Bush’s greenhouse gas program creates an unsettled future

Published April 1, 2002

I suppose that business-as-usual has at least a chance to meet President Bush’s CO2 target for 2012: an 18 percent reduction in energy intensity, to 151 tons of carbon equivalent per million 2001 dollars of GDP.

That’s why Eileen Claussen (Pew Center) calls it a “sham” and David Hawkins (Natural Resources Defense Council) complains the plan is a “repudiation” of the Rio Treaty signed by the senior George Bush in 1992.

The increasing share of service-sector industries (which are less energy-intensive) included in GDP might do the trick, coupled with more nuclear energy (per Bush energy policy), hybrid-electric cars, and substitution of natural gas for coal. Even so, the goals are a stretch for business-as-usual.

Credits trading won’t work

It is disturbing, moreover, to see the emphasis on trading of CO2 emission credits. Such credits acquire value only if there is scarcity–in other words, a “cap” on CO2 emissions. Industries holding credits will become lobbyists for mandatory targets that artificially constrain energy use. One way or another, this is equivalent to rationing and, of course, higher energy prices. Will an electric utility shut down a coal plant to sell the credits gained? Will it encourage nuclear energy? Hard to tell.

Further confusing the situation, to keep energy prices from going through the roof, Resources for the Future has suggested that hard caps become soft if the price of credits reaches a certain value. What a political mess! Who will set this value? And if credits become worthless as a result of soft caps, can industries sue the government for a “taking?”

One thing for sure: The program will raise the cost of electricity to consumers.

Of course, nothing will happen until at least 2003, when Congress may address these issues. We wish, though, that Bush would immediately withdraw the signature of the Clinton administration from the Kyoto Protocol. If the U.S. withdraws, we are told, Europe–with more than 55 percent of the signatories and more than 55 percent of GHG emissions–could bring the Protocol into force … all by itself. That would be worth watching.

And of course, Green critics of the Bush plan in Congress can always introduce a gasoline tax: the only surefire way to reduce oil consumption and oil imports quickly, something CAFE could not do. Let’s see them rise to the occasion.

Devil’s in the details

Overall, I would grade the Bush plan as a C+, or perhaps a B-. What was released was general and in many respects consistent with the recent Marshall report on science and policy and recommendations from the business community over the past five or six years. On the other hand, it also is consistent with the efforts of Al Gore and Katie McGinty to get industries to make voluntary commitments to avoid mandatory ones. Since the devil is in the details, how the President’s policy is implemented will be telling.

The positive aspects are:

  • The plan stresses the importance of science in guiding policy and actions that are consistent with the need to maintain healthy economic growth.
  • It avoids a commitment to actual reductions in emissions unless required by sound science.
  • It shifts attention away from arbitrary emissions targets to an efficiency metric, recognizing the clear relationship between a growing economy, energy use, and productivity. However, implementing the efficiency metric will be more difficult and complex than it appears on the surface.
  • It recognizes the essential role of technology in controlling greenhouse gas emissions in the long run.
  • It places increased emphasis on improving the state of climate science so that policy actions are consistent with our state of knowledge.
  • It contemplates efforts to improve information collection by improving the current reporting system, although it is unclear how the incentives will work or what unintended consequences may result from credit for early action.
  • It expands efforts to engage developing countries through bilateral agreements.
  • Contrary to the assertions of the plan’s critics, it is not “business as usual,” as the goals clearly are stretch goals.

On the negative side:

  • There is no mention that adaptation could be preferable to incentives to reduce emissions.
  • The plan’s stretch goals go beyond the Energy Information Administration’s high technology scenario, which is itself extremely ambitious.
  • By asserting it will achieve the average reduction of the Kyoto-participating countries, the plan can be viewed as implying global warming presents a serious problem. Kyoto is based on that premise.
  • The tax credits for alternative energy sources–solar, wind, biomass–once again have the government picking winners.
  • The plan does not identify the importance of gaining a better understanding of the influence on climate of clouds, water vapor, and oceans.
  • It does not put one person in charge of climate policy to ensure better coordination among agencies and integration of efforts.
  • It does not explicitly and clearly keep open the question of human attribution and the need to make significant reductions beyond the decarbonization that is taking place in developed countries.
  • Credit for early action will create pressure to find ways to gain wealth from them beyond what the market will provide on its own.

Bankrupt global warming policies still alive

Many members of Congress are criticizing the Bush administration for not having tried to prevent thousands of people from losing their jobs and pensions when Enron Corp. collapsed. Dispute is nearly nonexistent among economists, however, that far more jobs would be lost if Enron had ever achieved one of it its main political goals: limiting carbon dioxide emissions.

A recently revealed Enron memo asserted the Kyoto global warming treaty and ensuing limits on fossil fuel energy use would do more to promote Enron’s business than almost any other regulatory initiative outside of restructuring the energy and natural gas industries in Europe and the United States. It was also reported that Enron lobbied both the Clinton and Bush administrations frequently and vigorously to cut carbon dioxide emissions under cover of a market mechanism, i.e., an emissions trading program.

As a natural gas producer, gas pipeline owner, wind power generator, and energy trading middleman, Enron knew it could make huge profits from government programs to cut carbon dioxide emissions, said Myron Ebell, director of global warming policy at the Competitive Enterprise Institute. But Enron’s profits would come at the expense of other industries and consumers.

Every economic study that has been done on the various proposals to ration energy has shown that the economic losses would be enormous–far larger than those caused by Enron’s bankruptcy. Any emissions trading scheme is simply a hidden tax on energy, as a Congressional Budget Office study reported.

Unfortunately, Enron’s collapse doesn’t mean these policies have disappeared. Several major corporations joined Enron to lobby for the same energy rationing schemes because they stand to make hundreds of millions of dollars on the backs of consumers and taxpayers. Among those lobbying for energy rationing are members of the Clean Power Group and the Business Environmental Leadership Council of the Pew Center on Global Climate Change.