Should we worry about Chinese government subsidies to its solar industry? Or send the Chinese a thank-you note?

A group of seven US-based manufacturers of solar panels is alarmed. These manufacturers, led by Solar World, a German firm with a plant in Oregon, filed a complaint with the United States International Trade Commission, which reached a preliminary conclusion in December that US companies were, in fact, being harmed by subsidized imports. If the Commerce Department goes on to find that Chinese firms have been dumping solar panels on the US market at prices below their costs, it could impose steep tariffs of 50 to 250% on Chinese panels, according to this report in The Times by Matt Wald. The Chinese government provides billions of dollars of low-cost financing and free or cheap land to Chinese solar firms.

Jigar Shah

But much of the solar industry–led by Jigar Shah, the founder of Sun Edison, entrepreneur and environmental advocate–thinks this complaint is a terrible idea. Tariffs  would raise the costs of solar power to US business and consumers, at a time when those are coming down; they could also set off a solar trade war that would harm other US solar companies.

As it happens, the U.S. had a trade surplus of nearly $1.9 billion in the solar sector with China in 2010, as exports of raw material and factory equipment more than offset imports of finished solar panels, according to the Solar Electric Industries Association,. What’s more, Jigar says, most of the 100,000 or so jobs in the US solar industry — he says as much as 97-98% — are downstream of the manufacturing business in project development, logistics, construction and installation.

“SolarWorld’s petition will do far more damage than good to the U.S. solar industry as a whole,” Jigar wrote in this letter to Gordon Brinser of Solar World. “Every morning, thousands of hard-working Americans put on their tool belts and go build solar power plants. Our country needs more of those jobs, not fewer.”

What got me thinking about this brouhaha was an email the other day from a California company called Solar Power Inc., or SPI, that underscored for me just how committed the Chinese are to getting their solar panels onto rooftops in the US.  SPI said it had secured construction financing worth $44 million from the state-owned China Development Bank to fund construction of solar projects in New Jersey.

Why would a Chinese bank finance solar panels in the US? Well, it turns out that SPI is 70%-owned by LDK Solar, a Chinese company founded in 2005 that now says it “the world’s largest producer of solar wafers in terms of capacity and a leading high-purity polysilicon and solar module manufacturer.” LDK bought its controlling interest in SPI Solar last year in an effort to gain direct access to the US commercial market. With revenues expected to top $90 million last year, SPI is small to mid-sized developer of rooftop PV–it installed panels atop the Staples Center and the Fox Studios in Los Angeles and a Costco in New Jersey. “We’re a downstream market for LDK,” said Mike Anderson, vice president of communications for SPI Solar.

Now consider those solar panels on their way to rooftops in New Jersey–the Chinese manufacturer, LDK, gets low-cost land and financing from the Chinese government, SPI borrows from the state-owned China development bank to construct the solar arrays, the US government grants the panels a 30% investment tax credit and New Jersey’s renewable portfolio standard makes the project that much more attractive to the state’s utilities. No wonder the solar market is growing!

Supporters of the petition filed by SolarWorld, which employs more than 1,000 workers in Oregon and is the only company named in the trade complaint, argue that too much of the solar PV market is going to China. Chinese manufacturers now enjoy better than 50% of the global market for modules, up from single digit percentages in the late 1990s. Cheap Chinese solar helped drive US firms like the now-infamous Solyndra and Evergreen Solar into bankruptcy.

In a blogpost titled Educating Jigar Shah on Solar Trade, Hari Chandra Polavarapu, a solar analyst at a small firm called Auriga USA, declares: “The lower prices of solar cells and modules from China have so far served as a battering ram in destroying overseas solar PV manufacturing competition.”

“It’s true that lower prices benefit all rate payers — but if that is all there is to an economic argument, then the U.S. and the rest of the world should give up all manufacturing to China and services to India,” Polarapu writes.

My reactions:

1. Trade wars are risky. If the US imposes tariffs on Chinese solar panels, the Chinese will retaliate. They have already promised to investigate US subsidies.

2. Speaking of which, it takes chutzpah (that’s a technical term in economics) for US solar manufacturers to complain about subsidies in China since they, too, benefit from government-backed loans (yes, that means Solyndra), buy-American provisions in the stimulus package and favorable state tax treatment. SolarWorld got $40 million in tax credits from Oregon, where it employs about 1,000 people. Today’s Times has an excellent story about how the government pays for worker training programs for individual companies. Until the US brings a halt to crony capitalism (which would be good), US companies are in no position to whine when they find it elsewhere.

3. Maintaining solar panel manufacturing jobs in the US may be a lost cause. Solar cells and modules are not high tech products. They’re more like a flat-screen TV or an iPod than a Boeing jetliner. Chinese PV manufacturers benefit from efficient operations and low labor costs, according to this article in the MIT Technology Review.

4. The Chinese subsidies create a positive externality–lower carbon emissions, to the degree that solar panels replace dirtier fossil fuels. So long as they continue, we all benefit. If and when they stop, there’ll be no reason why other manufacturers can’t gear up to compete.

I’m not ready to send a thank-you note to China. But I’m thinking about it.

[Disclosure: I was paid last year to moderate an event for the Carbon War Room, which Jigar leads.]

If there’s one industry that ought to be concerned about the threat of global warming, it’s the insurance industry. OK, the ski industry, too, but I digress.

Dave Jones, California’s insurance commissioner, recently put it this way: “Climate change is an obvious physical threat to us all, but increasingly it also poses a serious financial threat to the insurance industry…” When extreme weather causes damage, insurers pay.

So you’d expect insurance companies to be among the most forceful voices in corporate America calling for the regulation greenhouse gas emissions.

Uh, no. They’ve been eerily quiet.

And, at the least, you’d expect them to be proudly steering some of their massive investments to clean energy or energy efficiency projects aimed at reducing emissions of greenhouse gases.

Wrong again.

“It’s surprising, in a sense, because they have so much to lose from climate change,” says Sharlene Leurig, senior manager of the insurance program at Ceres, a nonprofit coalition of investor and environmental groups. But, she notes, insurance is a conservative business. The industry is all about risk, but it doesn’t want to take the risk of speaking out on climate change.

