Friday, January 30, 2009

Don’t Get Outflanked on Greenhouse Gas Regulation

In the first Gulf War, 18,000 U.S. Marines stood poised to make an assault into Kuwait in what would have been one of largest amphibious invasions in modern history. They drilled daily on how they would approach the Kuwaiti coast. The Iraqi army deployed their forces to make this as difficult as possible. The conflict would be a true clash of arms.

So when the main coalition force slammed into the Iraqi flank from the west, the Iraqis were completely unprepared for that fight.

When I talk to business leaders across the country, they ask me what kind of climate change legislation I think will come out of this Administration and Congress. What I tell them is that we may not have that long, and our forces may be arrayed against the least immediate threat.

Despite all the talk about cap-and-trade legislation, regulation of greenhouse gases ultimately may happen through the Clean Air Act. Earlier this week, the president instructed the Environmental Protection Agency (EPA) to review its decision to deny California’s request to establish its own automobile emission standards to reduce greenhouse gas emissions (known as California Clean Cars Standard). It is widely expected that EPA will reverse its decision.

The U.S. Chamber of Commerce responded by announcing that this puts “the EPA one step closer to making carbon dioxide ‘subject to regulation’ under the [Clean Air] Act.” Regulation of greenhouse gases in this manner would definitely impact traditional point sources like power plants and industrial facilities. But the EPA's proposed rulemaking from last year tells us that future regulation could reach much further, touching every household in America.

Ever since the Supreme Court ruling in Massachusetts vs. EPA, efforts to drive greenhouse gas regulation have been happening in courtrooms and regulatory agencies around the country. There are 47 cases in litigation in 19 states over the issue of regulating CO2 emissions from proposed coal-fired power plants. Whether the debate is in the courtroom, regulatory agency or legislature, businesses need to engage to make sure that policymakers are weighing the true costs and benefits. Don't be caught flat-footed.

For more: “Carbon regulation? Obama clears a path”

Thursday, January 29, 2009

Geography Matters….for Corn and Canadian Crude

This past weekend I made a very cold, windy and reflective journey to Redwood Falls to my mother-in-law’s funeral. My wife and daughters were already there; so it was just me, my iPOD, and the thump of the tires rolling along the snow-swept roads of west-central Minnesota.

As I drove my mind wondered among many unrelated and spontaneous thoughts. Some centered on the 27-odd years I had known Jean and what an important place she had in my heart; some seemed to migrate toward warm vacation spots; and some categorized into yet-to-be-done “To Do” lists.

Somewhere along the drive I reflected on a recent conversation with my daughter about evolution, Charles Darwin and his book, On the Origins of Species. Our conclusion was that although species can survive in isolation, interconnected places are better than isolated, unconnected places because they generally have more species in greater numbers. We also agreed that while we like visiting islands…especially if they are warm…we liked our mid-continent location better because of its four biomes, changing seasons and our easy connection to the rest of the country. Our conversation wandered, but the obvious conclusion is that geography really matters because it directly and indirectly influences so much.

Elsewhere on my drive, I thought of Minnesota-native Tom Friedman’s book, The World is Flat, And, then paradoxically connected that thought to a comment in Daniel Borstin’s book The Discoverers where he said something like, “the greatest threat to human advancement was the illusion of knowledge.” Borstin was referring to the middle ages, when people really did think the world was flat and therefore never sought to explore the planet…at least until Christopher Columbus sailed the ocean blue in 1492…while Friedman, of course, was extolling the interconnectedness of the planet’s economies. Again, geography matters, where it’s topological or psychological.

Along my drive I went by the ethanol plant outside of Winthrop and thought, “how lucky Minnesota is to have that facility; how lucky Minnesota is to have the soil, the rainfall and weather that leads to bountiful corn harvests that supply that plant; and how proud I was to be part of the state with the strongest biofuels programs in the country.” Again, geography matters.

Minnesota is not an island, very far from it. We are connected to our neighbors, our midwestern region and the rest of the country. We sit in the middle of the North America and play host to the continent’s three great watersheds: the Great Lakes, Hudson Bay and Mississippi. It is Minnesota’s interconnected geography that produces the diverse species, the bountiful corn harvests and influential thinkers like Tom Friedman. It is this interconnected geography that led the Midwestern Governors to unite and promote renewables and energy efficiency and are working together to reduce greenhouse gas emissions.

