and nobody is saying who should bear the expense in the interim.
The frenzy surrounding carbon emissions is only likely to increase. On April 17, the Environmental Protection Agency declared that carbon dioxide emissions endanger “the health and welfare of current and future generations.” The EPA decision was the first formal recognition by the federal government of such a risk.
Carbon “pricing” presents a major challenge, and the way we meet it has implications for our entire economy. Regardless of the pricing method, it needs to be equitable and predictable. Car industry legend Bob Lutz has pointed out the incongruity of government demands that automakers make more fuel-efficient cars — while refusing to put a higher price on gas — comparing it to “ordering all American shirt makers to make only size smalls while never asking Americans to go on a diet.”
Many experts advocate a tax on carbon. For example, an increase in the fuel tax would accomplish a price floor — while providing a reliable source for surface transportation funding. But American voters do not like the word “tax” unless it is followed by “cut.”
Without taxes, this leaves “cap and trade.” The concept isn’t complicated. An annual, maximum allowable pollutant (the “cap”), and shares (or “permits”) equaling that amount are given (or sold) to the pollutant emitters. Emitters need permits for their annual emissions; so if they don’t have enough, they must purchase (or “trade”) permits from someone with a surplus. Over time, permits decrease until the desired emissions level is achieved.
As always, the devil is in the details. Questions about whether all permits should be auctioned, or whether they should be granted for free, remain unanswered. If permits are auctioned, nuclear power plants,
T WENT Y YEARS AGO, American filmgoers embraced the feel-good story of “Field of Dreams.” The movie was filmed in Dyersville, Iowa, where, less than a year ago, one of the largest ethanol refineries in the U.S. opened. VeraSun Energy planned to run the operation round-the-clock, yet, just t wo months after the plant’s opening, VeraSun filed for bankruptcy protection and closed the facility — along with many others around the country.
Wall Street Journal columnist Max Schulz observed that ethanol (like “Field of Dreams”) required consumers to suspend disbelief as “policymakers blurred the lines between economic reality and a
business model built on fantasies of a better environment and energy independence through ethanol.”
The dual pressures of energy and environment seem to evoke this wishful thinking. Hence, ideas such as “clean coal” take hold. Carbon capture and sequestration (CCS) is being identified as the answer to global warming, utilizing cheap and plentiful coal. Unfortunately, there isn’t a single major coal-burning power plant using this technology in the world today.
The reason isn’t recalcitrance; it’s basic business. CCS technology is expensive and unproven. Although costs might decrease if CCS use develops, the amount is unknown,
which require no permits, have an advantage over coal-fired ones. Debate also exists over whether automakers, fuel refiners or even end-users should bear responsibility for vehicle emissions.
The Obama administration originally wanted all permits to be auctioned for $13 to $20 a ton of carbon emitted. The revenue would then be used to offset consumers’ increased costs. On average, this would increase the price of gasoline by 12 cents a gallon, and the price of electricity by 7 percent. High coal users would be affected much more.
The political realities are evident in the proposed American Clean Energy and Security Act of 2009. Permits will be given away to appease coal factions. The single largest user of oil — transportation — is targeted for further study and planning. Kicking this can down the road is not a solution. The European Union’s experience has shown how difficult it is to deal with transportation issues in a cap-and-trade framework.
It is critical to the transportation sector that energy and environmental policy be aligned with transportation legislation. Any type of carbon pricing will impact the cost of production, and it could drastically change revenue streams. It is difficult enough to make decisions with complete information; it is impossible to do so with so many unknowns.
Surface freight authorization expires in less than three months. Many experts believe this bill represents our last chance to get it right. This will only happen, however, if energy policy is aligned with transportation. We can only hope for clarity of purpose. JOC
Ted Prince is principal, T. Prince & Associates LLC. He can be contacted at ted.prince@atlarge.net.
References:
Archives