John Garamendi is really dumb. Energy lobbyists are smart.

Those of you who know me would be surprised at the title of this blog entry.

E&E TV recently had a debate among several politicians and Washington-based energy policy wonks, about the wisdom of exporting liquified natural gas. I thought I was leather-skinned as to how dumb our elected Congressional representatives are. Perhaps it was because the voice of reason in the group came from an energy industry lobbyist, Bruce McKay of Dominion Energy; I usually don't feel I learn very much from that demographic. Nor do I feel that California Democrats, a little too smug in their safely liberal districts, lend much value-added to any serious debate, but I usually find them less offensive. Even in this group of modest intellectual endowment, however, the shocking ignorance of Representative John Garamendi stands out, and warranted a special coming-out from my cocoon to denounce his brand of energy nativism.

Here is Garamendi, during the debate, on whether we should export liquified natural gas:

Don't do it. Don't do it. Gas is a strategic asset that America has. It's one of the few things that we really have in abundance, at least at the moment, and our industries are depending upon that natural gas at a reasonable price. We start exporting, we're going to drive that price into the world market price, which is at least twice as high as the current domestic price.

Later, Garamendi, repeating himself, says:

[T]he real key here is that we do have this extremely important strategic asset, one that does allow us to do things that we couldn't do before and if we open the strategic asset to the world market, it will clearly double.

Why is Garamendi so passionate about not exporting energy? Oh, it has to do with locating a plant in his home district!

This is a strategic asset. It allows us, for example Dow Chemical, to come back to America to rebuild its chemical plants and to expand its employment base in America. [T]hat the natural gas industry would want to drive Dow Chemical, one of the great American industries, out of the United States simply to fatten their bottom line. That is not acceptable. Dow Chemical, in fact, is increasing, in my own district, its production, its employment and rebuilding a plant that's been there for years and years. They were going to go offshore, but with the price of natural gas they're coming back and my people are working. My people are working.

Let me be clear: I generally don't care for the energy industry. And the roughshod manner in which hydraulic fracturing is spreading across the land like a wildfire ought to give everyone pause. But if we can do a better and cleaner job of extracting natural gas, then it is crazy to deny that the world trades, and to forbid exports. When John Garamendi sees fracking, he does not see energy independence, he does not see relief from fiscal problems at the federal and state level (you would think a Californian didn't need to be reminded of this, but in Garamendi-World, this is apparently irrelevant), and Garamendi also does not see the manifold environmental problems currently associated with fracking (I am careful not to say they are proven, but let's be serious, they are almost certainly responsible for contaminated groundwater). Garamendi sees a Dow Chemical plant enjoying Soviet-style and Chinese style taxpayer-funded subsidies so that people in his district can work. Only against such heroically anachronistic thinking could Texas Republicans and energy lobbyists sound and look reasonable. Here is Dominion's Bruce McKay, from that same debate:

[R]ight now gas is about two and half dollars and that may be enjoyable for good consumers at the moment, but I think most sophisticated industry observers and consumers know that that's not sustainable. We have seen, just in recent weeks, a number of big producers pulling back, laying down their rigs and saying they can't justify it. So, there will be some rationality brought to supply and demand, but $2.50 seems below what is sustainable.

If the Garamendi knaves have their way, we will have low energy prices in the US, and for a while a competitive advantage for energy-hogging industries like Dow. It could take that kind of industry 10 or 15 years to hollow out, for Garamendi's district to start looking like Youngstown, Ohio, but it will happen. Trying to protect your home district from foreign competition in an increasingly global world is a recipe for disaster. Garamendi wants to be governor of California some day. You all need to remember this when he runs.

