On Fracking, the Obama Administration, and Climate Change

Greenwire reported recently that Rep. Rush Holt, a physicist and a Democratic Congressman who represents the district in which I grew up in New Jersey, has complained that the Obama Administration's disposition to hydraulic fracturing, or "fracking" on BLM land is overly generous to the oil and gas industries. He has a point. The federal government may lack the jurisdiction to do much regulating of fracking on non-federal lands (see work by my FSU colleague, Hannah Wiseman), it certainly can require firms on fracking on federal land to comply with construction standards and disclose fracking fluids. A rule released last year for fracking on BLM lands was withdrawn after industry complaints that it was going to be too costly. Really? A seminar paper written by one of my law students, Kaitlin Monaghan, dissected the cost-benefit analysis undertaken by the BLM in arriving at its rule. She found that the cost-benefit analysis was fundamentally biased against environmental values. In the analysis, the BLM assumed that the environmental benefits of regulating -- of either/both requiring construction standards and disclosing fracking materials -- consisted of the costs of, in a "low damage" case (only contaminating one or a few wells), just the cost of drilling a new well. In other words, the BLM assumes that it would be costless to leave for dead an existing water well, as long as it was "small." In a "high damage" case -- extensive contamination of a large aquifer or other groundwater source -- the BLM assumed that the cost was remediation of that water source. Missing from that benefit accounting is the harm that would occur between the time of actual contamination and the completion of the remediation. Would people be harmed by consumption of that water in the meantime? Would there be any interim loss of use by farmers or other water users? Would there be any ecological harm in the meantime? The BLM's answer would apparently be "nope."

I've often wondered, beyond Dick Cheney's "Halliburton exemption" if the Obama administration really was a little too sweet on fracking. Why would that be? My guess is that with the failure of Congress to pass federal greenhouse gas legislation, with failing efforts to construct any meaningful international regime, and with the reality that even if the United States manages to reduce its reliance on coal (not a done deal) other nations may not (the European Union has seen an uptick in coal consumption), the Obama administration has quietly decided that natural gas is the carrot they will offer other countries to reduce their greenhouse gas emissions. Combustion of natural gas emits about half the carbon dioxide per unit of energy produced as does coal, and has been frequently, sometimes over-enthusiastically, as a "bridge fuel." So, if you can't get China to reduce its carbon footprint using sticks, how about using carrots? Instead of futilely browbeating the Chinese into weaning itself from coal, why not export cheap natural gas? In the United States, the fracking revolution has accomplished what decades of political fighting has not -- induced electric utilities to switch from coal to natural gas. Fair enough, but there are limits to the carrot approach. Coal is already pretty cheap, so introducing natural gas as a cheaper fuel has its limits. There is always this pushing-on-a-string problem with trying to induce desirable behavior through carrots instead of sticks.

Boxer-Sanders Carbon Tax: Revenue Projections and Emissions Reductions

Senators Boxer and Sanders claim that their Climate Protection Act of 2013 bill would raise revenues of $1.2 trillion over five years. The bill starts a carbon tax at $20 per ton of CO2, and increases by 5.6% each year for ten years, where it settles at $32.65 per ton. That's not a very high tax, translating to about 30 cents per gallon of gasoline, assuming the current blend of ethanol. But where do the revenue numbers come from? Senators Sanders and Boxer, the co-sponsors, say that is a CBO estimate.

I could find no such CBO study, so I decided to try and re-create the numbers. The carbon tax does not adjust for inflation, so we have to discount future revenue collections from the carbon tax. I assumed a constant discount rate of two percent. One also has to assume a carbon elasticity -- the percentage change of GHG emissions to the percent change of the price of carbon. We don't know that, but there is a lot of research on energy elasticities, and the long-term response is usually somewhere just south of 1. I assume 0.8. It is adventuresome to assume that it will stay constant over a long period of time and range of prices, but I see no principled way to adjust for many uncertainties.

What is the cost of energy? In order to calculate the price effect of a carbon tax, we have to know the baseline energy cost on top of which the carbon tax sits. I average two approximately equal contributors to GHG emissions: electricity and motor vehicle emissions. The average cost of a kilowatt-hour of electricity in the United States is currently 11.53 cents. The average CO2 emissions for a kilowatt-hour of electricity in the United States in 2007 is 1.363 lbs. So for one ton of CO2 emissions, 1467 kilowatt-hours of electricty are produced, which cost an average of $169.

