Kites, Coal and Waxman-Markey

If nothing else, the Waxman-Markey climate change bill is keeping the think tanks and Washington lobbyists busy. I’ve been surveying analyses and comment from critics including The Heritage Foundation (“a massive energy tax in disguise that promises job losses, income cuts, and a sharp left turn toward big government”), former Lotus CEO Jim Manzi in The National Review (“a terrible deal for American taxpayers”), the U.S. Chamber of Commerce (“expensive, complicated, regulation-heavy, domestic-only legislation”), The Breakthrough Institute (“may allow American emissions to continue to rise for up to twenty years”) as well as Greenpeace (“not strong enough to stop global warming”) and Friends of the Earth (“we have serious concerns and misgivings that prevent us from offering our support”). Now we are getting analyses of the analyses, such as the NRDC’s Laurie Johnson’s persuasive takedown of Heritage’s work. Lest you think that the climate-change bill lacks supporters, supporters last week released a list of backers that includes a broad swath of corporate America (GE, GM, PG&E, Exelon, Duke Energy, Shell, Starbucks and Nike), labor (the UAW, United Mineworkers, SEIU) and nonprofits (NRDC, Sierra Club, World Wildlife Fund, League of Women Voters, Consumers Union, National Wildlife Federation, etc.)

Inevitably, these analyses depend upon making numerous assumptions, stretching many years into the future, about trends and events that are inherently unpredictable:  GDP growth, energy supply, energy prices, geopolitical forces, the efficacy of domestic and international offsets and especially technology breakthroughs. What if Toyota, Ford or the Chinese company BYD quickly figure out how to build cheap electric cars? What if jatropha turns out to be an ideal biofuel? What if tidal  power or geothermal energy or something truly far-fetched — “clean coal,” maybe – turns out to be an affordable source of clean energy?

Or consider kites. Just the other day, I watched this mind-stretching TED talk by Saul Griffith of start-up Makani Power about the energy-generating power of high-altitude super-sized kites. Makani’s backers include Google, and the company is hard at work on Maui making kites that generate enough electricity to power several homes. (No word on whether Makani’s Hawaii office  is hiring.) “This is the dawn of a new age of kites,” Griffith says.  “This is a story about the audacious plans of young people with these dreams…I think we need to support all of the dreams of the kids out there doing these crazy things.”

makani_kite
What does Waxman-Markey have to say about kites? Nothing, it turns out. (No, I haven’t read the 932-page bill, but I did a search for the word kites) That’s actually a good thing. By contrast, the bill has at least 40 references to coal, as best as I can tell. According to this summary of the bill by House staffers provided by the tireless blogger and climate expert Joe Romm, the bill provides an estimated $60 billion in investments in carbon capture and sequestration technology and it uses a mix of “regulatory requirements and financial incentives” to ensure that new coal-fired power plants will operate with carbon capture and sequestration (CCS) technology. For example, Waxman-Markey decrees that…

Coal plants permitted between 2009 and 2015 lose eligibility for federal financial assistance if they do not retrofit CCS within five years after commencing operations; if they do not retrofit CCS by this date, they must retrofit CCS by no later than 2025 without federal financial assistance. The 2025 retrofit deadline is accelerated if four gigawatts of electricity generation is deployed with CCS before 2025; it may also be extended by EPA by up to 18 months on a case-by-case basis.

This is the kind of thing that worries me about Waxman-Markey in particular and about the willingness of the Obama administration more generally to manage so much of the economy—energy, autos, financial services. It’s hard, nay, impossible to know if CCS is a smart, workable and affordable technology or when, if ever, it should be deployed. Maybe kites are a better idea. Maybe not. But should the government decide?

It’s not just clean coal. As I wrote last week, Obama & Co. are ready to place bets on which companies and regions are likely to develop battery technology for electric cars. (See Uh-Oh: Obama’s battery gold rush).

Here’s another example of questionable industrial policy. This is the headline from an Energy Department press release that landed in my mailbox last week:

Secretary Chu Announces Nearly $50 Million of Recovery Act Funding to Accelerate Deployment of Geothermal Heat Pumps

Then there was this news from a company called Hearth and Home Technologies, a manufacture of wood stoves, pellet stoves and fireplaces which reported, approvingly, that

Under the 2009 Economic Stimulus legislation, U.S. homeowners who purchase a 75-percent efficient biomass (wood or pellet) burning stove, fireplace or fireplace insert and place it into service in their home during 2009 or 2010 can receive a 30-percent tax credit for costs incurred, up to $1,500.

Do you see the problem here? Just to be clear, I don’t have a position on biomass stoves and geothermal heat pumps. I just don’t think the government should have a position either.

To be sure, we need an energy revolution. Nothing less than the transformation of our fossil fuel-based economy into one that is cleaner and greener will solve the global warming crisis. Most important, we need to do whatever we can to spread that energy revolution to India, China and the rest of the developing world, because if we go green and they don’t, well, we’re still cooked. But how do we get from here to there? With clean coal? Electric-car batteries? Heat pumps? Wood stoves? Kites?

The unfortunate answer is no one knows. Not the president, not Congress, not Nobel laureate and energy secretary Chu, not venture capitalists or energy company CEOS or Fred Krupp or Jeff Immelt or Joe Romm. Our energy and climate problems are knowledge problems, too. And the best way to solve knowledge problems – which is to say the best way to spur technology change – is to create conditions that get lots of scientists and engineers to work on them, invite lots of investors to place their bets on which ones will work and then test those ideas in the marketplace. By aggregating thousands of decisions, markets will help us figure out which of today’s technologies or which ones yet to be invented get us closer to the clean energy economy we need.

