CO2

Finding Something to Praise in Obama’s Speech Today

by Iain Murray on September 22, 2009

in Economy, Energy, Environment, Global Warming, International, Regulation, Sanctimony, Stimulus to Nowhere

While this speech is mostly hogwash, I am surprised and delighted to be able to find one thing to praise in it:

Later this week, I will work with my colleagues at the G20 to phase out fossil fuel subsidies so that we can better address our climate challenge

This is the right thing to do, for reasons I explained in my recent paper co-written with Sterling Burnett of NCPA (extract follows jump).

While many governments of developed nations argue for a worldwide reduction in fossil fuel use in order to combat climate change, those same governments also subsidize energy use and production.

In 2001, the countries of the EU-15 (the “old Europe” nations in the European Union) spent $16.77 billion (in 2009 dollars) subsidizing coal and $11.23 billion subsidizing oil and gas.

The International Energy Agency (IEA) estimates that developing countries spend around $220 billion annually on subsidies for energy production and consumption, of which $170 billion subsidizes fossil fuels [see Figure I]. Including developed countries, subsidies for energy production and consumption worldwide amount to around $300 billion, the majority of which are for fossil fuels.

Such subsidies reduce energy prices below what the market would set, encouraging greater use and raising emissions levels. Direct subsidies include grants to producers and consumers, government investment in research or infrastructure and preferential loans or tax treatment. Indirect subsidies include trade restrictions, price caps and market regulations that guarantee sales volume and restrict competition.

Many signatories to Kyoto subsidize carbon-based fuel use and production. Such subsidies “tilt the playing field,” discouraging research expenditures by private energy companies in developing alternative energy sources. Producers and consumers of other energy sources then demand subsidies to “level the playing field.” Thus, government intervention causes significant distortions in energy markets.

British Petroleum estimates that countries that subsidize transportation fuel use accounted for 96 percent of the increase in oil demand in 2007.13 Many of them are less-developed nations that subsidize both production and consumption of fuels. The IEA estimates that removing domestic price subsidies in China, India, Indonesia, Iran, Russia, Kazakhstan, South Africa and Venezuela would reduce global energy use 3.5 percent and reduce global CO2 emissions 4.6 percent.

U.S. Energy Subsidies.

The U.S. Energy Information Administration (EIA) calculates that federal energy subsidies amount to $16 billion annually [see Table II]:

In 2007, the federal government spent approximately $5.5 billion on subsidies for the coal, oil and natural gas industries— principally tax breaks for investment — including $3 billion for coal and natural gas, and more than $2 billion for research and development of clean-coal technology to reduce greenhouse gas emissions from coal.

The government spent an additional $1.2 billion for electricity production and use (not fuel specific), and $2.8 billion to increase the energy efficiency of homes and businesses.

It spent an additional $5 billion for renewable energy production and use, mostly in the form of tax breaks.

Finally, $1.2 billion went to the nuclear industry.

The EIA found that subsidies doubled from 1999 to 2007, due mainly to expanded subsidies for renewable energy and clean-coal technology.

Policy Recommendations. There are a number of neutral energy policies that could be implemented at the national or international level to reduce subsidized production and use:

International trade talks should include eliminating subsidies for fossil fuel production and consumption.

National budgets should be reviewed with the goal of eliminating programs that encourage energy use.

Subsidies and tax breaks, or tax penalties, for specific energy technologies should be eliminated to remove price distortions in energy markets.

A neutral energy tax policy, for example, would include replacing the federal tax-depreciation schedule for investment in new capital stock with immediate expensing. New equipment almost always produces fewer emissions per unit of output than older equipment.

Changing the depreciation schedule so that new investments could be written off immediately would make it profitable to replace old equipment at a much quicker pace. This simple change could do more to increase energy efficiency throughout the economy than the current complicated expensing regime.

Unfortunately, given the President’s praise for loan guarantees and tax credits elsewhere in the speech, he is failing to pursue a neutral energy tax policy, but I’ll give him due credit for at least addressing half of the market distortion.

EPA proposes illegal rule

by Marlo Lewis on September 2, 2009 · 2 comments

in Global Warming

Yesterday, the U.S. Environmental Protection Agency (EPA) sent a draft proposed rule to the Office of Management and Budget (OMB) that would exempt small emitters of carbon dioxide (CO2) from Clean Air Act (CAA) pre-construction permitting requirement, Greenwire reports.