Doping Pigs and the Tragedy of the Commons

A lawsuit brought by some environmental groups (not my favorite ones) has seemed to force the U.S. Food and Drug Administration to finish up what it started doing 35 years ago, but cowering from a bullying livestock industry, never did. What FDA started to do 35 years ago Was study whether it should ban the use of penicillin and tetracycline to promote growth in agricultural animals. What scientists commonly believe is that reckless use of antibiotics by the agricultural industry has helped breed new generations of super, antibiotic-resistant bugs. The World Health Organization reports that about 440,000 new cases emerge each year of anti-microbial resistance to treatment; 150,000 eventually die. The evidence once might have been considered sketchy; not any more. The ag lobby is delusional when it claims there is no link. 80 percent of all antibiotic use in the U.S. is for agricultural use. A causal link between agricultural use and anti-microbial resistance is now widely-accepted by scientists.

What is tragic about this spiral of abuse and death? Surely the death of 150,000 people every year from a characteristically reckless livestock industry is tragic. But what is also comically tragic is that the livestock industry doesn't really benefit in the long run from being on this accelerating antibiotic treadmill. Because of increased resistance to antibiotics, livestock farmers find themselves having to race to keep pace with the superbugs. They have to administer more antibiotics and more sophisticated antibiotics in the vain hope that their pharmaceutical patrons can stay ahead of the superbugs. In fact, the increased cost of antibiotic use, in some cases, outweigh the growth-enhancing benefits.

So why do livestock farmers do it? They have to just to keep competitive. Like doping professional bicycle racers, like doping baseball players, livestock farmers are stuck. They are stuck because if they refrain, their individual forbearance will do no good, and they will lose money. Because everyone is doing it, no one benefits by stopping, even though everyone would benefit if everyone stopped. That is what is truly a tragedy of the commons: where those stuck in the rat race are all collectively working tomtheir collective detriment. In this case, there is also the matter of 150,000 people dying each year.

Alberta's Water Markets: No Foreign-backed Eco-radicals Need Apply

By Tim Syer and Shi-Ling Hsu

Alberta is home to Canada’s only market for water licenses. Canada is generally abundant in fresh water, so perhaps it stands to reason that a lack of scarcity would obviate the need for water markets to serve an allocation role. In parts of Canada, however, water is scarce, as in the heavily populated (for Canada) and heavily agricultural South Saskatchewan River Basin (SSRB) of Alberta.

In 2006 the government of Alberta ceased issuing new water licenses and in accordance with the Approved Water Management Plan for the SSRB, it capped the amount of water allocated from SSRB rivers and allowed the trading of water licenses. Like other water markets, the government retains a number of controls over water trades, reserving the right to reject water transfers on environmental grounds, for example.

The puzzling part of the SSRB water market is, however, a limitation that water licenses purchased for "instream flow" purposes are limited to a cumulative maximum of 2% of all water allocated, provided that the minimum amount of "protected water" – the amount of flow that is deemed to be the minimally acceptable environmental amount -- has already been set aside. Why should there be such a limit? Is Alberta afraid of foreign-backed eco-radicals muscling in and buying up water rights?

The argument is that water is a resource that should be used to support economic growth. We see this bias towards consumptive uses in other resource laws – the use-it-or-lose-it nature of mineral licences, for example, reflect the assumption that resources are put to their highest and best use in consumptive uses, rather than passive environmental or ecological ones. But how do we know this without a truly free market to test that assumption? So what if Ted Turner bought up a huge block of water rights to thwart Alberta agriculture (Turner owns many ranches himself)? Is Alberta so afraid that its use of water is so unvaluable that it could not compete with the likes of Ted Turner's eco-radicalism? If so, that should tell us something. But even if we don't want to hear it, by retaining ultimate approval for all water allocations and transfers, the government can surely keep foreign interest at bay for the foreseeable future.

The EU "Airline Tax" on Flights in and out of the EU

The charge that airlines will have to pay for flying in and out of the EU is not a "tax" at all, but the cost of airlines having to hold tradable emissions permits under the EU Emissions Trading System. Starting January 1, 2012, airlines will have to hold permits for the carbon dioxide their airplanes emit during the entire length of a flight that originates or terminates in the EU zone [see EU reg]. Since it has to pay for a permit that is traded on an open market, the price is not known. It is not a tax.

