Monday, March 30, 2009

State's top priority: Protect economy

Now is not the time to raise the cost of doing business in Minnesota – costs that inevitably are passed along to rank-and-file citizens. That’s not solely the opinion of the business community. The general public believes so, too, according to a poll released March 27 by the Minnesota Chamber.

More than three-quarters of Minnesotans polled believe the government’s top priority should be to improve the economy. Nearly seven in 10 are satisfied with policy-makers’ efforts to address energy and environmental challenges, and about the same percentage believes global warming issues are primarily a federal and international responsibility.

The poll was conducted as three environmental measures are being proposed at the Legislature – a cap-and-trade system for greenhouse gas emissions, a low-carbon fuel standard and the California clean car legislation. The Minnesota Chamber is a strong advocate of a clean environment. At the same time, we oppose initiatives that would place our state and our businesses on an island in public policy at tremendous risk to loss of jobs – and at the same time offer little hope for solving these problems.

The general public agrees, as underscored by the poll. People are clearly concerned about basic pocketbook issues right now, and they don’t want to experiment with questionable, new environmental policies that may get in the way of our economic recovery.

Thursday, March 26, 2009

Applying Cap & Trade to Coal Plants Uses The Wrong Tool

I believe action needs to be taken to reduce GHGs. When designed well and used appropriately, a cap and trade regulatory approach has a lot of value and can effectively, efficiently and economically reduce GHGs. But it is also true that a poorly designed and inappropriately applied cap and trade program can be inefficient, uneconomic and ineffective.

It is this “flip side of the coin” concern that leads me to lament President Obama’s decision to address GHGs through an economy-wide cap and trade program using 100%-auction in his budget. First, I do not believe a cap and trade program is a suitable regulatory tool for dealing with GHGs from the transportation sector. Another concern is that implementing such a program where the government collects the credit auction money distorts market principles that underpin the cap and trade concept. And, finally a cap and trade program is unlikely to reduce emissions from installed coal plants. I will discuss the first two laments in future weeks; for today I will discuss my last concern.

Like any tool, cap and trade is a regulatory approach that works well in some settings and not so well in others. It works well where there are a manageable number of sources that can directly control, limit, replace or trade their emissions in response to increased cap-induced costs. This is why it worked for acid rain precursor emissions like sulfur dioxide from coal burning electric generating facilities. In the GHGs setting, I think cap and trade can work for manufacturing and industrial sectors that emit GHGs as an unfortunate by-product of their production. The participants in these sectors can and will make relatively quick economic analysis of whether reducing emissions through their industrial creativity or purchase GHG credits are in their best interests. The cap and trade approach may even work in the electricity sector when applied to future resource selections.

But as I reflect on a cap and trade approach and watched it’s use in the RGGI states or Europe, it becomes abundantly clear that such a program is a complicated tool crafted by humans with all our good intentions and frailties and inevitable political balances. As a result, I conclude that a cap and trade program is unlikely to reduce GHGs from the nation’s fleet of installed coal plants. This is an important shortcoming, since these sources emit somewhere north of a quarter of the country’s GHGs.

Although there are relatively few coal plants in the country (about 600 or so), unlike SO2, their GHG emissions are integral to their operations. Their GHGs cannot yet be scrubbed or economically captured. Just as important to my analysis, these installed coal plants produce electricity very cheaply and it is very unlikely that the cap will impose GHGs costs so high that newer or cleaner (in the case of natural gas) but more expensive alternatives would be an economic replacement…an alternative to new coal plants, possibly; but not as a replacement of the installed coal plants which produce electricity at under 5cents per kilowatt-hour versus over 10 cents for new. In short, for a cap and trade program to affect the GHGs from these installed coal plants, the imposed very, very high costs; costs so high that closing down is cheaper than buying credits from elsewhere. I doubt the political balancing process will impose such a high cost…it hasn’t yet in the other places that are pushing forward on cap and trade programs.

Thus, what is likely to occur is that the cap and trade program will impose higher costs on the generator that will be passed on to consumers…which of course may affect overall demand but not the emissions from the facility. The result: higher energy costs but minimal reductions in GHGs.

To make matters worse, the cap and trade program may actually encourage the generators to extend the coal plants lives since there would be little incentive to shut them down because the GHG costs will have been internalized or passed through to consumers. Thus, and to repeat for emphasis, the most likely result of a GHG cap and trade program will be higher electricity costs with little GHGs reductions….at least from the electricity generating sector. This should not be an acceptable outcome.