Minnesota’s interconnected geography matters: It makes us who we are, why we are here and why we flourish. Islands are nice places to visit on vacation but they do not have Minnesota’s interconnected strength, diversity and benefits. We are lucky in that way.
Although rich in wind and biomass potential, Minnesota lacks traditional energy fuels; yet our interconnected geography benefits us because we are adjacent to Canada and relatively close to its oil reserves. Those reserves provide over 80% of our gasoline.

“Minnesota has a fortunate geography,” were my thoughts as I rolled through Morton, six miles from Redwood Falls. And, then it occurred to me that there are times when we forget the value of our interconnected geography, erecting walls and barriers that sever those connections and testing Minnesota’s economic vitality. I fear that the potential adoption of a low carbon fuel standard is one of those instances. Adopting such an isolating standard could limit our very important ties to our Canadian neighbors a well as possibly hurting our corn-based ethanol industry. Taking such unilateral action when the cooperative MGA effort is making slow but steady progress and President Obama is taking action on climate issues, would be unfortunate and hopefully will be avoided.

These were thoughts on this journey before I left the island of my car to enjoy the connections of my extended family….who had traveled from across the country to be there. Geography matters because it’s our home.

Wednesday, January 28, 2009

Cap and Trade: Here We Go Again!

Maybe it is just my cynical nature, but given the British experience with Cap and Trade permit trading (or free giveaways) and no reduction in C02, I continue to believe that this public policy is the next financial “ponzi scheme” following closely on the heals of the current derivative, collateral debt obligation, free money for everyone Big Corporate-Big Government scheme. Too many Corporations, too many Goldman Sachs/Morgan Stanley, too many California politicians, and eviromentalists supporting the Cap and Trade approach to ghg amelioratiion and too few Americans understanding how it works, or does not! Sound familiar?

If the American people feel very strongly about curtailing global warming in the next 20-50 years, then why doesn’t this odd coalition of Congressman Waxman/Senator Boxer and other politicos, Republicans and Democrats alike, big corporations, and environmental groups propose direct tax increases to limit constituent/consumer energy consumption. Making goods and services more expensive will curtail their use, reducing ghgs. And most of us understand this because it is transparent. When stuff gets too expensive we all consume less of it.

Instead of attacking the rational market that drove oil prices into the mid $100’s/b through strong, world-wide demand, which created huge demand destruction for gasoline when American consumers reduced their consumption by driving a billion miles less in 2008 than 2009, why not learn the important lesson this taught us? Market’s work. They are not perfect, but they are better than government devised programs supported by politicians, big business, and environmentalists.

Make no mistake, Cap and Trade is a ponzi scheme or money machine for government and the businesses who have positioned themselves to benefit from it. Nancy Pelosi, quoted in the January 22nd 2009 San Fransisco Chronicle said:
“I believe we have to because we see that as a source of revenue” (Cap and Trade Bills).

Once again, reinforcing Eisenhower’s farewell dictim: “Beware the military-industrial complex.” This Common Sense Curmudgeon warns you to beware of the politico-enviro-corporate complex behind Cap and Trade. The potential future bailout of this program could dwarf the current economic crisis coinciding, as it absolutely will, with the huge demand for Social Security and Medicare payments by retiring baby boomers (p.s. Government doesn't have the money to cover these liabilities).

Oh sure, business and government couldn’t see that coming either!

For more: “Cap and Charade” “The Fight over Money from Cap and Trade”

Monday, January 26, 2009

Nuclear energy: Why not now?

Let me get this straight. New nuclear energy is illegal in Minnesota – actually, if I read the statutes right, we can’t even talk about it. New coal energy also will be curtailed in 2009 due to the moratorium passed by the 2007 Legislature and signed by Gov. Pawlenty. Natural gas is expensive and not fit for use as a base-load power source, not to mention it is illogical to use our primary heating fuel for electricity. Wind is a great resource and we will add plenty of it, but the wind doesn’t blow all the time.

Has anyone considered what will happen when our power needs outstrip the current fleet of power plants? It will happen sooner than you think: Every new plasma TV that’s plugged in underscores the problem.

This year, the Legislature should take a step in the right direction and remove Minnesota’s outdated ban on nuclear energy. That would at least put all of the options on the table as we try to jump-start this economy and hang on to precious manufacturing jobs to Minnesota.