This is the second of two blogposts about the insurance industry and climate. Yesterday, I blogged about federal and state-backed programs that are insure risky properties from flood and storm damage, creating potential liabilities for all of us. Today, I’ll ask why U.S. insurers–in stark contrast to the big European reinsurance companies–have been missing in action during the Washington climate wars.

Consider: The U.S. Climate Action Partnership, an alliance of big companies and environmental groups calling for a cap on carbon emissions, includes 21 companies–seven utility companies, industrial giants GE and Siemens, chemical firms Dow and DuPont, Alcoa, Shell, Rio Tinto, Johnson & Johnson, PepsiCo and not a single insurer since the departure of AIG (for reasons unrelated to climate).

Business for Innovative Climate and Energy Policy, or BICEP (which is a project of Ceres), another coalition pushing hard for policies to drive a low-carbon economy, includes Nike, Starbucks, Timberland, eBay, Gap, Avon and the Aspen/Snowmass, among others. No insurers.

Now…this isn’t to suggest that insurers have been entirely absent from the climate debate but mostly they’ve focused on their parochial interests. Some companies, for example, have asked the federal government to provide wind as well as water coverage in the event of hurricane damage. Others proposed want the federal government to offer reinsurance — that’s insurance for insurance companies — to protect against a major catastrophe, or “mega-cat” in industry argot. Fireman’s Fund, a unit of the German financial services firm Allianz, has been writing “green insurance” policies for building owners. (See my blogpost, Fireman’s Fund: an insuror that isn’t dull.)

But the industry has been a non-factor on the big issues, unlike the European reinsurance firms which have repeatedly warned of climate risks. Way back in 2007, Andrew Castaldi, head of the catastrophe risk unit for Swiss Re America Corp, told a Senate committee: “We believe unequivocally that climate change presents an increasing risk to the world economy and social welfare.” In a 2009 report, Lloyd’s of London warned of climate change contributing to “resource-driven conflicts; economic damage and risk to coastal cities and infrastructure; loss of territory and resultant border disputes; environmentally induced migration; government fragility; political radicalisation; tensions over energy supplies and pressures on international governance”. Munich Re, the world’s biggest reinsurer, said last year:  “It would seem that the growing number of weather-related catastrophes can only be explained by climate change.”

When I emailed the Property Casualty Insurers Association of America to ask why the industry hasn’t been more vocal, David Kodama, senior director of research and policy analysis for PCI, replied:

Climate change is one among many of important strategic risks for insurers. Broadly speaking, insurance companies assess and monitor developments associated with climate change and, as appropriate for the individual insurer, incorporate the relevant information into their business model and practices.

However, climate change is a particularly complex issue and its causes, effects and the relevant variables that impact it are multifaceted and not well understood.

…It is prudent for the many insurers to continue to study the issue.

Could the association be any more cautious? “Climate change is a heavily politicized issue in the US,” Ceres’ Sharlene Leurig says, when I ask her why the companies have stayed on the sidelines. “Why put your neck out there and start messaging about a topic that many consumers are confused about and, in some instances, downright hostile to?” Of course, that’s exactly what bolder companies like Nike and Starbucks are doing with BICEP.

There may, however, be another reason why insurers have been loathe to speak out: They write liability coverage for corporations, including oil and coal companies, which are being sued over climate-related liability.

An aerial view of Kivalina, Alaska

Claims have been filed against fossil fuel companies that remind some people of  class-action suits against tobacco and the asbestos makers. In Comer v. Murphy Oil, plaintiffs sued corporate defendants claiming personal injury and property damages caused by the allegedly climate change-induced impacts of Hurricane Katrina. In Village of Kivalina v. ExxonMobil, a native Alaska group sued oil and gas companies and US utilities claiming that coastal erosion caused by global warming would force them to relocate their fishing village.

In a fascinating interview with an Australian newspaper, Gerald Maples, the lead attorney in the Comer case, said he’ll go after those fossil fuel companies that misled the public about the dangers of climate change, just as tobacco companies sowed doubt about the danger of smoking: “It’s pretty much accepted history that asbestos and tobacco are the role models for climate change litigation now.”

Happy New Year! And good riddance to 2011, a year during which we made little or no progress on some of the issues that I care most about: climate change, the long-term federal debt, social mobility (aka the American dream), and our dysfunctional Congress. Yet I remain an optimist.

Texas drought 2011

I could write many words about our woes. Instead, I’ll try to be succinct. On the climate issue, global emissions of carbon dioxide from fossil-fuel burning jumped by the largest amount on record in 2010, we learned recently, and 2011 surely brought further increases.  Concentrations of CO₂ are 39% above where they were at the start of the industrial era and approaching the point when some scientists say it will be nearly impossible to contain global warming, the Guardian reports. Neither the US nor the UN moved closer to regulating CO2. In a discouraging development, Republicans Mitt Romney and Newt Gingrich backed away from their once-sensible support of greenhouse gas regulation, in what can only be seen as shameless pandering to the know-nothing wing of the Republican Party. Discouraging, too, was the Fukushima nuclear disaster, which will slow down the growth of carbon-free nuclear power. So will the failure of Solyndra. Meanwhile, the U.S. suffered massive flooding of the Mississippi and Missouri Rivers, a terrible drought in Texas, record wildfires and at least 2,941 monthly weather records that were broken by extreme events, according to the NRDC.. Coincidence? Uh, no.

Like the atmospheric concentrations of CO2, the federal budget deficit has been growing.That’s no coincidence either. We’re living beyond our means, whether by burning fossil fuels or taxpayer dollars, and sticking future generations with the cleanup bill. Just last week, the White House asked for a $1.2 trillion increase in the federal debt limit, raising it to about $16.4 trillion. According to Marketplace Radio, that amounts to about $52,000 for every American. For a typical  family of four, that’s bigger than the mortgage.