The proposed rule, as described in Greenwire, is blatantly illegal. It is a tacit admission that the Supreme Court decision in Massachusetts v. EPA set the stage for an economic disaster. It is additional evidence that Mass v. EPA was wrongly decided. It confirms CEI’s warning that the Court’s ruling imperils a core constitutional principle — the separation of powers.

In Mass. v. EPA, the Supreme Court, by a narrow 5-4 majority, decided that CO2 and other greenhouse gases (GHG) are “air pollutants” within the meaning of CAA, and gave EPA three options: (1) issue a finding that GHG-related “air pollution” “may reasonably be anticipated to endanger public health or welfare,” (2) issue a finding of no endangerment, or (3) provide a “reasonable explanation” why the agency cannot or will not exercise its discretion to make such a determination.

The Court further held that if EPA makes a finding of endangerment, then it has a duty, under CAA Sec. 202, to develop and adopt GHG emission standards for new motor vehicles.

EPA picked option (1), and last month, it sent OMB a draft proposed rule to establish GHG emission standards for new motor vehicles.

Although the Court majority asserted that an endangerment finding could not lead to “extreme measures” and would only require a cost-constrained adjustment of existing federal fuel-economy standards (see. p. 28 of the decision), in fact the endangerment finding will trigger a chain reaction throughout the CAA — a regulatory cascade potentially exceeding in cost, scope, and intrusiveness the Kyoto Protocol and many other GHG-control schemes Congress has never seen fit to pass.

For starters, establishing GHG emission standards for new motor vehicles will by definition make CO2 a CAA-regulated air pollutant. As such, CO2 would automatically be ”subject to regulation” under the Act’s Prevention of Significant Deterioration (PSD) pre-construction permitting program (CAA Sec. 165). Under the CAA, any firm that plans to build a new “major” stationary source, or modify an existing major source in a way that would significantly increase emissions, must first obtain a PSD permit from EPA or a state environmental agency.

A PSD source is “major” if it is in one of 28 listed categories and has a potential to emit 100 tons per year (TPY) of an air pollutant, or if it is any other type of establishment and has a potential to emit 250 TPY (CAA Sec. 169). 

And there’s the rub. Whereas only large industrial facilities have a potential to emit 250 TPY of air contaminants such as sulfur dioxide or particulate matter, an immense number and variety of entities – office buildings, hotels, big box stores, enclosed malls, small manufacturing firms, even commercial kitchens – have a potential to emit 250 TPY of CO2. A September 2008 report commissioned by the U.S. Chamber of Commerce  estimates that 1.2 million buildings and facilities – most of them currently unregulated under the CAA – actually emit 250 TPY of CO2. All would be vulnerable to new PSD regulation, controls, paperwork, penalties, and litigation.

To obtain a PSD permit, firms must document their compliance with ”best available control technology” (BACT) standards. Even apart from any technology investments needed to comply with BACT, the PSD permitting process is costly and time-consuming.  In a recent year, each permit on average cost $125,120 and 866 burden hours for a source to obtain,  EPA estimates. No small business could operate subject to the PSD administrative burden.

The costs, uncertainties, and delays from applying PSD and BACT to CO2 would have a chilling effect on economic development and construction activity. It would turn the CAA into a gigantic Anti-Stimulus Package in a period of financial crisis and high unemployment. Definitely not something the Obama administration wants on its record in the 2010 election season.

EPA’s July 2008 Advanced Notice of Proposed Rulemaking (ANPR) outlined several administrative remedies to shield small entities from PSD requirements, all of doubtful legality. But if the Greenwire article is accurate, EPA is opting for the most brazenly illegal option of all. It proposes to revise, on its own authority, the PSD threshold from 250 TPY to 25,000 TPY.

Now friends, under the 1984 Supreme Court case of Chevron v. NRDC, EPA has considerable discretionary authority in interpreting the CAA where the statute is “silent or ambiguous with respect to the specific issue.” But there is nothing ambiguous about the number 250. No matter how you squint at the page, 250 is 100 times smaller than the threshold EPA proposes to put in its place.

According to Greenwire, Sierra Club’s David Bookbinder, a counsel for petitioners in Mass. v. EPA, “said the rule would also deflect claims from Republican lawmakers and industry groups that the Obama administration is seeking to regulate small emission sources such as doughnut shops, schools, and nursing homes.” But the Obama administration’s intent is not the issue. The issue is whether EPA, as a matter of law, must apply PSD requirements to doughnut shops, etc. once it starts regulating CO2 under Sec. 202.