Mind you, I’m not arguing here that markets alone will do the job. Forceful government action is needed to reshape markets and drive the clean-energy evolution. As my blogging colleague Jesse Jenkins has argued (as part of a friendly debate we’re having at The Energy Collective and elsewhere over energy policy), federal actions laid the groundwork for numerous technologies, including as microchips, commercial aviation, personal computing, the Internet, nuclear power and the railroads.

The real question is, just what form should the government action take? I’m all in favor of government funding for basic research, like the defense-oriented communications research that eventually made possible the creation of the Internet. I’m not opposed to the government using its considerable purchasing power to stimulate markets for electric cars or renewable energy, as it did when it installed a big solar power plant at Nellis Air Force Base in Nevada. But when it comes to energy and climate, I’d prefer to see a policy that is strong, simple, transparent, flexible and neutral when it comes to making technology choices. Outcome-based, if you will. A policy that uses a light but firm touch to unleash the power of markets to drive change.

This is what cap-and-trade, the centerpiece of Waxman-Markey, was supposed to do. Cap-and-trade puts a price on carbon, which is a jargon-y way of saying that it corrects a market failure, namely, the fact that people who burn fossil fuels (i.e., all of us) are not currently paying the costs of emitting global warming pollutants into the earth’s atmosphere. Cap-and-trade is an appealing policy because it addresses the fundamental problem—the global warming pollutants that cause climate change—but it is scrupulously neutral about the solutions. A carbon tax is an alternative way to accomplish the same thing.

Now I understand that the carbon price that would be created by Waxman-Markey’s cap-and-trade scheme is unlikely to climb high enough quickly enough to reshape energy markets and spur new technology. The EPA estimates that the carbon price—that is, the amount that polluters will have to pay to emit a ton of carbon—will be $11 to $15 in 2012, $13 to $17 in 2015, $17 to $22 in 2020, and $22 to $28 in 2025. That’s only pennies (or dimes or quarters) at the gas pump, the experts say, not enough to start a revolution. This is why there is so much more loaded into Waxman-Markey, including renewable portfolio standards, efficiency standards, more than $190 billion (through 2025) in clean energy and efficiency investments, and so forth.

But if the carbon price created by cap-and-trade under Waxman-Markey is insufficient, why not, then, raise the price or find another market-friendly way to promote clean energy, such as with a revenue-neutral $50-a-ton carbon tax or a hefty revenue-neutral gasoline tax, with all the proceeds being returned to American taxpayers in the form of lower payroll taxes (or rebates for poor or elderly people who don’t pay taxes.) That would reward consumers who live in smaller homes, use mass transit or drive drive smaller cars, and penalize those who choose to consume a lot of energy. The right price signals will do wonders to change people’s habits, as they did when gasoline prices spiked last year in the U.S. and as they have in Europe where gas taxes are high. Price signals are, quite simply, a more efficient way to promote change that prescriptive regulations: For example, ven under the Obama administration’s new CAFÉ standards for cars, U.S. cars in 2016 will be only about as efficient as European cars are now, Bryan Walsh reports in Time. That’s the power of markets.

Having said all that, Waxman-Markey may, unfortunately, be the best we can do in the current context. The environmental movement is politically weak. Coal-state politicians need to be won over. Neither the president nor Congress seem ready to begin a serious conversation with Americans about taxes, even those that are revenue neutral. Although some green groups say the bill won’t do nearly enough to address global warming, I was heartened last week to see that the World Resources Institute, a widely-respected NGO, released its own study arguing that the bill, as it now stands, would reduce GHG emissions by 28 percent below 2005 levels by 2020 and 75 percent below 2005 levels by 2050. See the chart below.

But I can’t help but feel that there’s going to be an enormous amount of waste and inefficiency along the way.

larsen_chartpreview

Comments

  1. Jim Manzi says:

    Hi,

    I’m the Jim manzi who wrote the NR article you mention, but I am not the former CEo of Lotus.

    This is a really thoughtful post. I’ll encourage you to think of the Hayekian knowledge problem at a higher level of abstraction. Humanity will face numerous threats over the next several centuries, why would we intervene in markets to force re-allocation of resources? Rationally, because we have good evidence that that there is a HUGE externality that could feasibly be addressed by intervention. Rhetoric around this issue indicates that one exists for AGW. As I tried to get into in the article, but have much more detail on in other places, if we take the IPCC as authoritative for the moment, this problem just doesn’t look close to existential for centuries.

    Best,
    Jim Manzi

  2. Really interesting post. I have many of the same concerns that you’ve discussed here and can only hope that Ways and Means takes a serious look at a revenue-neutral carbon tax in the near future…

  3. David Santos says:

    Hi Marc,
    You are correct about the perils of government intervention in technology choices, with one giant loop-hole; you are “all in favor of(“defence oriented”)basic research”. Good luck with that gambling strategy, its failure-mode is facism.

    Makani’s current concept is essentially a B-2 Bomber on a string. The corporate oriented developers have extensive military R&D links & have already begun partnership with US govt. If you research the Airborne Wind Energy (AWE) field you may find far better kite bets.

  4. Marc, excellent post. You wrote, “The right price signals will do wonders to change people’s habits…” That’s exactly what the growing number of revenue-neutral carbon tax advocates are saying. See http://www.carbontax.org.

    Economist Rob Shapiro makes the case quite forcefully here:

    http://www.climatetaskforce.org/2009/06/the-downfall-of-the-waxman-markey-bill-politics-as-usual-meets-climate-change/

  5. Heating and cooling is the largest user of energy in a house. If the goverment mandated geothermal systems in new houses, the energy use by each house could be cut in half.

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