Since the cap and trade is an unsuitable tool for reducing GHGs from installed coal plants, there is a need to think of an alternative. The idea I have is that the installed coal plants should have their own program and certainly be exempted from any cap and trade program as a result. In my program, when a coal plant turns 50 years old it would be decommissioned, and between now and then the owner/operator of the exempted coal plant will work with their utility commissions to begin collecting money and putting it in escrow on the utility’s books for the sole purpose of replacing the energy from that facility (sort of like a pension fund) when it is decommissioned.

The result of this cap and trade alternative would be an orderly and economic phase out of the installed coal plants and replacement with inevitably cleaner facilities a significant environmental improvement…even if they are replaced with new coal plants. Ratepayers would be no worse off than if they were included in the cap and trade program and are likely to be much better off because the escrow collection would be equal to or less than the associated carbon costs a cap. Plus, that money will become down payments for the replacement facilities, reducing their costs and lowering the rate impacts instead of being “redistributed” through government programs. Knowing the end-of-life timing for their electricity generating facilities will prevent very expensive life extending improvements. The result: manageable electricity costs and significant GHGs reductions from the electricity sector…something that probably will not happen under a cap and trade.

Wednesday, March 25, 2009

Who Would Have Thought C&T is about the Money???

US Lawmakers, Fearing CO2 Market Crisis, Drafting Tough Rules March 24, 2009: 01:24 PM ET

A few titillating tidbits from the article sent to me by a dear friend. Please read the whole article. I have been around politics for 30+ years and it is always about the money....!!@! See my previous C&T blogs and let me know what you think. I have no interest in your feelings. They have, after all, gotten us into this mess!

WASHINGTON - (Dow Jones) - "Fearing another financial meltdown under a proposed multi-trillion-dollar greenhouse gas trading program, U.S. lawmakers are drafting legislation for strict regulation of the nascent market."

Wall Street banks, hedge funds and institutional investors are under a rain of public indignation and regulatory scrutiny for their role in the current financial crisis. Many legislators are concerned that creating a carbon market may simply give the same players a new opportunity for manipulation and hazardous trading.

"This is a disaster in the making," warned Rep. Greg Walden, R-Ore., ranking member of the House energy subcommittee on oversight and investigations. "If you like the bubbles of the technology market and the housing market, I predict you'll love the bubble that will come from the cap-and-trade market."

A cap-and-trade law would create a market - including for derivatives of emission allowances - for carbon emissions and would multiply trading opportunities for emitters, traders, brokers and investors.

Cutting A Fat Hog "I attended a recent meeting of an organization interested in [climate change legislation], and guess who it was," Rep. John Dingell, D-Mich., said at an energy forum last week. "It was a bunch of good-hearted Wall-Streeters ... getting ready to cut a fat hog."
Many of the most exuberant, enthusiastic advocates of cap-and-trade are some of the same major institutional investors that were involved in the housing and commodity markets, said Walden, the congressman from Oregon.

"Take, for example, the Regional Greenhouse Gas Initiative, or RGGI, a cap-and- trade system in the northeastern states. According to the list of qualified bidders, among those who wanted to buy credits were a raft of investors that aren't major emitters - trading units of Barclay's Plc (BCS), Goldman Sachs (GS) , JP Morgan Chase & Co (JPM), Merrill Lynch, now a unit of Bank of America (BAC) , and Morgan Stanley (MS)."

One of the biggest advocates in the U.S. Climate Action Partnership, a group that lobbies Congress for cap-and-trade legislation, had been American International Group (AIG), whose controversial financial products unit precipitated the near-demise of the insurance giant.
"Starting with Enron and now the current financial meltdown, energy markets have been a target-rich environment for people to take advantage of the futures price and the physical price," said Sen. Maria Cantwell, D-Wash.

"We don't need to solve our carbon problems by creating another fiscal crisis because we have a trading platform that has lots of holes and ends up being exploited," she said.
Preemptive Regulation Cantwell, who chairs the Senate energy subcommittee, declined to give details but said she's drafting legislation that would prevent manipulation or cash-rich market participants from cornering the market.

In the House, Rep. system of these markets to the nth-degree," said Inslee on the sidelines of a climate conference.
Henry Waxman, D-Calif., is developing a cap-and-trade proposal that will include prophylactic provisions, said Rep. Jay Inslee, D- Wash.
"We have to have the most aggressive, ambitious, fool-proof regulatory "We're not going to allow derivatives to ruin these markets as they have others," he said.

