Greenwire

Kerry-Graham-Lieberman: The Tax Formerly Known As Cap-and-Trade

by Marlo Lewis on March 11, 2010 · 1 comment

in Global Warming

My colleague Julie Walsh flags a funny statement by Sen. Joe Lieberman (I-CT), quoted earlier this week (Mar. 9) in Greenwire (subscription required). Although Lieberman, Sen. John Kerry (D-MA), and Sen. Lindsey Graham (R-SC) want to include cap-and-trade in their draft climate and energy legislation, they are reluctant to use the term.

Greenwire reports:

Lieberman also downplayed the use of the term “cap and trade” when it comes to limiting emissions, even though that is generally the plan with their bill. “We don’t use that term anymore,” he said. “We’ll have pollution reduction targets. Remember the Artist Previously Known as Prince?”

According to earlier reports, Graham et al. may propose to combine an electric utility sector cap-and-trade program with carbon taxes on transportation fuels. If so, then Kyotoism is truly dead. Electric utilities are gung-ho for cap-and-trade only if it’s economy-wide, so they can sell the free emission permits they would get under a bill like Waxman-Markey to other sectors receiving fewer or zero freebies.

Also, Waxman-Markey is a non-starter in the Senate because millions of Americans now understand that cap-and-trade is a stealth tax on energy. Combining carbon taxes with cap-and-trade is hardly the bold alternative and fresh start Graham, Kerry, and Lieberman are promising. Indeed, if this is what’s on offer, it’s even more obviously a tax, and should be even easier to shoot down!

The Artist Formerly Known As Prince was still Prince even before he changed his name back to Prince! And an energy tax by any other name is just as foul.

RGGI: A tax is a tax is a tax

by Marlo Lewis on December 4, 2009

in Global Warming

President Obama and other cap-and-trade advocates assured us they had ”learned from Europe’s mistakes” and would auction all emission permits rather than hand them out at no charge to favored constituencies. Then the sausage factory known as Congress took over. The Waxman-Markey cap-and-trade bill proposes to dole out 85% of emission permits to preferred interest groups during the first several years of the program.

What explains this flip-flop? 100% auctioning turns a cap-and-trade program into an energy tax by another name. Actually, whether the permits are auctioned or not, cap-and-trade still raises consumer energy prices, but when permits are auctioned cap-and-trade is nakedly a revenue raiser for the bureaucratic sector. So Waxman-Markey drafters got cute and decided to phase in the auctions over time, on the theory, apparently, that we’re dumb as proverbial frogs in a pot of slowly boiling water and won’t notice being taxed by increments.

Another of the supposed “mistakes” Europe made in setting up its emissions trading system (ETS) was to “over-allocate” emission permits. This crashed the market for energy ration coupons, undercutting any incentive to reduce emissions or invest in lower-carbon energy technologies.

Well, ten Northeastern states, keen to demonstrate their climate leadership and solidarity with the Kyoto Protocol, got together and enacted the Regional Greenhouse Gas Initiative (RGGI), a multi-state cap-and-trade program in which almost all carbon permits are auctioned.

However, as Greenwire reports today (subscription required), “RGGI emission prices continue to slide in sixth auction”: 

Prices slid again in the Regional Greenhouse Gas Initiative’s (RGGI) sixth auction for 2009 emissions allowances to $2.05 per short ton of carbon dioxide equivalent, the Northeast pact announced here today. The previous auction netted $2.19 per ton in September.

More importantly, ”… 2012 allowances fell slightly in the Wednesday auction, to $1.86 per ton, from $1.87 in September.”

Why so?  “There’s way too much supply, and there is no demand,” said Tim Cheung, an analyst with New Energy Finance. “You’re going to have these excess allowances that will continue to carry over to future years, which is why we think that prices will remain depressed going forward.”

RGGI avoided one of Europe’s “mistakes” only to repeat another. Among other things, the plunge in permit prices means RGGI is doing and will do squat to reduce emissions.

So even when politicians auction permits, rather than hand out them out as freebies, they can still run a system as ineffectual (in terms of its stated purposes) as Europe’s ETS.

Which raises an obvious question: Besides giving New England politicos a platform on which to preen and prate about their efforts to save the planet, what is RGGI good for?

Raising taxes, of course. Greenwire reports that:

About 31 million allowances were sold this week, mostly to energy producers facing RGGI compliance rules and secondary market traders. Participants bought 28.5 million 2009 allowances and just under 2.2 million 2012 allowance futures, with cash-strapped state governments garnering $61.6 million [emphasis added].

All told, RGGI has raised about $500 million for state governments in auction proceeds. But here’s where the story gets really interesting. “The 10 RGGI state governments are supposed to use auction proceeds to fund renewable energy or energy efficiency initiatives, but governments are using that cash to plug holes in their budgets.” 