Social mobility is harder to measure than income inequality (and more important, methinks), but indications are that it’s more difficult to climb the economic ladder in the U.S. than in other western democracies. The Economic Mobility Project, a  bipartisan effort to study the issue, reported recently on a study of 10 western nations that concluded: “In the United States, there is a stronger link between parental education and children’s economic, educational, and socio-emotional outcomes than in any other country investigated.” The sluggish U.S. economy in 2011 didn’t make life easier for those on the bottom who want to work hard and better themselves.

And yet.

As I wrote a year ago (see my blogpost, China, cappuccino and cell phones: reasons to cheer!),  life on this planet is getting better all the time. We humans are richer, healthier and and more peaceful than ever. It’s easiest to forget that, especially if you focus too much on the day-to-day headlines.

Here are several reasons to feel good about the year ahead:

Western economies are slumping, but the rest of the world is growing robustly. The most urgent problem facing mankind isn’t climate change: It’s the human misery that’s caused by poverty. There’s less of that today than there was a year ago, and there will be less on Jan 1, 2013, I’d bet. China’s GDP grew by about 10% in 2010 and by an estimated 9% in 2011. India grew by 6 to 7 percent last year.

A Nairobi street

Then there’s Africa. As Forbes reported last week, in the middle of the 2009 global economic recession, Africa was the only region apart from Asia that grew positively, at about 2%. The continent’s growth has been on an upward trajectory ever since then- 4.5% in 2010 and 5.0% in 2011.

Reliable statistics are hard to come by, but you can be sure that this means that many millions of people are living longer and healthier lives, and that their children have a better shot at an education. This is good  for all of us because the global economy is not a zero-sum game. An expanding pie means a safer world, and more markets for U.S. goods. And there’s even reason to hope believe that the US economy is due for a rebound. See what Matthew Yglesias writes in Slate that Happy Days Are Here Again.

Corporations are taking a more expansive view of their responsibilities: One reason why I write about business is that I believe that corporations can be a powerful force for good. Many are not, but I found reason in 2011 to applaud changes at Walmart (Have I Fallen in Love with Walmart?), McDonald’s (Mainstreaming Sustainability? ), Smithfield Foods (Sustainable pork?), Office Depot (No tree hugging, please), Shaw Carpets (This carpet has moral fiber), Unilever (CEO Paul Polman: Don’t stay on the sidelines), Starbucks (We are indivisible), Marks & Spencer (Sustainability, profits and a carbon-neutral bra),  TD Bank (America’s greenest bank?) and GE (How GE learned to think small and serve the poor). My most popular post of the year, by far, was about Patagonia (Maybe the best retail ad ever).

These companies are responding to rising expectations–from advocacy groups, consumers, a handful of shareholder activists and especially from their own workers. The changes they are making aren’t big enough, and they aren’t happening fast enough, but the forces driving companies to become more sustainable are getting stronger all the time.

Protesters in Egypt

Citizens’ movements are growing here and abroad. Whatever you think of Occupy Wall Street, they got one thing right–the deck is stacked in the US in favor of the well-to-do and the powerful, not just the 1% but the 10 or 20 or 30%, and it’s stacked against those at the bottom of the income ladder. So many laws and cultural practices that we take for granted–from the mortgage interest deduction to the dismal quality of the public education system in our big cities and poorest rural areas–serve the interests of the rich and powerful. Wall Street got bailed out. Main Street got left behind. Thank goodness for people didn’t take that lying down. Thanks, too, to the Tea Party, which is wrong about most things but right about the fact that the federal government can’t keep spending money that it doesn’t have.

Of course, Occupy Wall Street was largely inspired by citizens uprising in Tunisia and Egypt, which in turn seem to inspired people in Russia and even in China to demand more of a voice in their own affairs. This is all to the good, and it should be a reminder to those of us here in the U.S. not to take our freedoms for granted and to exercise our rights as citizens. A big job ahead is to convince Congress to act like adults and treat us that way, understanding that they were elected to solve big problems, even if that requires. We can’t have big government, generous services and low taxes. Or cheap energy without climate risk. Or affordable, unlimited health care for all.

Sure, there’s reason to be gloomy but it always helps to think long term. More people are free today than at any time in human history. More people live comfortably. We’re more tolerant and loving that we used to be. We’ve got an African American president and my daughter, who is gay, will get legally married in June. MLK Jr. had it right: “The arc of the moral universe is long but it bends toward justice.”

Pity the much-maligned plastic bag.

Plastic bags are being banned or taxed in cities and counties across America–just this week in Seattle, before that in San Francisco, Portland and Washington, D.C.  Beginning in January, Montgomery County, MD, where I live, will impose a five-cent charge for carryout bags at all retail stores. Like most of my neighbors (median household income in the county tops $92,000) I can afford the extra nickel.

But I’m not persuaded that plastic bag bans or taxes makes sense. Here’s why.

They’re not  based on science. Independent studies show that plastic bags are environmentally preferable to paper. Other suggest that, when they are reused, they are preferable to the reusable plastic or cloth sacks that many of us tote around.

Some of the arguments put forth for the bans don’t hold up. That plastic waste waste in the oceans you’ve probably read about? No, it’s not the size of Texas. Nor is it made of plastic bags.

Getting rid carryout bags won’t lead to a long-term solution to the problem of plastic waste. Maybe instead of banning or taxing bags, we should be recycling them. That’s the argument being put forth by a company called Hilex Poly, which will recycle tens of millions of pounds of plastic bags, sacks and wraps this year, and would like to do more.

You may disagree but after digging into this subject for a while, I’m certain about only one thing: It’s complicated.

The arguments for plastic bag bans or taxes are, by now, familiar.  The Montgomery County carryout bag law  “is designed to improve our environment by cutting down plastic bags—a significant source of litter—which pollute our streets, streams, and playgrounds, and harm property values.” Econ 101 tells you that charging 5 cents for plastic bags creates an incentive for people to use fewer of them, and carry reusable bags instead. Proceeds go to “programs that fight litter and provide stormwater pollution control.”