Tuesday, March 24, 2009

The Political Genesis of Cap and Trade: Late march, 2009

The Political Genesis of Cap and Trade: The Federal Budget Debate in Late March, 2009

What a week this will be in Congress. As they make hay (read obfuscate), on the AIG bonuses (most of which have been paid back) and look for people to blame (Obama, Bush, Paulson, Geithner, Bernanke), they will begin their discussions of the cap and trade provisions in President Obama’s budget.

Republicans on the Senate environment committee sent their strongest message yet that they intend to strip President Barack Obama’s $3.4 trillion budget of the $646 billion the government expects to collect from auction cap-and-trade revenue by 2020. The eight Republicans said the President’s budget included a “risky, ill-defined new energy tax” that has the potential to continue the economic recession "for many years to come." They also argued the program is likely to generate between "two and three times" as much revenue as the White House accounts for in its budget. Under the leadership of James Inhofe, the letter indicated, “We are writing this letter to alert you to this situation and ask that you join us in a budget resolution amendment to strike any such provision.”

Consistent with his campaign promise, President Obama has called for an economy-wide cap-and-trade system that aims to cut greenhouse gas emissions 14 percent below 2005 levels by 2020, and 83 percent below 2005 levels by 2050. Real cost? Republicans, including former House Speaker Newt Gingrich, have begun saying that a cap-and-trade system would create the equivalent of a “$1,300 per family energy tax increase.” Supporters argue that the Republican argument ignores the fact that higher energy prices would be offset with tax credits, and attack their assumption that doing nothing to address global warming would carry no cost. Laurie Johnson, chief economist for the Natural Resources Defense Council climate center, estimates that unfettered global warming would cost the average American household $2,000 a year by 2025 in climate damages alone. Follow the money. . .watch for Goldman Sachs and Morgan Stanley in the debates.

Follow the money...

Key Senate Democrats are convinced they’ll be able to keep the revenue in the budget. Senator Barbara Boxer, chair of the Senate environment committee, told reporters last week, “It is important to keep the revenues from cap and trade in the budget document, and I am confident that we will do that.” Keeping the revenue language in the budget is an important step to many in Congress, even though the proposed cap-and-trade system wouldn’t begin until at least 2012, and revenue from the first auction won’t start filling federal coffers until sometime in 2011. Shall we guess why this is? The money. It is always about the money (see previous blogs). While the budget language alone is not enough to establish a U.S. cap-and-trade system, it is helpful to those in Congress pushing for the passage of a climate bill by the end of the year.

Senator Kent Conrad’s moves to protect agriculture

Democratic Senator Kent Conrad, chair of the Senate budget committee, said he will release a more streamlined version of the budget this week. He said his proposal includes many adjustments, including the elimination of billions of dollars from the President’s budget and protections for agriculture from greenhouse gas emissions rules! There is no way that Conrad will delete the revenues from the phantom cap and trade system.

Reconciling the mess

Optimistically, Senate leadership has ruled out using the budget “reconciliation” process to pass a cap-and-trade bill. We will be watching this carefully. [Parliamentary rules on reconciliation requires only 51 votes to pass the Senate, as opposed to the 60 votes a cap-and-trade bill would require.] Eight Democrats signed a letter addressed to Conrad last week saying they opposed using the reconciliation process to move a cap-and-trade bill.

Stay tuned for a repeat of the credit crisis under the camouflage of climate change and for future Congressional blame on others. Some things never change.

Thursday, March 19, 2009

Shared Goal; Differences of Approach.

Below is a statement I presented over 10 years ago. While I would make some editorial nods towards recent achievements, (the RPS, increases in biofuels and greater emphasis on energy efficiency), I still firmly agree with this statement. Climate change is real; human emissions are the cause; and we need a fair and comprehensive approach that will actually reduce GHGs. Any criticism offered in these postings should not be interpreted as changes to my long-held beliefs or a wavering of my commitment to address GHGs; rather they stem from legitimate differences of opinion for how to craft a fair comprehensive approach that will effectively, efficiently and economically reduce GHGs around the world, across the nation and here in Minnesota.


Thursday, December 17, 1998

Although there are uncertainties, climate change poses a real environmental threat and raises very important long-range public policy issues for Minnesota that will not go away. Therefore, it is in Minnesota’s best interest to develop a thoughtful and comprehensive plan to proactively address the issue.

Before I proceed, I have to make two disclaimers. First, although I am Chair of the Minnesota Public Utilities Commission, the opinions I express today are my own. They do not reflect the views or opinions of the Commission or anyone else for that matter. Second, nothing I say today should be construed in any way and by any party as an indication of how I may decide any matter that is before or could come before the Commission.