Greenwire mentions two examples:

Earlier this week, the research firm Point Carbon pointed to New York as the latest to cheat, with Albany passing a bill that will allow it to tap $90 million of RGGI auction proceeds to help fill its $5 billion budget shortfall. Today, New York’s Department of Environmental Conservation said the state drew $25.4 million in Wednesday’s auction.

Maryland became the first state to break ranks and use RGGI cash for a project not related to clean energy promotion. In April, Bloomberg reported that Maryland’s Legislature voted to use $70 million of its auction revenue for a rebate program designed to help low-income residents pay electricity bills.

It’s just like my colleague Myron Ebell likes to say. “There are three things you need to know about cap-and-trade: It’s a tax, it’s a tax, it’s a tax.”

Nike quits the Chamber. When will the sanctimony end?

by Marlo Lewis on September 30, 2009 · 1 comment

in Global Warming, Sanctimony

Today’s Greenwire (subscription required) reports that Nike, the sports shoe king, is resigning its position on the U.S. Chamber of Commerce’s Board of Directors. Nike supports cap-and-trade legislation, a national renewable portfolio standard, a moratorium on new coal power plants lacking carbon capture and storage, and EPA regulation of CO2 under the Clean Air Act. The Chamber opposes all of the foregoing.

Although the Greenwire story is not slanted, neither is it particularly informative. The reporter makes no effort to ascertain what bottom line interest might account for Nike’s decision to quit the Chamber, or for the company’s decision to join the Business for Innovative Climate & Energy Policy (BICEP) coalition, a project of Ceres, the Gorethodox investor network.

The vast majority of Nike’s production facilities are in China and other Asian developing countries such as Thailand, Indonesia, and Vietnam. (I can’t find exact numbers — Nike appears to be coy about the details.) Nike factories in developing Asia would not be subject to CO2 controls from either Waxman-Markey or EPA regulation under the Clean Air Act.

What’s more, if the G-77 Plus China hang tough at the Copenhagen climate conference, and the successor treaty to the Kyoto Protocol continues to exempt developing countries from legally binding emission limits, then the comparative advantage (lower energy costs) those countries already enjoy under Kyoto will increase, making Nike factories even more profitable to invest in.

Here’s what an honest Nike press release might say: 

Nike believes U.S. policymakers should use law, regulation, and the Copenhagen treaty to hobble domestic firms in favor of the Asian economies where our facilities are located. In contrast, the U.S. Chamber opposes policies that would offshore more U.S. jobs and investment to China and developing Asia. A truly carbon-constrained world would destroy jobs and growth in Asia, too. However, that’s years away, and Nike cares only about its short-term bottom line. Therefore, we are pulling out of the Chamber. 

Instead, Nike tut-tutted about the need for “urgent action” on climate change. When will the sanctimony end?

Enviros flail over FOIAed Treasury documents

by Marlo Lewis on September 17, 2009 · 2 comments

in Global Warming

A headline in yesterday’s evening edition of Greenwire (subscription required) declares: ”Treasury; enviros go on offensive against media reports of cap-and-trade costs.” In fact, enviros went on defense.

As has been widely reported (e.g. here, here, here, and here), CEI, using the Freedom of Information Act (FOIA), obtained two Treasury Department documents discussing the cost of a cap-and-trade program. The first of these documents, dated 11/6/08, states (p. 1) that the administration’s plan to auction all allowances under a cap-and-trade program “could generate federal receipts on the order to $100 to 200 billion annually.” It further states (p. 2) that, “Economic costs will likely be on the order of 1% of GDP, making them equal in scale to all existing environmental regulation.”

To put these numbers in perspective, CBS reporter Declan McCullagh said that a cap-and-trade program costing $200 billion annually would be ”equivalent to hiking personal income taxes by about 15%,” or an “extra $1,761 per household.” As you can imagine, cap-and-traders went ballistic.

Greenwire faults McCullagh for neglecting to “state that Obama publicly stepped back from a 100% auction of allowances as the House negotiated and passed a climate bill that gives away more than three-quarters of the allowances for free during the program’s first years. The House legislation auctions only 18% of the allowances until about 2020.”

Greenwire quotes Treasury official Alan Kreuger, Harvard economist Robert Stavins, Josh Dorner of Sierra Club, and Tony Kreindler of Environmental Defense Fund, all asserting that McCullagh’s analysis is incorrect, because both the Obama plan and the House bill would return billions of dollars to taxpayers from auction permit sales.

