rubric of "Pollution Reduction and Investment Program". From my quick scan of that section, it strongly resembles the cap & trade aspects of Waxman-Markey, with the crucial difference that the allocation of emission allowances among various sectors has been left to other Senate committees to fill in. The only allocation clearly specified is that 25% of allowances should be auctioned, with the proceeds to go toward deficit reduction. As laudable as that sounds, I would merely note that every dollar raised by cap & trade that is not returned to taxpayers constitutes a new tax by another name and should be counted in the total tax burden on the productive economy.

Now let's turn to the EPA announcement, which has me even more concerned. Last week I received an emailed article from the Institute for Policy Integrity at NYU suggesting that under the Clean Air Act the EPA could create its own cap & trade system for greenhouse gases without requiring additional authorizing legislation. That briefly buoyed my hopes for a more pristine version of cap & trade, without the unseemly scramble to siphon off its proceeds to fund every pet project and cause of every Member or Senator whose vote was needed to pass the thing. Then I read Administrator Jackson's remarks describing the approach she has in mind, and I knew the EPA was applying its old pollution-abatement mentality to climate change, facilitiated by a Supreme Court ruling that unhelpfully labeled CO2 and other GHGs as pollutants. The new rule would impose New Source Review criteria on the greenhouse emissions from power plants, refineries and factories when they expand or modernize, and it parallels the Best Available Control Technology requirement that is at least logical for local air pollutants like SOx and NOx that result from fuel impurities and combustion byproducts, but that makes little sense when dealing with the results of the primary chemical reaction of combustion: C + O2 --> CO2.

With all due respect to Administrator Jackson, a fellow chemical engineer who I'm sure understands the technical side of this issue as well as I do, her remarks betray a deep misunderstanding of the economic consequences of regulating carbon this way. The key phrase in her comments, which focused on minimizing the impact on the small businesses she seeks to exclude from this ruling was, "...all without placing an undue burden on the businesses that make up the better part of our economy," as if that "better part" didn't consume the electricity, fuels and raw materials produced by the part she proposes to regulate--presumably the "worst part" of our economy. The reality is that the costs imposed on large emitters will inevitably fall on those same small businesses when they pay their utility bills, buy fuel and other inputs, and when they seek to sell to consumers and other businesses equally burdened by these new, higher energy costs.

There is simply no getting around the fact that regulating greenhouse gas emissions, which amounts to charging a fee for something that has been free since the discovery of fire, is going to impose a burden on the entire economy. The principle behind cap & trade is the effort to make that burden as small as possible, by encouraging those parties with the lowest costs of emissions abatement to make the biggest cuts. Industrial emissions reductions are inherently more expensive than those in many other sectors, and we need a solution that unleashes the cheapest CO2 cuts, instead of forcing the most expensive ones to be done first.

I haven't given up entirely on the hope that the final outcome from the Senate might restore some sanity to the cap & trade provisions that Messrs. Waxman and Markey so deftly used to co-opt the biggest emitters into supporters, as we've seen with the recent fracturing of the US Chamber of Commerce on this issue. Utilities like Exelon, PG&E, and PNM Resources must realize that they are unlikely to get a better deal on emissions than under Waxman-Markey, and I don't blame them for advancing their interests. But that doesn't make this the best solution for the economy, or more importantly the best way to go about reducing the emissions responsible for humanity's contribution to climate change. And if the White House needs the threat of new EPA rules to have at least one flag to wave at the global climate conference in Copenhagen in December, in case the Congress fails to pass a Waxman-Markey/Kerry-Boxer hybrid by then, I understand that, too. However, that doesn't justify actually implementing those regulations and making the task of reducing our emissions harder and more costly.

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