Bill Hickman, who leads the Rise Above Plastics campaign at the Surfrider Foundation, an advocacy group, told me by phone: “We’re trying to stop the plastic impact on the marine environment. Plastic doesn’t biodegrade in our lifetime…Anything, single use, at the end of the day has negative effects on our environment.”

All true, but…

Studies say that plastic bags have a lighter environmental footprint than paper, and in some cases are preferable to reusable bags. A thorough life cycle analysis done in the UK by the government’s environment agency in 2006 (download, PDF, here) found that HDPE (high-density polyethylene, the typical lightweight plastic bags) are superior to paper because they require less energy and far less water to make and take up less space in landfill. Comparing them to reusable non woven polypropylene (PP) bags–the typical reusable bag, made in China, and sold by grocers–the study found that their impacts depend upon the number of times that plastic bags are reused. Data on this is scarce and controversial–critics of plastic say the bags are typically  used just once, but the industry says they are frequently used, often as garbage bags, or to carry kids’ lunches to school, or pick up dog poop. (Banning plastic carryout bags means that people may have to buy bags for those purposes.) Focusing on the climate issue, the 120-page-long UK study says:

The paper, LDPE, non-woven PP and cotton bags should be reused at least 3, 4, 11 and 131 times respectively to ensure that they have lower global warming potential than conventional HDPE carrier bags that are not reused.

If I understand that correctly, it means that one reusable bag has the carbon footprint of 13 disposable bags that are used just once. If you use the disposable bag twice, you’ll need to deploy the reusable bag 26 times before you are ahead in terms of global warming. By the way, this doesn’t include the impact of washing the reusable bag in hot water, which is highly recommended because bacteria like E. coli and fecal coliform can thrive in reusable bags, according to this study, which, it must be said, was financed by the plastics industry.

A study from the University of California, Chico, funded by Keep California Beautiful, (PDF, download) analyzed the UK studies, as well as research from Scotland, Australia and a U.S. consulting firm and found that “reusable plastic bags can have lower environmental impacts than single-use polyethylene plastic grocery bags.” But it also found traces of cadmium and lead in the reusable bags. The professor who did the study has consulted for both plastic bag and reusable bag makers. Like I said, it’s complicated.

Plastic pollution of the oceans probably isn’t as bad as you think. You can find dire stories of plastic pollution, as well as birds being strangled by plastic bags, on the websites of Surfrider and Save the Bay. Oprah Winfrey devoted a television program to the problem, saying:

The Great Pacific Garbage Patch stretches from the coast of California to Japan, and it’s estimated to be twice the size of Texas. “This is the most shocking thing I have seen,” Oprah says.

Whether Oprah has actually seen the garbage patch is anyone’s guess. But Angelicque “Angel” White, an assistant professor of oceanography at Oregon State, participated in one of the few expeditions solely aimed at understanding the abundance of plastic debris in the Pacific. He says the claim that the “Great Garbage Patch” between California and Japan is twice the size of Texas is flat wrong. OSU reports:

“There is no doubt that the amount of plastic in the world’s oceans is troubling, but this kind of exaggeration undermines the credibility of scientists,” White said. “We have data that allow us to make reasonable estimates; we don’t need the hyperbole.

According to NOAA and others, plastic debris in the oceans comes from many sources, including fishing lines, PET bottles, polyester clothing, detergent bottles, plumbing pipes, drinking straws and toothbrushes. The photo below comes from the website of a group called Heal the Bay, which crusades against plastic bags. Do you see a lot of plastic bags in the picture? Should we tax or ban all plastics because some end up as litter?

Why not recycle? Since we’re never going to ban all plastic bags and containers–plastics used to carry fruits and vegetables, plastic newspaper wrappers, styrofoam containers used for carryout food, etc–maybe the answer is to support and develop robust recycling streams for plastic. Like PET bottles, plastic bags are 100% recyclable. The plastic isn’t the problem; litter is the problem.

This is from my local Safeway. What's so hard about recycling?

Unfortunately, recycling rates are low, but the good news is that they are climbing. EPA recently reported (PDF, download) that in 2010  recycling was up from 12% to 15% for polyethylene bags, sacks and wraps. The more plastic bags are recycled and reused, the less their environmental impact, of course.

This argument was put to me by Mark Daniels, who is vice president of sustainability for Hilex, a leading manufacturer and recycler of plastic bags. Hilex pays about $300 to $400 a ton to supermarkets and others for used plastic bags, stretch wrap, the plastic wrap that goes around bottles, etc.  They company says it will recycled between 35 and 38 millions pounds of post-consumer plastic bags this year–a tiny fraction of all bags, but still–and it wishes it had more. Hilex does its recycling at a plant in Indiana that it opened in 2005, and doubled in size in 2010.

“It is less expensive for us to collect, purchase, transport and reprocess and redistribute that materials to all of our other plants than it is to purchase virgin material,” Mark told me. That’s true even though plastic bags are made from natural gas, which is cheap right now.

Hilex does its recycling at a plant in Indiana that it opened in 2005, and doubled in size in 2010. But a robust supply of post-consumer plastic is needed to keep the plant busy. “We can triple our capacity to nearly 100 million pounds,” Mark said. “But it’s difficult for our company and our board of directors to commit those tens of millions of dollars,” without the support of cities, towns, retailers and environmentalists for more recycling. “We should be 100% aligned with environmentalists,” Mark said.

The truth is, we don’t really have a clear answer to the age-old question of “paper or plastic,” now amended to say “paper, plastic or reusable?” Too many variables are at play.

My own answer? I carry several reusable bags in the trunk of my (hybrid) car and bring them into the grocery store when I remember. When I don’t, I take plastic and bring it back to be recycled. I don’t feel bad about that. Neither should you.

–

A personal note: Thanks for reading and commenting on my blog in 2011. This is my 188th and final post of the year. Enjoy the holidays, and see you in 2012.

So what the heck happened in Durban? Is the world closer to dealing with the problem of global warming? Or not?

If, like me, you aren’t a devotee of the UN climate negotiations, reading the headlines isn’t much help.