Thursday, January 22, 2009

The Danger of Messy Closets & Out Driving Your Headlights.

As I was watching today’s Senate Energy Committee hearing on the low-carbon fuel standard, I was reminded of a couple words of wisdom that have come my way:

When my Dad was alive he used to tell this family story about me when I was little (I’m pretty sure it was my brother, not me who did this), but anyway, it’s his story: He told me I had to clean my very messy room before I could go out to play; so I cleaned it; after making a cursory inspection, he said I did a good job and out I went for the rest of the day. But later that evening, for some reason, he opened my closet door and out tumbled all my stuff because I had cleaned my room by taking all my mess and throwing it in the closet. Clearly, this wasn’t Dad’s idea of a clean room, so he made clean up the closet and then grounded me. Besides telling this story to embarrass me, my Dad would use the story to point out that solving one problem by creating another one not only comes back to haunt, but really isn’t a solution.

My behind-the-wheel driving instructor spoke the second words of wisdom many years ago when he said, “never out drive your head lights.” Evidently, this pearl of driving wisdom has staying power since my daughter’s driving instructor said the same thing. Of course, the instructors’ message is simple: don’t go faster then you can see because you might crash into something.

I strongly believe action needs to be taken to address greenhouse gas emissions. So, I’m not sure why these thoughts came to me as I watched the nearly three-hour hearing on the low-carbon fuel standard idea. It’s probably because in my 20 years of being involved in public policy making I’ve learned the hard way that when policy makers go faster then their headlights permit them to see where they are going the resulting actions have adverse and unintended consequences creating other problems.

Dealing with GHG emissions is like very few other problems. It affects everything, in everyway. Thus, while adopting a “low-carbon fuel standard” may sound simple. It’s not. There are numerous factual and policy issues that need to be thoughtfully considered before adopting a low-carbon fuel standard:
• What are the economic impacts of such a standard? The University of Minnesota is starting a study to answer that question.
• What should the definition of “low-carbon” be? The life-cycle calculus debate remains wide-open. The Midwestern Governors are working on it, as are the Federal Government and the State of California. But they have not decided yet, let alone agree. One lab’s study may be valid and useful; but it’s hardly a “national” value.
• Are we sure a low carbon fuel standard, whatever it may be, will actually reduce GHGs? This is about reducing global GHGs, right?
• Or, is it the best way to reduce GHGs from the transportation sector?

These strike me as vitally important questions that Minnesota needs, if not to answer, then to thoughtfully work through to reach consensus resolution. And, the answers are unlikely to be come through creative amendment language…that’s another recipe for disaster, sort of driving without headlights. While unfortunately there may be little appetite for patience at the Minnesota legislature, patience is what is called for.

In short, Minnesota legislators should be patient and take the time to get the needed information, understand the ramifications and think through the policy options before rushing to “clean” its climate change room by packing a low carbon fuel standard in it’s closet only to find that it has out run its headlights and crash into a set of painful problems that require more than a good scolding and not be allowed to go out to play for a while.

Wednesday, January 21, 2009

Cap and Trade: Follow the Money!

The carbon financers at the two-day Carbon Forum America conference in San Francisco that wrapped up February 27th, 2008 was "déjà vu all over again.” The promises were reminiscent of those made by the two Macs, Fannie and Freddie, many lenders, mortgage brokers and the Wall Street con artists less than 10 years ago about how their products would put every American into a home of their own. All of this was promised without regard to such details as whether they could afford the payments, had a job, etc.

But that's not too surprising. Carbon financers, traders, investors, or dealers—whatever you want to call them—are middlemen, just like the Wall Street Cons, some bankers and mortgage brokers--- who take a cut for crafting deals that reduce greenhouse gas emissions. Thanks to the Kyoto Protocol, and the EU carbon trading system (ETS), they partook in an estimated $60 billion market last year.

You can imagine why they want the US to hurry along. According to the Congressional Budget Office, visions of a $300 billion to$1 trillion carbon market dance like sugar plums in their heads.
Worldwide market trading in CO2 is estimated to raise several trillion by 2015!

It's easy to feel a bit queasy about carbon financers: There's no question they're in it for the money just like the supposed “free-market” bankers who are currently in line for taxpayer handouts!