Greenwire then quotes Bookbinder: “Putting this rule in place deflates a lot of political rhetoric about regulating CO2.” Well, I hope industry and the GOP are not so naive as to put their trust in an illegal rule. A rule that flouts clear statutory language of the CAA can provide no durable protection from the regulatory cascade that an endangerment finding and EPA adoption of motor vehicle GHG emission standards would unleash.

EPA’s proposed draft rule is a tacit admission of what CEI has said all along: EPA cannot regulate CO2 under the CAA without endangering the U.S. economy — unless EPA plays lawmaker, amends the Act, and violates the separation of powers. When the Supreme Court handed down the Mass. v. EPA decision, it set the stage for a constitutional crisis.

Of course, the bigger constitutional crisis stemming from Mass. v. EPA is that we could end up with an energy suppression regime far more costly than Kyoto or Waxman-Markey, yet without the people’s elected representatives ever voting on it.

For the gory details, see my blog post on MasterResource.Org and my comment (pp. 28-56) on EPA’s proposed endangerment finding.

Energy Coalition

by Richard Morrison on September 2, 2009

in Environment, Global Warming, Sanctimony, Video, Zeitgeist

[youtube:http://www.youtube.com/watch?v=X5ff2xcy7qY 285 234]

WTO-UNEP report gives the nod — sort of — to carbon border taxes

by Fran Smith on June 26, 2009

in Environment, Global Warming, Trade

Today, the World Trade Organization, together with the UN Environment Programme posted a report on trade and climate change that outlines how carbon border taxes may be consistent with WTO rules. It is a very careful discussion of relevant articles, their intent and interpretation, and related WTO cases (though no case has specifically dealt with climate change).

In some cases, the WTO-UNEP discussion reads like “on the one hand, and on the other.” The report is bound to provide environmental groups with ammunition to argue that CO2 border taxes are WTO-compliant. However, the issues and their legal precedents are not that clear-cut. What’s more likely is that the introduction of border taxes or similar measures will open up a flood of retaliatory actions and disputes.

Here’s a summary from the report of the relevant GATT and WTO rules:

If a particular measure is inconsistent with one of the core provisions of the GATT (e.g. Articles I, III or XI), it could still be justified under Article XX. Article XX lays out a number of specific instances in which WTO members may be exempted from GATT rules. Two exceptions are of particular relevance to the protection of the environment: paragraphs (b) and (g) of Article XX. According to these two paragraphs, WTO members may adopt policy measures that are inconsistent with GATT disciplines, but necessary to protect human, animal or plant life or health (paragraph (b)), or relating to the conservation of exhaustible natural resources (paragraph (g)).

The report was issued just as the U.S. House of Representatives was to begin consideration of the Waxman-Markey energy bill, which, according to Inside Trade (subscription required), will include a Ways and Means Manager’s Amendment with provisions for carbon border adjustments to address competitive and so-called leakage issues.

Cap and Trade Round-Up

by Richard Morrison on June 23, 2009

in Energy, Environment, Features, Global Warming, Zeitgeist

Word has it that the Waxman-Markey cap-and-trade/energy tax bill is finally hitting the floor of the House, probably this Friday. CEI is decidedly in the “anti” camp. To that end, we released a statement this morning by Director of Energy and Global Warming Policy Myron Ebell on the legislation and its potential impacts:

Waxman-Markey is a 1,201-page economic suicide note. Those Members of the House who vote for it are voting for long-term economic decline and for turning the United States into a second-rate economy.

Take that, Henry and Ed! But there’s more. Yesterday The Hill published an op-ed on cap and trade by Bob Murray, CEO of Murray Energy and a member of CEI’s advisory council:

Perhaps the most destructive legislation in our country’s history will soon be voted on in the House — the Waxman-Markey tax bill in the guise of addressing climate change. It will have dire consequences for every American. It will raise the cost of energy with little or no environmental benefit. Independent experts estimate that it will cost Americans more than $2 trillion in just over eight years.

CEI and the Cooler Heads Coalition were also mentioned in a story on the Waxman-Markey bill (“Lobbying Frenzy Begins as House Climate Bill Heads for Floor”) by Greenwire reporter Darren Samuelsohn which was republished online by the New York Times:

House Speaker Nancy Pelosi’s plan to bring a major climate and energy measure to the floor Friday has prompted a whirlwind of lobbying.