What about motor vehicle emissions? The average price of gasoline in the United States for 2012 was $3.62 per gallon. The average emissions per gallon of gasoline was 8,887 grams of CO2, and 10,180 grams of CO2 for diesel, in 2011. The ratio of diesel to gasoline consumption is fairly stable, and in July 2011 approximately 110,000 gallons of diesel were supplied and approximately 250,000 gallons of gasoline were supplied, so about thirty percent of all motor vehicle fuel is diesel. So in calculating a weighted average of emissions, it seems reasonable to say that the weighted average of vehicular emissions is

           0.30 x 10,180 + 0.7 x 8,887 = 9275 grams, or 0.010224 short tons per gallon

So the average cost of emissions from motor vehicles was about $3.62/0.010224 = $355.

Let's just assume that the average cost of emitting in the United States the average of the cost of emissions for electricity ($169 per ton) and the cost of emissions for motor vehicles ($355 per ton). In 2010, electricity accounted for 34% of all GHG emissions, and transportation 27%, so that's not far off. These are in effect the base cost of emissions, against which a percentage change in price will be measured. In other words, the carbon tax is only a number that sits on top of these baseline costs.

I assumed emissions from 2011 numbers, estimated by EPA, of just CO2 and CH4. That was  5604.9 Tg of CO2 and 582.1 Tg of CO2-eq of methane. The total in 2011 was about 6820 Mt CO2-eq.

Now, just to make this back-of-the-envelope calculation, I assumed that about half of all emissions come from electricity and half come from motor vehicle emissions. I calculated the revenues collected from emissions from both elements, assuming that emissions will respond to the carbon tax. Because the baseline cost of gasoline is higher, a carbon tax creates a smaller incremental price increase in the cost of gas, and would therefore figure less prominently in gasoline users' consumption decisions. In short, we should expect less of a response to a carbon tax in vehicular emissions than we do for electricity emissions.

Under these assumptions, carbon tax revenues would be about $127 billion in the first year, and with a discount rate of two percent, would rise to $199 billion in year ten. The discounted flow of revenues would indeed be about $1.243 trillion.

What about emissions? This is the disappointing part. Assuming a constant carbon elasticity of 0.8, total emissions will only fall from 6820 Mt to about 6101 Mt, a 10.5% decrease. That's not very much.

A Starting Point for Climate Change Adaptation: Get Rid of FEMA Funding for Natural Disasters

I know that sounds drastic, but what is it exactly that *requires* federal government involvement in disasters, really? Is it the scale? Is that we just don't believe that the states of New York or New Jersey can actually afford to pick up the pieces after Hurricane Sandy? Maybe that's not fair, would a state like Louisiana be unable to survive another category 3, 4 or 5 hurricane? Or South Carolina?

Maybe they can't. Maybe they shouldn't. On an NPR show a couple of months ago, 0n a call-in show, a South Carolina resident expressed his love of hurricanes. He said he and his wife were surfers, and they live for the big waves produced by tropical storms. He said they save up vacation days to surf.

I wish I were the guest speaker on that show, because I would like to have dispensed the shame that caller deserved. The US government is in a constant state of fiscal crisis (due in no small part to the Tea Party contingency from that caller's home state of South Carolina), we are cutting back on defense, school lunches, environmental protection, and this surfer dude and his wife want taxpayer dollars to keep rebuilding houses and roads to barrier islands in South Carolina so they can surf.

In graduate school, one of my professors was conservative economist Thomas Hazlett. As one of Rush Limbaugh's closest friends, he frequently found students disagreeing with him. But Professor Hazlett and I found convergence once. After yet another wildfire in Santa Barbara that torched scores of multiple-million-dollar homes, a TV news reporter was interviewing a Santa Barbara resident, a woman who, in her time of distress was wearing some animal fur clothing and carrying a toy dog in her arm, bemoaned, "this is the third time that my house has burned to the ground on this very spot!" Professor Hazlett's reaction: "NO! Really? Do you think it's a coincidence??"

There is no reason that Joe the Plumber should be paying for the reconstruction of a [now] three-million dollar home in Santa Barbara, or for some South Carolina surfer dude's home so he and his wife can surf. But more to the point of this post, many have properly asked, "why should taxpayers pay to rebuild vulnerable structures and neighborhoods in New York and New Jersey in the wake of Hurricane Sandy?" Why, indeed? 

One of the simplest, cheapest, and most sensible adaptation measures to prepare for climate change is to recognize the increasing danger and cost of storms, and to relocate infrastructure and structures away from harm's way. What stands in the way? The stubborn determination of people to not let Mother Nature defeat them.... with the assistance of the US taxpayer, of course.