From the glass-half-full crowd: Progress at end of Durban Cop17 climate talks (LA Times). Reason to smile about Durban climate conference (Eugene Robinson in the WPost). Climate deal salvaged after marathon talks (The Guardian).

From the pessimists: How the world failed to address climate change–again (Michael Levi at The Atlantic.com). The Durban climate deal failed to meet the needs of the developing world (The Guardian, again). COP out (South Africa’s Cape Times).

COP out strikes me as about right. To gain some insight in what happened, and why, I called David Victor, a political scientist at the University of California, San Diego, the author of an excellent new book called Global Warming Gridlock and one of the smartest people I know when it comes to understanding global climate politics. David has followed the UN process closely since its beginnings in the early 1990s, and he has become convinced that it is the wrong way to deal with the climate threat.

David Victor

Durban didn’t change his mind.

“In terms of substance, they have not really achieved much,” David says. “They’ve agreed to have negotiations about what they might agree to in the future.”

To be sure, as the optimists argue,  this is the first time that the governments of countries that are the biggest carbon emitters — China, the United States, the EU and India — have agreed to negotiate legally binding restrictions. That’s a big change from the terms of the Kyoto protocol, which essentially excluded developing countries, among them China, the world’s biggest carbon emitter.

But, as David writes in his book:

The world is full of promises that are not kept, and the study of international institutions is about understanding when those promises are credible and have an impact on behavior, and when they are smoke.

The so-called Durban platform is a promise to negotiate a new climate deal  by 2015 to replace the Kyoto protocol and take effect in 2020. It’s a commitment to “a process to develop a protocol, another legal instrument or an outcome with legal force under the Convention applicable to all Parties.” (If this doesn’t strike you as faintly ridiculous, you’ve been spending too much time at the UN.) David, by the way, told me he read all the documents to emerge from Durban, explaining: “I was up at 4 o’clock this morning, and had nothing better to do, I guess.”

More interesting than parsing the texts is understanding why two decades of UN climate talks have produced so little progress. David argues that the diplomatic gridlock stems not merely from the unhappy reality that the climate problem is devilishly complicated and hard to solve–both true–but because the UN setting, the number of governments at the table and even the goal of the negotiations — currently, to set targets on emissions that would limit global warming to two degrees C — are all misguided.

“A process that involves every country on the planet focused on legally binding agreements in some ways brings out the worst in everybody,” David says. Poor countries like China and India, in particular, are understandably reluctant to pledge to limit their greenhouse gas emissions as they struggle mightily to bring hundreds of millions of their citizens out of poverty.

“Universal treaties are a very bad way to get started on serious emission controls,” David writes. Better, he argues, for smaller groups of countries to form “clubs” and negotiate flexible, evolving agreements that work more like trade deals. India and the U.S., for example, might work together on ways to burn coal more cleanly, or Russia might be encouraged by Europe to sell more natural gas to China as a substitute for coal.

What’s more, David argues, negotiations that focus on setting targets for emissions are unlikely to succeed, if only because the levels of emissions reflect forces — economic growth, fuel costs, technology breakthroughs (or their absence) — over which governments have limited control.

Instead of agreeing to numerical emissions targets, governments could pledge to adopt “greener” policies. They could, for example, set efficiency standards for buildings or cars, or impose a carbon tax.“Especially when it comes to countries that are growing rapidly, it’s much easier for them to make promises about policies and measures than about emissions outputs,” David says.

Reading Global Warming Gridlock makes the difficulties ahead depressingly clear, for many reasons. Once emitted, CO2 persists in the atmosphere for decades. Replacing fossil fuels with clean energy will take decades and cost many billlions of dollars. Countries will have to absorb costs now (for cleaner energy) to generate benefits that are abstract, uncertain and in the future. This, of course, is precisely the opposite of what governments like to do, which is deliver benefits now and pay later.

These are some of the reasons why David says: “Even a serious effort to control emissions is unlikely to stop global warming. The climate’s going to change.” The question is, how fast and by how much?

I see two takeaways here for business. First, those companies that worry about climate change need to bring their voices more forcefully to the policy arena; they can’t assume that governments are on the right track. Second,  companies ought to prepare for climate change–when they site new facilities, for example–because it’s unavoidable.

Perhaps in a future blog post, I’ll explore David’s provocative ideas about bracing for climate change, including the need for adaptation and the prospect of geoengineering. In the meantime, know this: Durban and the UN process aren’t getting us where we need to go. No way, no how.

A beautiful new Safeway opened recently in Bethesda, MD, where I live. It’s  just a couple of blocks from a nearly-new Giant supermarket. To attract shoppers, Safeway sold turkeys before Thanksgiving for 39 cents a pound. Maybe it was 33 cents. In any event, I hope we can all agree that this kind of thing–namely, competition–is what makes America great.

Except, that is, if you live nearby in Washington, D.C., where, as The Washington Post reports today, Safeway poses big hurdle to plan for Southeast Wal-Mart.

Walmart, it so happens, wants to open a new store at a long-neglected shopping center known as Skyland in one of the low-income precincts Washington. The trouble is, a Safeway across the street has a covenant from the 1990s that prevents a competitor from locating in Skyland. Safeway, to its credit, has 15 stores in the district and is one of the city’s biggest employers. But why it was given a promise that no competitor would locate nearby is anybody’s guess.

D.C. Mayor Vincent Gray’s office says hizzoner is trying to work out a compromise with Safeway.

Craig Muckle, Safeway’s manager of public affairs, tells The Post:

We want to be cooperative, but there is a reason that the covenant is in place to protect our interests.

Give him credit for honesty, if not for his faith in markets. He goes on to explain that city neighborhoods, unlike the suburbs, may not have enough buying power to support two big grocery stores.

In the city, with one possible exception, there is no grocery store directly across the street from another grocery store….To have more than one…someone may survive, someone may not.

Quelle horreur! Competition that results in winners and losers is evidently fine when it comes to the Superbowl, political campaigns and even suburban shopping, but not when it comes to buying groceries in your nation’s capital.