If there's no cap and trade policy in the US, companies like EcoSecurities, Evolution, and Climate Change Capital that attended the conference will have a lot less business. But most financiers feel good that making a profit can be aligned with reducing CO2 emissions.

"I like a program that encourages people to do a good thing," says Josh Margolis, co-CEO for
CantorCO2e. "Good public policy makers will use what motivates people—fear and opportunity—to accomplish the social good."

The argument for a cap and trade policy in the US is basic economics—markets (through buyers and sellers trading) will find the cheapest way to limit the world's use of carbon. This is significant because the task of disentangling ourselves from using fossil fuels and finding new ways to power our lives will be a massively expensive task no matter how you slice it.

And make no mistake, the cost will be borne by each of us---the American energy consumer. Considering the magnitude of current credit crisis, made possible by oblique financial instruments (CDO’s, derivatives, etc.), policy makers need to proceed with extreme caution on imposing a Cap and Trade system without understanding it’s economic implications for taxpayers and investors.

I have been a student of business, politics, and government for 40 years and have never forgotten President Eisenhower’s warning about being suspect of the military industrial complex---of the private market place using government for its own benefit without regard to the taxpayer whose resources are ultimately at risk.

Tuesday, January 20, 2009

Turning Our Backs on Canada?

An emerging issue that sits at the crossroads of energy and environmental policy, and one that could have profound consequences for Minnesota, is the debate about the development of the Canadian oil sands. A recent New York Times article ( highlights the issues at the heart of this debate.

The Canadian oil sands represent a vital resource in bolstering our country's energy security. Because of the oil sands, Canadian crude oil reserves are second only to Saudi Arabia. For Minnesota, Canadian crude oil currently supplies over 80 percent of the oil that is refined into transportation fuels like gasoline and diesel.

However, some environmental groups in the U.S. and Canada want to halt oil sands production, arguing that the environmental impacts are too great. They believe that cutting off the U.S. market from this resource will help in their efforts to stop oil sands production.

It is foolish to think that by not using this resource in the U.S., the oil sands won't be developed. This view ignores the reality that energy use in developing countries is set to grow exponentially in the future. The article notes that the pipeline network in Canada only takes oil sands production south to the U.S. That may be true today, but it will not be true in the future if the U.S. market is cut off. Canadian crude oil will still be used and the next logical destination is developing countries like China and India that have less efficient industry and lower environmental standards. Meanwhile, the U.S. will have to rely even more on the Middle East for its crude oil supply.

As Canada's largest trading partner and consumer of its oil, we should be working with them and the oil sands industry, not against them, to address environmental concerns while not compromising energy security. Improvements have been made to lessen the environmental impact of oil sands production. We need constructive solutions, not policy threats, that realistically account for our energy needs while working to improve the environment.

Monday, January 19, 2009

Protect environment and economy

As Minnesotans we take our electricity for granted. Whether we are flipping a switch to turn on a kitchen light, or plugging in a motor to cool refrigerator units in a grocery store, this state has a strong track record of reliable and competitively priced energy. That’s important because a steady supply of reliable, competitively priced energy is vital to our state’s economy.

But there are clouds on the horizon at the State Capitol that could change all of that. This blog, Inside Energy, is intended to alert and educate Minnesotans on the important public policy decisions under debate at the Minnesota Legislature, as well as the current impact of decisions made in the recent past.

The Minnesota Chamber’s No. 1 concern is the proposed cap-and-trade system which proponents suggest will reduce greenhouses gases. Cap-and-trade is intended to gradually reduce the amount of greenhouse gases in air emissions and to use a trading market among businesses to minimize their costs.

The Minnesota Chamber is committed to clean air, and we are committed to preserving jobs so all Minnesotans can continue to enjoy our quality of life. That said, we oppose any cap-and-trade system specific to Minnesota or the Midwest. The facts, as reinforced by science, show that Minnesota “going alone” will have minimal – if any – impact on reducing global air emissions and actually could do quite the opposite while at the same time causing significant job losses.

Climate change is a global issue and must be addressed on national and international levels.

For additional information on the Minnesota Chamber’s environmental policy initiatives at the 2009 Legislature, read “Our perspective: Don’t put Minnesota on an island in tackling greenhouse gases.” Click on

Enjoy the Inside Energy blog. We welcome your participation as we work together to enact policy that will protect our environment and our economy.