Is the carbon tax v. cap-and-trade debate really over?

Most observers of U.S. policy and politics would say yes. The usual insight given is that Americans are so tax-phobic that anything that remotely smells of a ‘tax’ won’t pass. Even though cap-and-trade will be a tax on energy for all intents and purposes, it is considered more politically palatable simply because of the name. This is really a framing question, though. Stakeholders who play in transportation policy alternately call the 18.4¢/gal federal fuel tariff a “gas tax” or a “user fee.” Use “gas tax” if you think gas shouldn’t be taxed no matter what the reason. Say “user fee” if you think it good policy that the federal fuel tax pays for the entire federal interstate highway system and a good deal of state and local roads, bridges, railroad crossings, bike paths, buses and bus lanes, and other goodies. If carbon tax proponents (and there are legions) had any sense, they’d be devoting most of their time and energy to figuring out how to address this framing issue.

The debate might be over simply because every state that has started to move toward GHG regulation has moved in the cap-and-trade direction (RGGI, WCI, etc.), and the only bill in Congress to see movement so far is the Lieberman-Warner cap-and-trade bill (S.2191). But not so fast. Despite being a member of the Western Climate Initiative, the government of British Columbia just passed a comprehensive carbon tax. And the heavyweights in U.S. policy that favor a carbon tax is long. Carbon tax and cap-and-trade are not mutually exclusive, and in fact best policy would institute both for different sectors.

Perhaps the most compelling reason we will have a cap-and-trade system instead of a carbon tax is a combination to two factors: money and inertia. Once one regime is in place, adding the other to address other sectors is unlikely. So which regime comes first? That’s where money comes in. Wall Street stands to make big, big money pushing electrons through wires. How much? Well, New Carbon Finance just released an estimate that if Lieberman-Warner passes as is, the carbon trading market will be $1 trillion by 2020. That’s trillion. With a T. Now does anybody want to bet which regulatory regime we will be seeing?

The EPA GHG circus and Congress’ responsibilities

EPA Administrator Johnson threw another blazing bowling pin in the air today as he finalized his finding that California has no “compelling reason” to regulate greenhouse gases under a Clean Air Act waiver. Johnson’s work continues (un)official White House policy to delay any movement on addressing climate policy until the G.W. Bush Administration is safely out of office. Despite being essentially ordered by the U.S. Supreme Court to address in some way carbon dioxide emissions, the EPA has found another way to stall such movement. Apparently the official decision directly quotes language from the Alliance of Automobile Manufacturers, which is sure to rile the already comical faux-aghast reaction from regulation proponents.

Our take is that while continued criticism of the White House on its eight-year climate stonewalling campaign is well-deserved, the EPA and the Clean Air Act are not the appropriate vehicles to address GHG regulation policy. Considering that GHG regulation will be felt economy- and nationwide and will represent a serious change to business as usual in the U.S. economic engine, the only proper authority to deal with the initial planning on GHG regulation is the U.S. Congress. Congress is the only leg of the three-legged Federal stool that broadly represents all of the diverse interests (geographic and otherwise) of the United States. Climate policy should not be initially set by a group of nine judges residing in Washington D.C. or a lame duck White House that is responsible to no broad set of stakeholders. Until Congress steps up to its responsibilities and gets serious about addressing climate policy, let’s not distract ourselves by using EPA as a scapegoat for inaction.

Is FutureGen really dead?

It’s still unclear exactly why the Department of Energy is trying to back out of FutureGen, but the most likely explanation is that they are trying to back themselves out of another billion-dollar boondoggle (they’ve had quite a few). FutureGen is a collaboration between DoE (fronting 75% of the CAPEX) and a consortium of oil and coal companies under the FutureGen Industrial Alliance umbrella. Siting of the plant has been contentious, but recently was awarded to a site in eastern Illinois.

Despite media coverage claiming that DoE “scrapped” FutureGen, the future of the project is likely good. Even in a carbon-constrained world, coal-fired electricity generation is not going away. The solution is to bring down the OPEX of integrated gasification combined cycle (IGCC) technology and carbon capture and storage (CCS). If you’re looking more than ten to twenty years in the future, whatever FutureGen costs is worth it. Without FutureGen or something like it, we’ll continue to stumble forward on carbon-free coal.

There are two routes forward: A- The Illinois Congressional delegation successfully adds language to the Energy Appropriations bill that forbids DoE from backing out of the project. B- The businesses in the Alliance go forward without DoE. Our guess is that (A) is more likely, as Illinois’ senior Senator (Durbin) is the #2 to Senate Majority Leader Harry Reid, and at this point in time Barack Obama has a decent chance of gaining the White House.

Canadians get nervous about oil sands and U.S. law

Greenwire is reporting that Canada is lobbying the White House not to interpret a provision in the 2007 energy bill in a way that would be unfavorable to continued U.S. purchase of crude and refined petroleum that originally sources from Alberta’s oil sands fields. Section 526 of the Energy and Security Act of 2007 forbids Federal agencies from procuring alternative or synthetic fuels unless the lifecycle GHG emissions of the fuel is lower than the equivalent conventional fuel.

Apparently Canada is worried that since their oil is immediately mixed with the general supply, a ban on Federal procurement of carbon-intense fuel means effectively a ban on all Canadian carbon-intense fuel. Unfortunately for the Canadians, most of their fuel is extremely carbon-intensive. They can come to grips with their reality now or later, but within the next few years both Federal and state regulations in the U.S. will severely limit imports of Canadian oil derived from oil sands. The unfortunate reality for the Canadians is that going forward

a- there will be low-carbon fuel standards in place across the U.S. following California’s lead;

b- a national cap-and-trade will put oil sands-derived products at a big economic disadvantage; and

c- even if the Canadians do deal with the high carbon costs of oil sands by capturing and storing CO2 during refining, it will likely drive the costs of their product so high as to be uncompetitive.