I accept conventional scientific thinking that the climate change issue is a real environmental threat. The concentration of atmospheric CO2 is increasing. Increased concentrations of atmospheric CO2 is likely to change the world’s climate posing a significant threat to Minnesota, the United States and the global community. Having said that, I recognize that there are many important unanswered questions: How much will the climate change? How fast could such change occur? What will be the impact of that change? Can we see such change today? How significant are human actions in causing such change?

Although no one can answer these questions with great certainty, there does appear to be a correlation between increased CO2 concentrations and human industrialization. This correlation by itself leads me to conclude that the responsible thing to do is to find ways to reduce CO2 emissions. Minnesotans contribute to the problem and will be adversely affected by a changing climate. Therefore, it is in our best interest to thoughtfully and proactively reduce our CO2 emissions in ways that do not unilaterally disadvantage us.

Besides the environmental threat posed by increased atmospheric CO2 concentrations, there is another reason for Minnesota to be proactive on this issue: it is likely that Minnesota will face the imposition of international and national CO2 reduction regulations in the not too distant future. In 1992, at the Earth Summit in Rio de Janeiro, Brazil, 154 countries, including the United States, recognized (and now 175 countries recognize) the threat posed by increasing atmospheric concentrations of CO2 to the Earth’s climate. They agreed to pursue voluntary reductions of CO2 emissions. After several intervening meetings, they went a step further a year ago in Kyoto, Japan. The Kyoto Protocol, which the US signed during the Buenos Aires Convention this past November, creates an international framework for mandatory CO2 emission reductions for developed countries. Under this framework, the United States agreed to reduce its CO2 emissions by 7% from 1990 levels during the 2008 to 2012 time period.

I attended last month’s Buenos Aires Convention representing the National Association of Regulatory Utility Commissioners. The primary agenda of that convention was to address the Kyoto Protocol’s flaws and resolve its many implementation issues. The lack of CO2 reduction commitments by developing countries, like China, is a major flaw of the Kyoto Protocol. The diplomats tried to address this issue but achieved little if any direct progress. However, there was a lot of maneuvering and discussion between the countries, led by Argentina, giving me hope that the stalemate can be broken.

As for implementation, the diplomats spent many hours trying to agree on how to implement CO2 trading and other flexibility measures. Such flexibility is needed to minimize the costs of CO2 reductions. Again, due to international politics there was little direct progress. However, the conferees did agree on a workplan with results to be brought forward in October 2000.

Although there was little formal progress in Buenos Aires, we should take note that the on-going international stalemate is over how to develop and implement CO2 reduction efforts, not whether we need to do so. The science of climate change was not questioned.

This observation makes clear to me that we Minnesotans ought not be ostriches hiding our head in the sand hoping that the climate change issue will go away. It will not; the issue and its ramifications will only grow. Therefore, it makes sense for Minnesota to get ahead of the curve and control our future by developing a thoughtful and comprehensive plan to proactively address the climate change issue. New Jersey and Oregon have done so. So have a number of major Minnesota companies. We should too.

In making this recommendation, I do not believe that Minnesota can solve this global problem by itself. Nor do I think that we should try and thereby shoot ourselves in the foot economically. But, in small ways, we can lessen the environmental threat and prepare ourselves for what is to come.

In developing a proactive plan, it ought to be comprehensive, thoughtful and deliberative. Because everyone uses energy and thereby contributes to the problem, everyone must be made part of the solution. Accordingly, an inclusive process that assures that all interested people can and do participate is needed. Also, no one industry or economic sector should bear the costs of addressing this threat by themselves. The costs of CO2 reduction should to be borne fairly by all.

We need to be mindful of the uncertainties and make sure that whatever steps we take do not unilaterally disadvantage us. We cannot solve this problem overnight and it is counterproductive to try. Today’s solutions should not become tomorrow’s problems. Similarly, we must think creatively. It will probably take new and different ways of doing things to address this issue.

Finally, we must be proactive. We must set goals and take action by pursuing the low hanging fruit while simultaneously planting trees--both figuratively and literally speaking--so we can reap them as they mature in the future. Here are just a few ideas that come to my mind: devising ways to assure that companies that reduce their CO2 emissions receive credit for their good work; striving to achieve even more energy efficiencies; examining our tax structure to find ways to promote capital stock turnover; continuing to use and promote low or no-CO2 emitting energy sources; managing our forest and agricultural lands for carbon sink potential; and finally examining our regulations to make sure that they do not work at cross purposes or unnecessarily add costs.

Although reducing CO2 emissions is key, the cure must not be worse than the illness. We must not take actions that would unilaterally disadvantage our citizenry or industries. Instead, we should focus on flexible market-based measures that strengthens the state’s economy both today and tomorrow.