[...]

Opponents are also readying themselves for the floor battle, with the Cooler Heads Coalition, an ad hoc group of scientific skeptics and legislative critics, planning a special meeting today to organize for the vote. “It’s gonna be fun,” Myron Ebell, director of energy and global warming policy at the Competitive Enterprise Institute, wrote in an e-mail announcing the meeting.

That’s CEI for you – we’re merry warriors for freedom. More links and background info below.

6/23/09 -Did the CBO Underestimate the Cost of the Waxman-Markey Energy Tax? by William Yeatman

6/9/09 – Behind the Cap and Trade Curtain by Max Schulz (Manhattan Institute)

6/1/09 – Corporate Welfare on a Vast Scale: Obama’s Cap-and-Trade Scam Threatens Economy by Hans Bader

5/7/09 – CEI Sponsors Anti-Climate Tax Pledge by William Yeatman

5/5/09 – Chris Horner on the White House Energy Summit [TV interview]

4/23/09 – CEI Expert Warns Aginst Central Planning in Testimony Against Cap and Trade, by Kevin Mooney

4/22/09 – Testimony Before the Committee on Energy and Commerce by Myron Ebell

4/6/09 – Myron Ebell on Cap and Trade [TV interview]

3/24/09 – $2 Trillion Tax from Obama: Hidden Costs of “Cap-and-Trade” Scheme by Hans Bader



Chris Horner on the White House Energy Summit

by Richard Morrison on May 5, 2009

in Video, Zeitgeist

[youtube:http://www.youtube.com/watch?v=Y1cOLI2n2Ec 285 234]

Myron Ebell on Cap and Trade

by Richard Morrison on April 6, 2009

in Video, Zeitgeist

[youtube:http://www.youtube.com/watch?v=42AyuNKMFM4 285 234]

$2 Trillion Tax from Obama: Hidden Costs of “Cap-and-Trade” Scheme

by Hans Bader on March 24, 2009 · 3 comments

in Bailout Watch, Economy, Energy, Environment, Global Warming, Politics as Usual, Regulation, Stimulus to Nowhere

Obama’s proposed “cap-and-trade” carbon tax on energy use and utility bills is expected to raise up to $2 trillion, more than the $646 billion the Administration earlier estimated. The Washington Examiner‘s Tim Carney explains how this hidden tax works.

(Before his election, Obama explained that electricity bills would “skyrocket” under his Administration, but the press by and large wasn’t interested in reporting it).

The $2 trillion raised by Obama’s cap-and-trade scheme may be dwarfed by the money made, at consumers’ expense, by well-connected corporations that have learned how to game such schemes.

It won’t put much of a dent in the $4.8 trillion in additional debt resulting from Obama’s proposed budget, or the $8 trillion in spending commitments incurred by the Obama Administration (not counting another trillion dollars for the toxic-asset buy-up program and $800 billion for the economy-shrinking “stimulus” package), all of which contradict Obama’s campaign pledge of a “net spending cut.”

But you sure will notice it in your electric bills if it becomes a reality.

Will carbon market woes tilt U.S. pols towards carbon taxes, CAA regulation?

by Marlo Lewis on February 23, 2009 · 1 comment

in Energy, Global Warming, Legal

In today’s Guardian, Juliana Glover reports that carbon permit prices in Europe’s Emission Trading System (ETS) have crashed from €31 last summer to €8 today. This price is too low to create any incentive for covered entities to invest in ‘green’ technology. [click to continue…]

LibertyWeek 31: What in Dodd’s Name?

by Richard Morrison on February 23, 2009

in CEI Projects, Podcast

This week, host Cord Blomquist and co-host William Yeatman, along with guest commentator Ryan Young (Richard Morrison is off this week) take a whiff of the bank nationalizations floating through the air, and say they stink. Sen. Chris Dodd’s dodgy dealings in real estate come under scrutiny. Rep. John Murtha has a few multi-million dollar skeletons hiding in his own, heavily gilded, closet. Climate czar Carol Browner declares war on the economy. While favoring immigration in general, our hosts question the wisdom of “eco-migration.” Finally, we wish double-amputee Olympic hopeful Oscar Pistorius a speedy recovery.

Listen to Episode 31 of the LibertyWeek podcast here.

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