In my recent interview on Seattle Public Radio KUOW, I received a question from a caller who claimed to have had to pay a "carbon tax" of something like $600. That sounded high to me, as it did to host Steve Scher, but I should have done the back-of-the-envelope calculation and concluded she was nuts. Here is the simple arithmetic of the cost to an airline of flying in or out of the EU. Boeing reports that a 747-400 consumes about 5 gallons per mile, assuming a flight of about 3500 miles, about the distance from JFK airport to Heathrow. A direct flight from Seattle to Heathrow is longer, 4780 miles, but we'll assume that the fuel burn rate is about the same, even though it could well be longer because the plane would have to carry more fuel to fly the longer distance. The carbon content of jet fuel is 9.57 kg of CO2 per gallon, or 0.052746 tons per mile (5 x 9.57 x conversion factor for kg to short tons). Thus, a 4780-mile flight from Seattle to Heathrow would emit about 250 tons of CO2 for the flight. The 747-400 seats about 416 passengers in a 3-class configuration, so assuming that there are 350 passengers on board (a generous assumption given the fullness of flights these days), each passenger would account for about 0.72 tons of CO2. EUETS allowances have been trading at about 8 or 9 Euros lately, or about 11 US dollars. So the "tax" for this Seattle passenger going to visit family in the UK should really have been about eight or nine U.S. dollars. Of course, British Airways may mark up the cost a bit, but that is still two orders of magnitude off from her estimate of $600. And I suppose that the price of the EUETS permits are relatively low right now, and the Euro is taking it in the shorts, so maybe it is not a fair calculation to make right now. Perhaps, an estimate of fifteen or twenty U.S. dollars is more realistic over the long run. But on the other hand, even this estimate might be high; the EUETS might not cost passengers anything in 2012, because for the first year of the airlines' participation in EUETS, allowances equal to 97% of historical emissions will be allocated free, and 95% in 2013. There may not be any costs to pass on to passengers in 2012 and 2013!

So there you have it. For most passengers flying in and out of the EU, the cost of their airline having to comply with the EUETS will likely be close to zero for the first two years, and rising up to something on the order of fifteen or twenty dollars. Makes the threatened lawsuit by Chinese air carriers and the threatened US Congressional attempt to fine American carriers for complying with the EUETS mandate  seem more than a little hot-headed.

A Loss for All of Us

I try not to get personal or off-theme on this blog, but the passing of a fine person in the Canadian oil industry is reason for us to pause and reflect on a legacy that above all is best described as civility in the maelstrom of controversy. The loss of Rick Hyndman, formerly a senior economist with the Canadian Association of Petroleum Producers, is a loss not only to the varied stakeholders that have engaged with the Canadian oil industry, be they green, brown, or any other colour. Rick was exceptionally knowledgeable about the world oil business, savvy about Canada's role in that global industry, but in all of his dealings polite and respectful, even when, as he recalled six years ago, he was labeled a "climate criminal" by some green groups. The best of the greens, know better, though. In 2005, I headed up a panel on energy policy as part of a CIAJ conference, and invited Rick and now-Ecojustice legal advocate Karen Campbell. Rick accepted that invitation, as he did a more recent one from me, with the response that he "would be honoured to participate," a humbleness that masked his vast storehouse of knowledge and razor-sharp intellect. It was a highlight of my career to remember, as Rick and Karen had their lively and fruitful exchange during the conference, B.C. Supreme Court Justice Bruce Cohen, the eminent chair of the conference organizing committee, turning to me and whispering excitedly, "these guys are great!"

Without impugning Rick's views, positions, and work, I would like to say that they have for me served as a source of inspiration not only for substantive views, but a commitment to civilized and mutually respectful discourse. There was something utterly Canadian about Rick in that regard.

Why Not a Carbon Tax? Some thoughts from my students

I assigned parts of my book to my students in my climate change seminar, and challenged them to come up with arguments against a carbon tax, or at least some suggestions on how to implement a carbon tax. They rose to the challenge. Here are some of the best arguments:

A carbon tax needs to be part of comprehensive tax reform, not a stand-along policy. A carbon tax simply is not politically feasible at this point, except if it is offered as part of a comprehensive package of tax reforms aimed at lowering overall tax burden. Income taxation in Canada is too complicated, and in the US is inexcusably complex. A carbon tax to displace some income taxation would be a good thing.