To conclude, climate change is a real environmental threat posing difficult public policy choices. The sooner we develop a thoughtful comprehensive plan that identifies those policy choices and proactively implements them, the better off Minnesota will be. Thank you for this opportunity to address you today.

Wednesday, March 18, 2009

Surprising Research Results

Last month, researchers at the University of Minnesota released a study which looked at the environmental and health costs of three different fuels – gasoline, corn-based ethanol and cellulosic ethanol. They calculated the combined environmental and health costs associated with the production and combustion of 1 billion gallons of each of these fuels. Here is what they found:

Combined Environmental & Health Costs
Gasoline - $469 million (71 cents per gallon)
Corn-based Ethanol - $472 - $ 952 million (72 to about $1.45 per gallon)
Cellulosic Ethanol - $123 - $208 million (19 to 32 cents per gallon)

Based on past statements about the benefits of certain types of renewable fuels and even bolder promises about what these fuels hold for the future, most people would be surprised that corn-based ethanol had the highest combined cost of the three fuels that were studied.

This is just one study. Subsequent research may substantiate or refute these results. But as the policy debate over how we should go about diversifying our fuel supply continues, this study is a reminder that we need to embrace valid scientific developments and develop sound public policy that is well founded both scientifically and economically.

A link to the study is here:

Thursday, March 12, 2009

The MGA Conundrum & Successful Journey

It seemed like a good idea at the time: Get the states of the Midwest to work together on increasing the region’s renewable energy and energy efficiency. And, while doing that why not think about reducing greenhouse gas emissions? So, about two years ago Governor Pawlenty and Wisconsin Governor Doyle used the auspices of the Midwestern Governors Association (which Doyle was chairing) to do just that. The result was the Energy Security and Climate Stewardship Platform and Midwestern Greenhouse Gas Reduction Accord signed by most of the governors of the Midwest in Milwaukee, Wisconsin in November 2007.

It did seem like a good idea at the time. Recall 2007. The economy was riding high. That October the stock market set an all-time high. Most states were on renewables bandwagon. Also, remember the frustration on the Federal government’s inaction on climate. Moving thoughtfully, collectively and certainly very ambitiously forward seemed like the correct thing to do.

How the times have changed. The economy is on the ropes; the stock market is tanking, and for better or worse, the Federal government has awoken from its inactive slumber. Thus, what seemed like a good idea once has now turned into a conundrum for the Governors.

Countless hours by hundreds of stakeholders continue to work on the cap and trade analysis and all the other MGA energy activities which are suppose to culminate at a big energy and green jobs summit in September…most likely in Michigan since Michigan Gov. Granholm is the current MGA chair. Yet, as the economy and the President’s actions make clear both achieving the ambitious goals is unlikely and unneeded.

What to do? My answer is to keep plowing ahead, get as far as possible (knowing that it will not be very far) and declare victory! As a great philosopher said: It’s the journey not the destination that matters.”

Another facet of that journey is about to start with the MGA consultants doing two types of model runs. The first set of model runs will be a core policy case, i.e. cap-and-trade plus the complementary action estimates like energy efficiency gains, low carbon fuels, etc. and a pure cap-and-trade case, i.e. no complementary policies/goals. These first policy model runs should be done prior to the next MGA advisory group meeting scheduled for Traverse City, Michigan on March 31/April 1st.

The second set of runs will test sensitivity of various cap-and-trade design parameters like changing offset limits, sectoral coverage, geographic coverage, targets and transportation fuels in or out of the cap & trade. These runs will be done in mid-April.

Despite all this work, will the Governors be able to declare success in September? The answer is “yes, sort of, and no.”

Yes, the MGA climate and energy efforts will be a success; they already are. They have policy leaders, key agency staffers and stakeholders from across the region working together, thinking through issues and learning important things. This cooperation, coordination and communication should not be discounted. It will pay important dividends.

The MGA effort will only be “sort of” a success to the extent that beyond the coordination the groups have not reached agreement on many critical issues. Yet, one should not discount the learning that has occurred on what it takes to create a regulatory regime to reduce GHGs. Understanding issues like offset implications, leakage and boundaries, impacts of including or excluding transportation fuels and the cost impacts of these variations are, while not tangible, successes of a sort that ought not be discounted. While cohesive regional action is unlikely it also puts our region at risk of aggressive Federal action dominated by decisions made in California and New England. These are not regions that have a very different industry, agricultural and energy production profile than our Midwest.