Gov. Richardson uses his first post-run speech on climate and energy policy

New Mexico Gov. Richardson, fresh off the campaign trail after dropping out of the Dem race in January, gave a speech at the Pew Center yesterday (video). Where upon dropping out of the race John Edwards had used his position as a prominent candidate to push the remaining Dems to press on poverty as a major campaign issue, Gov. Richardson’s speech yesterday is doing the same for energy and climate policy.

Gov. Richardson started right off the bat by relating his conversation with EPA Administrator Johnson over the Clean Air Act waiver denial (see this post), then called the 35 mpg CAFE standard in the latest energy bill “totally inadequate,” saying that it should go to 50 mpg. He went on to call the failure of a national RPS to pass “shameful.” Later in the speech he said that the state of the climate cannot just be a top-10 priority for the next President, but must be a “State of the Union priority.”

Our take: these are not just strong words from a former presidential candidate, they are shot-across-the-bow words, and an indication that Gov. Richardson will be spending no small amount of his political capital to force the prominence of energy and climate policy in the upcoming election.

Still not an election issue…

And climate won’t become an election issue any time soon. Even if the voting public cared about climate policy (and they don’t), the three remaining candidates are not far enough differentiated on climate policy to run on distinctions between them. This will remain so through November as voters continue to tell pollsters that climate and environmental matters rank well down on their priority lists, and pundits continue to realize that McCain v. Obama or McCain v. Clinton on climate policy is a non-debate.

So why even bother making this point?  Because what public disengagement means is that since a vast majority of the voting public will not turn their vote on this issue, the details of the issue are left to the interests to hash them out in relative obscurity. In terms of this election what will be interesting to track is not how much detail the candidates give, but which groups push climate as an election issue, how aggressively they do so, and how their opponents respond.

Rep. Dingell as roadblock?

Rep. John Dingell (D-MI-15) is the longest-serving member of Congress and currently Chair of House Energy and Commerce. Although Senate action on climate has been limited to passing S.2191 out of the Environment and Public Works committee, House action has been even more limited due in no small part of Dingell’s apparent lack of desire to see carbon regulation on the books (some would say because he represents Detroit). However, despite being what most consider a roadblock to climate regulation, Dingell’s committee released a 25-page white paper on Feb 25th that is well worth reading and gives deep details on policy considerations of a regulatory market (see also). Curiously, the Executive Summary of the white paper includes this passage:

Addressing climate change will require employing a variety of tools. The primary tool at the Federal level will be a national, economy-wide cap-and-trade program that reduces greenhouse gas emissions by 60 to 80 percent by 2050.

As has become somewhat commonplace, there are mixed signals here from Rep. Dingell as he has been considered an opponent of carbon regulation (his public statements on the topic have not been terribly nuanced). At the same time, a section of his website is devoted to carbon tax legislation, and other statements over the past year have him simultaneously supporting and opposing climate regulation. So at this point we have numerous statements from Rep. Dingell that thinly veil opposition to climate regulations, a stated position from him seeking a carbon tax regime, and now a new white paper that both states that there will be a cap-and-trade regime, and calls for Federal preempting of state climate laws.

Our suspicion is that Rep. Dingell has not found within any major changes in heart about carbon regulation, and will seek out poison pills and delaying tactics wherever he can find them. He is genuinely opposed to climate legislation, but as a prominent Democratic member of Congress and Chair of a key House committee is bearing a mountain of pressure to move forward on climate.

Transmission siting

A little-discussed provision in the 109^th Congress’ Energy Policy Act (PL 109-058, a.k.a. H.R. 6) granted eminent domain powers to construct transmission lines wherever DoE declares a “national interest electric transmission corridor.” (See Sec. 1221 of the final PL 109-058 conference report, starting on page 1096 of this pdf.) This provision largely escaped the notice of property-rights crusaders (they must have been focused on ESA reform, but some people have noticed), but the program created by Sec. 1221 has already ramped up in the west and you can expect eminent domain takings within the next few years. Ostensibly the provision is to benefit the grid in general, but wind will be the biggest winner here.

Carbon regulation policy as of Feb 08

Chances continue to hold somewhere between slim and none for passage of any greenhouse gas mitigation legislation before February 2009, and more likely November 2009.

Despite great optimism from the enviro community about the potential for GHG regulations after the Democrat sweep in the 2006 Congressional elections, it was always quite clear that as long as the Bush Administration still occupies the White House there will be no movement on carbon emissions. That understanding was cemented two days ago when it was revealed that EPA Administrator Johnson denied California’s Clean Air Act waiver request (20-Dec story) over the objections of most of his senior staff. (Administrator Johnson was not installed in his position because he would be willing to stray from White House wishes on major policy questions.)

Is passage of anything during the 110th Congress (ending this December) likely? Our guess is no.Congress will flee the D.C. heat in July, and for the most part stay away for the campaigns through early-November (they usually return to business after Labor Day), leaving little time to get anything done this year. Considering that only one carbon bill has even seen committee markup (S.2191 was passed out of EPW in the Senate; Rep. Dingell continues to be a roadblock to House movement), chances are slim that a bill could see final passage. Final passage means committee hearings and markups in both chambers (at least two committees in the Senate and four in the House will have different pieces of the bills), floor debate and passage in both chambers, a Conference Committee process to reconcile the differences between the House and Senate bills, then approval of the Conference Committee’s compromise bill by both chambers.

Although leadership in both chambers is unlikely to change after November’s elections, Congress is unlikely to plow through this process with a new President and a new Congress seated in January 2009.