A carbon tax only reinforces the idea that climate change is going to cost people money. There is considerable research now that suggests that people are choosing to discount the costs of climate change because they see it as an unambiguous cost. But if climate policy were more about developing exciting new breakthrough technologies such as fusion, then maybe people would be more willing to engage with the issue instead of pushing it into the "it's too depressing to think about" category.

A carbon tax could be accomplished anyway by focusing on co-pollutants instead of carbon dioxide. Focusing on climate change is that it detracts from the other problems from polluting industries, particularly stemming from coal-fired power plants. The irony is that we just focused on reducing pollution, we would almost certainly reduce greenhouse gas emissions as well.

It is kind of interesting that all of the suggestions I get, and all of the critiques that I get about a carbon tax somehow tie into psychology. Be it "people just don't like taxes," or "people have trouble understanding climate change," or anything else, it all comes back to some cognitive gap when it comes to climate change or taxes.

Canada's Carbon Capture and Storage Mandate, part III -- command-and-control

I derive most of my funding, at this point, from Carbon Management Canada, a research unit funded by provincial and federal government to advance the development of upstream fossil fuel technologies, including most prominently at this point, carbon capture and storage technology. This is the third post, however, criticizing the federal government's mandate of carbon capture and storage technology for coal-fired power plants.

I remain skeptical of carbon capture and storage (CCS) technology. However, if Canada were to push technology CCS along, this clumsy command-and-control initiative is absolutely the wrong way to do it. If any coal-fired power plants actually take the federal government up on the regulation and install CCS, it will be committing considerable expense to a specific CCS technology. If Canada will be asked to contribute more emissions reductions in the future -- as it almost certainly will -- the firms that installed CCS technology will be saddled with an expensive piece of equipment that will have become obsolete. And this equipment will become obsolete quickly: the proposed standard only requires a 30% carbon dioxide removal efficiency. What will the owners of these plants with CCS do if Canada is pressured by its trading partners to further reduce emissions from its electricity generating sector? They will eat costs, and Canada will eat crow. This is the classic example of how command-and-control regulation hurts regulated businesses.

What every CCS advocate will tell you is that while government assistance for CCS research, development, and deployment is nice, there is one thing that is absolutely necessary for CCS to thrive: a carbon price. As the U.S. Interagency Task Force of Carbon Capture and Storage concluded in its commissioned report:

The lack of comprehensive climate change legislation is the key barrier to CCS deployment. Without a carbon price and appropriate financial incentives for new technologies, there is no stable framework for investment in low-carbon technologies such as CCS. Significant Federal incentives for early deployment of CCS are in place, including RD&D efforts to push CCS technology development, and market-pull mechanisms such as tax credits and loan guarantees. However, many of these projects are being planned by the private sector in anticipation of requirements to reduce GHG emissions, and the foremost economic challenge to these projects is ongoing policy uncertainty regarding the value of GHG emissions reductions.

It is ironic that the Canadian federal government, while trying to spare Canadian businesses any costs whatsoever, is actually harming them. This cuts against a grain of economic thinking that posits that cost savings at any time can only benefit a business. But it is not a good thing to try and insulate Canadian businesses from a geo-political environment in which greenhouse gas reductions will be pursued with much more seriousness. Some far-sighted businesses may anticipate the future foreign pressures that will be visited upon Canada to undertake more emissions, and those businesses may plan accordingly. But for a private business, that is a risky proposition to justify to shareholders. Capital expenditures, some of them very expensive and therefore sticky, will have to be made in a highly uncertain regulatory environment, and some businesses that might otherwise heed signals may wind up just taking in current policy as an indicator of future policy. The danger is that this kid gloves approach will lull some Canadian businesses to invest capital in a climate policy environment that errantly assumes regulatory life will always be this easy.