If success is defined as the actual implementation of a regional cap and trade program, then the answer will be “no.” However, this may not be a bad thing given everything that’s going on. In fact, in many respects even in “failure” the MGA energy security and climate effort can be a success. The MGA governors need to keep moving forward; keep working through the issues even if they are intractable. Keep communicating; keep coordinating and keep cooperating. And, throw a big victory party in September because as country singer Rodney Atkins sings--“If you're going through hell, keep on going, don't slow down. If you're scared, don't show it. You might get out…before the devil even knows you're there!”

Wednesday, March 11, 2009

Self-sacrifice to reduce greenhouse gases...No more economic ponzi schemes

We cannot afford more economic trickery so we must carefully consider and then reject any type of cap and trade program for reducing greenhouse gases. They are complex, make assumptions that are untested in the real world of market economies, and will cost taxpayers billions if they do not work the way their advocates suggest. Their principal advocates are a rag tag coalition of big businesses, environmentalists, and investment banks like Morgan Stanley and Goldman Sachs. Their leaders in Congress hail from the state we all want to emulate - California, just kidding!

If we believe that rising greenhouse gases are a problem and we want to lower them, then we should raise the consumer retail price of greenhouse gas producing products and services so that all of earth’s citizens sacrifice for the good of the planet. It is just plain old common sense that all countries should have to follow the same rules so that we all make financial and comfort sacrifices for future generations of Earth’s people. If we are unwilling to turn our thermostats down in winter and up in summer as well as paying more for the energy that we consume in our homes, cars, snowmobiles, four wheelers, boat motors, airplanes, etc., than climate change is just another economic ponzi scheme for the rich and powerful.

After what we have been through in housing finance, anyone who believes that America’s largest corporations, federal regulators, Wall Street, and our insulated, elitist, take-no-responsibility-for-anything elected leaders are looking out for our collective welfare is just plain stupid and beyond redemption.

There are some who suggest the redistributionist notion that wealthy countries like America and the EU countries pay the price of cleaning the air for all. While it is true that Americans and Europeans consume more energy than say South America or Africa, it is also true that many of the innovations discovered in these “wealthy countries” have been shared with those less developed countries. After all, America did rebuild West Germany, much of Europe and Japan after WWII. This is not new behavior for the U.S. Further, think about how much greenhouse gas is created in a war!

It is also true that China and India are consuming more energy with each passing day as their populations are transformed from poor to middle class, rising because of the consumer driven economies of the west. [note: I support transforming America’s economy to a more savings and investment economy and away from “shopping and goods are necessary for happiness” economy. If we put more private investment into biotechnology research and product development, for example, we would improve the world’s water, food production and quality as well as the general health of the world’s citizens.]

This would require a significant tax on greenhouse gas producing goods and services. It is in this direct, transparent manner that we will test the steel and commitment of American consumers to climate change. The most rapid climate change advocates say that transparently raising taxes will not work and support the back-door cap and trade scheme. They are wrong.

President Obama does not seem at all bashful about standing up for his principles even if that means doing unpopular things in the short term. He certainly does not seem to be adverse to raising taxes or to continue the Bush legacy of debt (future taxes) if necessary. It is time that we tie what Americans say they want to self-sacrifice to determine if they are really committed.

I’m for higher consumer retail taxes on all greenhouse gas producing goods and services. Let’s all sacrifice for the greater good or turn our attention to something we are willing to make sacrifices for. What do you think and why?

More reasons for cap and trade skepticism…

“The Kyoto Protocol introduced Carbon Credit Schemes (CCS), which would permit the bigger polluters (oil and gas companies, paper mills, etc.), and even provincial governments, to purchase carbon credits to give themselves a better image and conscience. The schemes were set up so that those polluters could buy carbon credits when they are unable to reduce their greenhouse gas emissions equal to or below the industry set quotas.”

“They will try to deny that it is a license to pollute. They will try to convince us that it will be an incentive to the polluters to finance projects that are less polluting. We won't understand a word they say. They will try to explain concepts that only the initiated will be able to understand. They will dangle the prospect of a bright future. Don't be fooled.”

“The rest of the schemes proposed are all show, which will only lead to price increases to the consumer. We see it every day, big polluters never are embarrassed to increase consumer prices. In five years, greenhouse gas emissions will not be reduced globally; to the contrary. The lure of profit money is too great.
And these carbon credit schemes will become the next financial scandal that will burst and impact us. Consumers should remember: If a deal sounds too good to be true, it probably is a trick deal. Therefore you need to abstain from investing.”