Right, left or center, most agree that U.S. climate and energy policy today is, at best, an ineffective and inefficient patchwork.

Better get used to it, said a bipartisan panel of Washington insiders today (Nov. 16) at the Atlantic Green Intelligence Forum.

For now, and for the rest of the Obama administration, when it comes to energy and climate, the White House and Congress will use the tools at hand, and not invent new ones.

“We all agree–big bills are dead,” said Carol Browner, the former White House climate czar and a Democrat.

“I never want to hear the word comprehensive again because once you hear the word comprehensive, you know a bill is never going to pass,” said James Connaughton, the former Bush II White House environmental adviser.

What this means, unfortunately, is that the U.S. won’t get an energy and climate policy that is sufficient to deal with the threat of global warming until 2013 at the earliest, even as greenhouse gas emissions continue to rise rapidly. Just a week ago, the International Energy Agency warned that it will be impossible to hold global warming levels to safe levels without dramatic shifts towards low-carbon energy sources in the next few years.

In the meantime, we’ll have to make do with today’s wasteful patchwork–federal and state tax breaks (for wind, solar, corn ethanol and electric cars), federal loan guarantees (for nuclear power, renewable energy and electric car manufacturing) state-level renewable portfolio standards (mostly for wind and solar) and EPA fuel-economy standards (which regulates cars, but do nothing to discourage driving). Worse, we’ve got counterproductive subsidies for oil and gas production.

As Connaughton said wryly: “When you incentivize everything, you’re basically incentivizing nothing.”

This doesn’t mean that meaningful progress can’t be made. As Browner and David Hawkins, the veteran climate advocate with the Natural Resources Defense Council both noted, agencies like EPA and NHTSA (the National Highway Traffic Safety Adminsitration) have broad powers to regulate electric utilities and cars, which together account for well over half of the U.S.’s greenhouse gas emissions.

For example, by regulating mercury emissions, EPA can make it too costly to operate older and dirtier coal plants.

“We can have some big debate about climate change,” said Browner, who was the Clinton administration EPA chief, “but we can also focus on getting things done.”

Indeed, even as the panelists spoke, the Obama administration announced, as expected, new rules requiring cars and light trucks to achieve a combined 54.5 miles per gallon by the 2025. Environmentalists were delighted. “Today’s announcement is more good news for American consumers, auto manufacturers, public health and the environment,” said Fred Krupp, president of the Environmental Defense Fund, in a statement.

EPA said:

When combined with other historic steps this administration has taken to increase energy efficiency, today’s announcement will save Americans more than $1.7 trillion at the pump and an average of more than $8,000 per vehicle by 2025; reduce America’s dependence on oil by an estimated 12 billion barrels and reduce oil consumption by 2.2 million barrels per day by 2025 (enough to offset almost a quarter of the current level of our foreign oil imports); and slash 6 billion metric tons in greenhouse gas emissions over the life of the programs.

That may well be, but the new standards will also add $2,000 to the cost of every new car and truck, the administration’s analysis found–an indirect and hidden cost that few buyers will ever connect to the fuel-economy rules. What’s more, as Dave McCurdy, the former president of the Alliance of Automobile Manufacturers noted at the Atlantic event, fuel-economy standards are at best an imperfect way to reduce energy use and carbon emissions.

That’s partly because when people buy more fuel-efficient cars, they drive more. A more efficient way to discourage gasoline consumption, he said, would be to raise gasoline taxes.

“We’ve not priced the externalities of fuel. We’ve not priced the costs of being dependent on foreign oil,” McCurdy said. “When did consumers start moving from less fuel efficient vehicles to more fuel efficient? When gasoline hit $4 a gallon…Over a long period of time, you could have a real movement (upwards in prices) and I think the country would be stronger for it.”

Similar inefficiencies can be found throughout today’s policy patchwork.

On a more encouraging note, Connaughton and Hawkins noted that political winds can shift quickly–and bring change, which need not be complex. [See my recent blogpost, Time for a Carbon Tax?]

“I remain, as ever, an optimist,” said Connaughton, who is now an executive vice president with Constellation Energy, recalling that a  bipartisan energy bills were passed by Congress in 2007–not that long ago. “There’s climate change fatigue, but we shouldn’t lose heart or hope.”

Said Hawkins: “Reality is going to intrude, and we’ll get back this (climate) agenda.”

Hope, as they say, springs eternal.

“I was a huge supporter of cap and trade,” said Wayne Leonard, the CEO of Entergy, a $11 billion utility company.

“We developed enormously elegant solutions, but they couldn’t get done.”

Taxing carbon emissions is the next best way to deal with the threat of global climate disruptions, he said, in part because it would give the energy industry a degree of certainty about how to deploy its capital.

“A simple tax on every one is a starting point,” Leonard said. Proceeds could be used to reduce the federal deficit or rebated to consumers.

Leonard spoke today (Nov. 9) at a launch event for the Center for Climate and Energy Solutions, a new organization that is succeeding the Pew Center on Global Climate Change. Eileen Claussen, who has directed the Pew Center for 13 years, will lead the new group, which has raised money from three so-called strategic partners — Entergy, HP and Shell — as well as Alcoa Foundation, Bank of America, GE, The Energy Foundation, Duke Energy, and the Rockefeller Brothers Fund. Pew is no longer a backer.

The arrival of yet another Washington group to deal with climate and energy issue doesn’t mean much, especially when it’s a makeover of an existing group. C2ES says: “We believe that ensuring safe, reliable, affordable energy for all – while protecting the global climate – is a paramount challenge of the 21st century.” Well, sure, but that’s what Washington environmental groups have said for years, with few signs of political progress to show for it. Global GHG emissions, meanwhile, reached record levels in 2010.

So what’s to be done? If a new idea was voiced at C2ES’s launch event, I missed it. Most interesting, to me at least, was the conversation about an old idea–a carbon tax or fee–which was set off by Leonard’s comments.