Three points are in order here. First, Obama has not abandoned 100% auctioning.  OMB’s Mid-Session Review of the federal budget (Table S-11) projects “climate revenues” from “emission allowance auctioning” of $626 billion during 2010-2019. That’s slightly lower than the $645.7 billion in climate revenues projected in the President’s Budget(Table S-2). But the difference results from a technical adjustment, not a change in policy to accommodate the Waxman-Markey bill. The Mid-Session Review is an official statement of administration policy; it assumes 100% auctioning of emission allowances.

Second, the whole issue of auctions vs. free allocations is largely a distraction. Whether emission allowances are auctioned or distributed free of charge, the emissions cap determines the total number of allowances, and the market (supply and demand) determines allowance prices. The 11/6/08 Treasury memo is quite clear on this point: “Emission allowances under a cap and trade system are valuable assets regardless of their allocation method (analogous to revenue under an equivalent tax policy).”

As the cap tightens, the supply of allowances declines, allowance prices increase, and energy prices increase. Consequently, consumer spending, GDP, job creation, and wages all decrease relative to what they would be in a non-carbon-constrained economy. 

These impacts are the intended effect of a cap-and-trade program, and they occur regardless of whether allowances are auctioned or given away. The Heritage Foundation’s analysis of the Waxman-Markey bill, for example, assumes the allowance allocation scheme outlined in Reps. Waxman and Markey’s May 14, 2009 Memorandum, “Proposed Allowance Allocation.” The allocation formula in the final legislation passed by the House in June differs only in the details. The Heritage analysis projects significant economic impacts by 2035:

  • Gasoline prices will rise 58% (or $1.38/gallon) above the baseline forecast, which already contains price increases;
  • Natural gas prices will rise 55%;
  • Heating oil prices will rise 56%;
  • Electricity prices will rise 90%;
  • A family of four can expect to pay $1,241 more for energy costs per year;
  • Including taxes, a family of four will pay$4,609 more per year;
  • A family of four will reduce its consumption of goods and services by up to $3,000 per year, as its income and savings fall;
  • Aggregate GDP losses will be $9.4 trillion;
  • Job losses will be nearly 2.5 million; and,
  • The national debt will rise an additional $12,803 per person.

Third, returning part of the revenues from auction sales to households via tax rebates does not ensure low economic impact. Payments for auctioned permits are not the only cost of Waxman-Markey. A bigger cost is the damage done to the economy via higher energy prices. Even with the distribution of allowance revenues to households and other interests, the Heritage Foundation finds Waxman-Markey’s damage to the economy exceeds $9 trillion in the first 24 years.

 A reductio ad absurdum may help clarify this. Imagine that we tax milk at $30,000/gallon and rebate the tax revenue directly to each citizen. Bill Gates buys one gallon per year and nobody else buys any. The tax is returned to the 300 million residents of the United States and each gets $0.0001.

Proponents thus conclude that there is no economic impact. They overlook a whole slew of devastating costs: Lost profits and jobs in the dairy sector, lost tax revenues from the dairy industry, higher unemployment benefit payments, poorer nutrition and health, etc.

Claims that Waxman-Markey is a bargain once you consider the taxpayer rebates are similarly bogus.

NIMBY for me, not for you — Robert Kennedy, Jr.’s selective embrace of renewable energy

by Marlo Lewis on September 8, 2009

in Features, Global Warming, Sanctimony, Zeitgeist

Today’s Greenwire (subscription required) carries a lengthy article on a nasty spat between Robert F. Kennedy, Jr. and California environmental groups over the proposed siting of solar electricity plants in the Sun-drenched Mojave Desert.

Kennedy — like his cousin-by-marriage Gov. Schwarzenegger — wants to allow ”alternative energy” companies to build solar power stations in the Mojave. As the Governator was widely quoted as saying, “If we cannot put solar power plants in the Mojave Desert, I don’t know where the hell we can put it.”

But according to Sen. Diane Feinstein (D-CA), David Myers of the Wildlands Conservancy, and others, the solar stations would wreck the habitat of the desert tortois, a threatened species under the California and federal Endangered Species Acts. Feinstein and Myers support legislation (not yet introduced) to designate 1 million acres of the Mojave as a national monument — an action that would preclude commercial development within the area.

On the surface, it looks like a conflict between those, like Kennedy, who believe that no merely “local” concern should interfere with the quest for a ‘clean energy future,’ and those, like Myers, whose loyalties are divided between saving a particular species and saving the planet.

Two tidbits from the Greenwire article reveal that the situation is a bit more complicated. One is that Kennedy has a financial interest in Brightsource, the company that would be building the solar plants if the Mojave project is approved. The other is that Kennedy opposes a major renewable energy project in his own backyard — a windfarm in Nantucket Sound, near the family compound in Martha’s Vinyard.

Of course, those with any experience of politics should not be surprised if sanctimony walks hand-in-hand with greed, or if the goose insists that sauce is only for the gander.

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.