Friday, March 6, 2009

The costs of patchwork climate change regulation

These days it is hard to turn on your computer or watch the television without coming across a discussion of some variety on greenhouse gas (“GHG”) emissions and climate change. Some continue to question climate change or whether anthropogenic GHG emissions are a primary cause. Others point to government-backed scientific organizations and argue that the only question is how to prevent the predicted dire planetary consequences.

While these debates continue to provide coffee shop fodder, the legal reality of GHG emissions for the average American energy producer, mining company, or other large scale carbon emitting business is one of costly uncertainty. This legal reality traces back to the April 2007 United State Supreme Court decision of Massachusetts v. EPA, which concluded that that carbon dioxide and other GHGs are air pollutants under the federal Clean Air Act. In reaching that conclusion, the Supreme Court stated that the “harms associated with climate change are serious and well recognized” and that there is a causal connection between anthropogenic GHG emissions and climate change.

Decision makers across the nation from state district courts (Georgia decision), to the Environmental Appeals Board (EAB decision) have looked to Massachusetts to decide legal questions relating to GHG emissions. Since this represents the opinion of the highest court of the land, the current trend towards judicially-mandated GHG action is going to continue, at least until the Supreme Court revisits the questions or Congress and President Obama take legislative action. Of course, the early signs are that the EPA under President Obama is going to be more active on GHG regulation, not less.

The problem for American businesses is that the combination of the Massachusetts decisions and the relative inaction at the federal level has created a legal quagmire that has spurned costly court battles and administrative challenges to state and federal agency decisions. Given the current state of affairs, the closest thing to a guarantee for a company with significant energy production or needs that is entering the environmental review or permitting process is there will be a challenge to any agency decision based on GHG emissions. We now are beginning to see the effect of the regulatory uncertainty as a major planned utility plant was cancelled.

Given the trying financial times we now face, the certainty of costly litigation is just one more reason to look elsewhere for any potential project or to simply forego the project all together. There are some that may say “great, inaction is good for the environment.” But the reality is that as worldwide consumption of fossil fuels and other raw materials remains the same (or more realistically continues to increase), the notion that preventing a project here is good for the environment simply does not past muster. So long as there is demand, companies will find a way to meet that demand as cheaply as possible. In the current state of patchwork local and regional GHG “regulation” companies will face economic pressure to move potential projects to states with a more conservative approach to GHG emissions or to nations that have little to no environmental controls. When you are dealing with a “global pollutant” like GHG emissions, we do nothing to reduce emissions globally or in our backyard by simply pushing off business to another jurisdiction. In these trying times, if there is going to be GHG regulation shouldn’t it be done in a way that actually helps the environment and that does not disadvantage Minnesota businesses compared to state locations or chase American businesses outside our borders?

Submitted by Michael J. Mergens

Michael J. Mergens is an attorney at Larkin Hoffman Daly & Lindgren in Minneapolis. His practice includes a broad range of real estate matters, such as environmental permitting and litigation, land use approvals and disputes, and general real estate disputes. He has devoted much of his practice to the regulation of greenhouse gas emissions, which has begun to arise in the environmental permitting processes of various state and federal regulatory bodies. He also tracks the potential for regulations under the Clean Air Act.

Mergens serves on the Minnesota Chamber of Commerce Environmental and Natural Resources Committee. He is also involved with the Minnesota Environmental Initiative, the United States Green Building Council – Mississippi Headwaters Chapter, and the Environmental Section of the American Bar Association. He received his juris doctorate cum laude in 2002 from the University of Minnesota Law School. He is admitted to practice law in Minnesota, California and Arizona, as well as in the United States District Courts for Minnesota and the Central District of California.

Thursday, March 5, 2009

President Obama’s Unfortunate Cap & Trade Proposal

Last week President Obama announced his budget proposal. ( On page 21 of the 120-page budget summary, it announces the President’s plan to reduce greenhouse gas emissions through a “cap and trade” program:

After enactment of the Budget, the Administration will work expeditiously with key stakeholders and the Congress to develop an economy-wide emissions reduction program to reduce greenhouse gas emissions approximately 14 percent below 2005 levels by 2020, and approximately 83 percent below 2005 levels by 2050. This program will be implemented through a cap-and-trade system, a policy approach that dramatically reduced acid rain at much lower costs than the traditional government regulations and mandates of the past. Through a 100 percent auction to ensure that the biggest polluters do not enjoy windfall profits, this program will fund vital investments in a clean energy future totaling $150 billion over 10 years, starting in FY 2012. The balance of the auction revenues will be returned to the people, especially vulnerable families, communities, and businesses to help the transition to a clean energy economy.