Claussen said that C2ES will take a close look at global carbon pricing. “The most effective and efficient way to deal with this issue is through some form of carbon pricing, whether it’s a tax or something else,” she said. Europe’s approach has been based on cap-and-trade, which sets a cap on emissions, allocates or auctions permits to emit, which can then be traded among emitters. (By the time you explain cap-and-trade, most people tune out.) Australia, by contrast, has just enacted a carbon tax.

Ted Roosevelt IV, chair of the C2ES board, said: “We don’t have a good price signal on carbon, and we need it.” Cap-and-trade is dead, if only because of public distrust of Wall Street, he said. He should know: he works at Barclay’s Capital. (See my June blogpost, Ted Roosevelt is lonely.) The debt crisis facing the federal government could create an opening for a carbon tax, he suggested: “We have very severe fiscal problems. Maybe a price signal and addressing the fiscal problems can be combined.”

Wayne Leonard

Leonard, whose company is based in New Orleans, said that as much as he would like to move Entergy towards lower carbon energy sources, he’s constrained by his fiduciary duty to shareholders. That requires him,  in essence, to deliver power at the lowest possible cost. “We can do things at the margins,” he said, “but beyond that we are violating our fiduciary obligations.”

The time may be near to revive discussion of a carbon tax. Increasingly, there’s recognition on the left and the right that today’s mishmash of subsidies and mandates is not only ineffective but wasteful. With no clear end in mind, the government provides tax breaks (for wind, solar, corn ethanol and electric cars), loan guarantees (for nuclear power, renewable energy and electric car manufacturing) state-level renewable portfolio standards (mostly for wind and solar) and EPA fuel-economy standards (which regulate cars, but do nothing to discourage driving).

The results are often perverse. To pick just one example, investment tax credits for solar panels are awarded to  anyone who puts solar on a roof, including well-to-do people who live in places where there’s so little sunlight that the GHG-reduction benefits are slim. Meanwhile, a utility company that might be willing to switch from dirty coal to cleaner natural gas — which could make a real difference to the climate — has no incentive to do so under a binary regulatory scheme (dirty/clean)  that doesn’t differentiate between fossil fuels. That’s nuts.

Of course, the politics of a carbon tax or fee are difficult. Republicans on Capitol Hill are all but unanimous in their stated opposition to taxes. A carbon tax with a rebate to consumers was at the heart of legislation introduced back in 2009 by Sens. Cantwell and Collins that ran into stiff opposition.

Then again, as Phil Sharp, a former Indiana congressman who now leads Resources for the Future, said at the C2ES event, political winds can shift. “Rhetoric is one thing, and what people do when they get down to concrete decision making is often something else,” he said.

The other reason why environmental groups have been reluctant to support a carbon tax is that, unlike cap-and-trade schemes, it doesn’t even set a hard cap on GHG emissions, which scientists say we need. If the tax is too low, it won’t reduce emissions far enough or fast enough to deal with the climate threat.

Then again, anything that would put a brake on emissions would be better than what we have now, which is just about zilch.

The breakthrough energy innovation of the 21st century is not thin-film solar, sophisticated wind turbines, advanced biofuels or small-scale nukes.

It’s shale gas.

So says Daniel Yergin, the energy guru and author of The Quest: Energy, Security and the Remaking of the Modern World (Penguin, $35), who was interviewed today (Nov. by Walter Isaacson at the Aspen Institute in Washington. Yergin, the best-selling author, consultant and all-around energy guru, is right: The ability to extract natural gas from shale, using a controversial technique known as fracking, is reshaping America’s energy landscape.

“So far this century, this is the biggest innovation in energy, in terms of scale and impact,” Yergin said. He likened its impact on the energy business to the arrival of a new Walmart in town, which shakes up competitors, big and small.

The impact of cheap, abundant natural gas on energy usage has enormous implications for the climate crisis.

Cleaner-burning gas could replace dirty coal as a fuel to generate electricity. Then again, Yergin said: “It’s does create a more challenging marketplace for wind and solar and everything else.”

Daniel Yergin

I’ve just started reading Yergin’s book, and it’s fascinating. He knows his stuff, did lots of research and writes well,  although it must be said that he’s an establishment figure who some critics (like David Roberts of Grist) say is too industry-friendly.

Be that as it may, there’s no doubt that shale gas is a forced to be reckoned with: Shale gas production grew by 17 percent from 2000 to 2006, which isn’t bad, and then it really took off. Better fracking technology (and higher prices) drove the average annual growth rates to 48% between 2006 and 2010, according to the U.S. Energy Information Administration. Currently, the EIA says, about 23% of U.S. electricity is generated by burning natural gas; by comparison, about 45% comes from coal and just 3.6% comes from all non-hydropower renewables, i.e., wind, solar, geothermal and waste. The U.S. now appears to have a 100-year supply of natural gas, says the American Petroleum Institute, citing the work of the Potential Gas Committee, a nonprofit group of industry experts.

“In the energy sector, it all comes down to scale,” Yergin said.

Yergin views the shale gas revolution as a boon. “This resource will grow and be very beneficial to our economy,” he said, because it will create hundreds of thousands of jobs, across many regions. Shale gas is found in Pennsylvania and Ohio, as well as in Louisiana, Texas and Wyoming. Petrochemical plants that left the U.S. when natural gas prices spiked could return. Consumers should benefit from lower electricity and heating costs.

He’s confident that the environmental issues around fracking can be resolved. Yergin, who served on an energy department advisory committee on shale gas, said: “The likelihood that fracking is going to affect the water supply is, as the scientists on the committee said, very, very, very unlikely.” Local air pollution and waste issues can also be managed, he said. “The need for environmental protection can be met if approached properly,” Yergin told a congressional hearing last month. This matches what I’ve been hearing from companies like Shell.

Yergin does not disparage cleaner forms of energy. Costs of solar are coming down because of low-cost manufacturing in China. Wind, he said, is entering the mainstream. “It’s a conventional form of energy,” he said. Can wind compete with coal or natural gas without subsidies, he was asked. “There’s a lot of argument about that.”