Since this program is in a budget bill, it appears that President Obama wants to make the climate debate more about how to raise and spend money than actually reducing GHGs. This is very unfortunate; hold on to your purse or wallet!

Using the phrase “biggest polluters” is also unfortunate. In fact, I think it is both inaccurate and counter-productive. Everyone emits greenhouse gas emissions…we all contribute to the problem when we turn on a light, heat our homes or drive our cars. It’s an “all of us polluters” problem, not just a “big polluter” problem. So, to use such a phase sends the wrong message and undermines the need for everyone to collectively take action. And, without this collective action there will be no solution.

There are several things I can say about the “100 percent auction” approach, but let me focus on one thought: the only thing a 100% auction assures is that all traditional energy sources will be made more expensive. It is also likely to be unfair and economically distorting. Rich entities or entities that can pass the costs along that need GHG credits will pay any price; but poor entities may not be able to afford the price and will be forced out of business regardless of their value to society. Such economic unfairness and distortion in the marketplace is unfortunate.

The proposal says an auction is needed so the biggest polluters “do not enjoy windfall profits.” This is government-speak for saying what you were doing yesterday had no value but now it does and we don’t want you to benefit from the new value so we (the government) will take it from you. This adds insult to injury. And, I find it ironic that at a time when the Federal government is pouring billions of dollars to bail out banks, they are worried about windfall profits of energy producers and users.

While a cap and trade approach may be an effective way of reducing GHG emissions in some situations…it is not effective for every situation. It doesn’t work for transportation and I am doubtful that it will result in reduced GHG emissions from established coal plants, the two largest sector sources of GHG emissions.

The President’s plan is silent on the role of the states. So, since it doesn’t say, “working with the states...,” I assume President Obama’s message is that the Federal government will impose the cap and trade, run the auction, collect the resulting money and then dole it out. But there are states, including Minnesota, that also have their eye on that money for themselves.

Similarly, I wonder whether states will have a role independent of the Federal government in reducing GHG emissions. There are five options for states. The simplest options are pre-emption (which I favor) or grandfathering. Another option is for the Federal government to delegate some controlling authority to certain states that meet a minimum set of conditions. A fourth option is to grandfather a more aggressive lead state (can you say California?) and then allow other states to adopt that state’s standard or accept the Federal standard. Finally, there could be “cooperative Federalism” where the Federal government and states jointly implement a set of standards. It is unclear which option the President wants.

There will be an interesting intergovernmental skirmish and unfortunately, pretty soon everyone will forget that the goal is to reduce GHG emissions.

Thus, in this single paragraph, President Obama is proposing to change the nation’s energy marketplace, affect every Americans’ finances, and reshape the Federal-state relationship. And, would do all this in a way that probably will not even reduce GHG emissions. Very unfortunate and disappointing.

Monday, March 2, 2009

Can We at Least Get the Facts Straight?

It is becoming increasingly clear that despite the severe economic recession we are in, Congress will take up climate change legislation this year. In his address to Congress last Tuesday night, the president reiterated his support for a cap-and-trade program and asked Congress to send him “legislation that places a market-based cap on carbon pollution and drives the production of more renewable energy in America."

In order to have an informed debate, we need to have a firm factual foundation to start the discussion. However, much of the news coverage of this issue gets basic facts wrong. For example, an Associated Press article about the President’s speech says, "The United States is the world's largest emitter of carbon gases, blamed for global warming, yet the previous administration of president George W. Bush walked away from the 1997 Kyoto treaty aimed at battling climate change."

There are several things wrong or incomplete in that one sentence. First, there is no disagreement among people who follow this issue that China has surpassed the United States as the largest source of man-made greenhouse gas emissions. According to the World Resources Institute, in 2005 China contributed 7.249 billion metric tons (BMTs) – or 18.72% - of global man-made GHG emissions. The United States emitted 7.09 BMTs - or 18.33%.

Second, the Kyoto Protocol was rejected not only by President Bush, but also the United States Senate. On July 25, 1997, the United States Senate voted unanimously – 95-0 – for the Byrd-Hagel Resolution (S. Res. 98), which stated the sense of the Senate was that the United States should not be a signatory to any protocol or other agreement that did not include mandatory greenhouse gas emission reduction targets and timetables for developing nations as well as industrialized nations, or that would result in serious harm to the economy of the United States.

While the Clinton Administration signed the Kyoto Protocol in 1998, the Administration never submitted it to the Senate for ratification because it was clear that the Protocol would not be voted on until there was participation by developing nations.

In light of the recent and future projected growth of greenhouse gas emissions in “developing” countries like India and China, the sense of the Senate in 1997 is even more relevant today.