I asked Yergin whether he thought some combination of technological breakthroughs and political developments could bring down greenhouse gas emissions dramatically, which is what scientists say needs to happen to avert climate instability. He replied that regulations such as California’s renewable portfolio standard, which requires that 33% of the state’s energy be provided by renewables by 2020, and the Obama administration’s automobile fuel efficiency standards, which require cars to average 54 MPG by 2025, will have a major impact.

But, he said, such regulations are “a second-best answer.” A price on carbon would be better, giving a clear signal to consumers and spurring the most cost-efficient low-carbon alternatives.

“Wouldn’t the simplest answer to be to put a tax on carbon?” Isaacson asked.

“After seeing what happened with cap and trade, I think the answer is yes,” Yergin replied.

But, he added, “there’s not a big taste right now for raising taxes.” Climate could get back on the political agenda if the economy improves.

But climate is a global problem, and even if the U.S. moves to a low-carbon economy, China and India will continue to burn fossil fuels. “Twenty years from now, on a global basis, our energy mix won’t look too different than it does today,” Yergin said.

If he’s right about that. we’re all in big trouble.

Fortunately, as the saying goes, predictions are hard…especially about the future.

Technological progress is impossible to predict, but it’s safe bet that we won’t be flying solar- or wind-powered airplanes anytime soon. So the best hope of flying without emitting large volumes of greenhouse gases lies with biofuels.

This week, there’s good news on bringing biofuels in the air. Beginning Wednesday, Alaska Airlines will fly 75 commercial passenger flights in the U.S. powered in part by biofuels. “This is a historic week for aviation,” declared Alaska Air’s CEO, Bill Ayer, in a press release. Today (Nov. 7), United Airlines make the first U.S. commercial flight using an advanced biofuel made from algae, according to Reuters.

Keith Loveless, vice president of corporate and legal affairs, who oversees sustainability, told me: “These fuels will make a meaningful contribution towards reducing the aviation industry’s environmental impact, and towards reducing fuel volatility, which is an incredible problem for the airline industry.”

But–and you knew there would be a but–biofuels remain way too expensive to replace jet fuels today. That’s why Tom Vilsack, the agriculture secretary, got on the phone with me last week so that the Obama administration will do all it can to advance progress on aviation biofuels. “We are engaged right now in aggressively promoting research to determine the most efficient non-food feed crop that can be used,” he said.

Biofuels remain controversial, of course. The U.S. Senate, in a symbolic vote, overwhelming expressed support last summer for an end to massive corn ethanol subsidies, in what the NRDC’s Nathanael Greene called “a victory for taxpayers and the environment.”

But both the industry and environmentalists say that biofuels for aviation make sense. That’s because the only practical way to dramatically reduce CO2 emissions from planes (other than grounding them) is with biofuels. Plant-based jet fuels emits as much carbon pollution as traditional, petroleum-based jet fuel–indeed, they are chemically almost indistinguishable–growing new plants recaptures those CO2 emissions.

And airplanes matter. Aviation accounts for about  1.5 percent of global man-made GHG emissions per year, and gains in aircraft efficiency have been entirely offset by growing demand for air travel, according to the Pew Center on Global Climate Change.

The industry supports biofuels for business as well as environmental reasons, Loveless told me. Creating an alternative to traditional get fuel will increase supply, drive down costs and reduce price volatility. “We are probably more affected by the price of fuel than any other industry,” he said.

“This will help create jobs in rural America,” Vilsack told me. “It should also save money for the airlines, which will reduce the cost of flying….and it’ll reduce our reliance on foreign oil.”

All true, but let’s remember there’s a long way to go before biofuels become mainstream. According to Loveless, Alaska Air will pay about $17 per gallon for a biofuel made from discarded cooking oil that will replace 20% of the jet fuel on the 75 flights, between Seattle and Washington, D.C., and Seattle and Portland, Oregon. Despite that boost in cost, the environmental benefits of a 20% blend will be modest, according to the airline:

Alaska Air Group estimates the 20 percent certified biofuel blend it is using for the 75 flights will reduce greenhouse gas emissions by an estimated 10 percent, or 134 metric tons, the equivalent of taking 26 cars off the road for a year.

The company also said:

The fuel was supplied by SkyNRG, an aviation biofuels broker, and made by Dynamic Fuels, a producer of next-generation renewable, synthetic fuels made from used cooking oil. The synthetic high-performance airliner fuel made by Dynamic Fuels — a $170 million joint-venture between Tyson Foods Inc. (NYSE: TSN) and Syntroleum Corp. (NASDAQ: SYNM) — meets aviation and military safety, sustainability and performance standards.

United Airlines, meanwhile, is using biofuels to power a flight from Houston (oil country!) to Chicago. According to Biofuels Digest, the fuel produced by Solazyme is a 40/60 blend of sustainable biofuel and traditional petroleum-derived jet fuel. (See my 2010 blogpost, Gee whiz algae! for more on Solazyme.)

To speed adoption of biofuels, Vilsack and the ag department this fall announced a $136 million research program of grants to universities in Washington, Iowa, Louisiana and Tennessee to develop next-generation biofuels from such feedstocks as switchgrass, woody biomass and sugarcane. Separately, the ag department, energy department and the navy have plans to invest up to $510 million in partnership with industry to produce advanced, drop-in biofuels to power military and commercial planes and ships.

Said Vilsack:  “We may have to provide some encouragement [meaning money] at the beginning, until the market becomes a mature market.”

–

Two updates: I emailed Jonathan Wolfson, the CEO of Solazyme, to ask him what feedstock was used for the United flight, as well as the cost of the biofuel. He replied that it was made from domestic sugarcane and wrote:

Solazyme sold the fuel to United at current aviation fuel prices. We announced at our IPO in May of this year that we achieved the key performance metrics that we believe would allow us to manufacture oils today at a cost below $1,000 per metric ton ($3.44 per gallon or $0.91 per liter) if produced in a built-for-purpose commercial plant.

I also had an email from a PR woman from Honeywell UOP saying that “the algal oil, provided by Solazyme, was refined into biofuel using process technology from Honeywell’s UOP.”  Here’s more from Honeywell.