Because of the politics of disaster relief, a date certain should be set after which no FEMA money  and no federal monetary assistance of any kind should be provided to victims of natural disasters. Setting a date certain will defuse the accusation that relief will be withheld for political reasons.

Without FEMA funding, we'll see who really is resolved to stay put in harm's way. Without FEMA funding, it will be up to states to determine whether they will assist those harmed by natural disasters. And states, already tight for money, will have to choose. In a way, getting rid of FEMA is a way of bringing markets to bear on climate adaptation. If FEMA funding for natural disasters goes, then we will see the value of barrier island homes plummet. And that South Carolina surfer dude will really be bummin.'

GOP Governors Push for Shift to Sales Taxes

The New York Times reported Friday that several Republican governors in red states were considering shifting away from state income taxes and towards state sales taxes. Bobby Jindal of Louisiana, Sam Brownback of Kansas, and Dave Heineman of Nebraska are all considering such a shift, which the Times said was "long championed by conservatives but accepted up to a point by economists of all stripes." Economists believe that long-run growth would be better served by taxing consumption rather than income.

My question is, then why not a carbon tax? If tamping down consumption and encouraging production is a good thing, then why not tamp down only that consumption that leads to more greenhouse gas emissions? My guess is that Jindal, Brownback, and Heineman are all smart enough to secretly believe that climate change is a real risk, but are too afraid to politically approach the subject. Jindal, who lectured the GOP last Thursday to stop being the "stupid party," must certainly recognize that a carbon tax, even in heavily oil-dependent Louisiana, must make economic sense. After all, it's not as if tiny Louisiana's increased efficiency would hurt oil prices. I suppose it would be expecting too much for Louisiana to be like Norway, exporting oil but using the money to internally fund domestic needs, like education. 

A Carbon Tax Would Raise Unemployment.... NOT!

Yippie for David Kreutzer and Nicolas Loris at the Heritage Foundation for a value-laden, but economics-free issue brief that purports to debunk assertions being made that a carbon tax could be good for the economy, made by, among others, me and Yoram Bauman. I address Kreutzer and Loris's three arguments in turn:

1. A Carbon Tax Would Damage the Economy. There is no disputing their base assertions that a carbon tax would increase the cost of energy, and that energy makes up a larger fraction of a poor household's budget than a rich one's. But that completely assumes away the revenues of the carbon tax! Are they assuming, per their argument 3 below, that "[j]ust the sniff of a new revenue stream to the tune of hundreds of billions of dollars annually has the special interests in Washington running to Congress for more handouts"? Are they assuming that the revenues would necessarily be lost to special interest greed? If so, they should say so, instead of making it sound like a third, additional argument against a carbon tax. While residence in Washington, D.C. does of course breed appropriate skepticism about the destination of revenue streams, it seems a bit crabbed to also assume that a carbon tax could not possibly be revenue neutral. British Columbia's "revenue neutral" carbon tax, in fact, has the opposite problem: the provincial government takes in less in carbon tax revenues than it distributes (in the case of carbon tax-linked programs) or forgoes (in the case of lower income and corporate taxes). Besides, what is the logical extension of Kreutzer and Loris's argument? That we should not have any new tax whatsover, because the revenues would some immutable physical law be necessarily gobbled up by hungry special interest groups? Not even Grover Norquist takes such an extreme view, probably because he recognizes that a carbon tax distorts factor markets much less than payroll taxes or income taxes. See Parry and Williams for an analysis. In fact, a revenue-neutral carbon tax, by putting money back into the hands of consumers, would not damage the economy, but help it. See also a posting by James Handley at the Carbon Tax Center on payroll taxes and carbon taxes.

2. A Carbon Tax Would Not Save the Planet. Right on! We can't do things that don't save the planet! Everything we do must save the planet! And everything we do must kick the Chinese and the Indians into action! The problem with climate change is that, in order to reduce emissions, there are a lot of necessary, but not sufficient conditions. The U.S., and the world may never meet all of those necessary conditions. Fair enough. But unless someone starts somewhere, we are resigning ourselves to never doing anything to reduce emissions. Is that what the authors are saying? One important omission from this brief is the statement that climate change is a real risk, and that mitigation would, in the ideal world, be desirable. Do the authors believe that, or not? If so, this argument seems to suggest that we are just doomed, and we might as well hunker down and hope for the best.

3. Revenue Neutrality or a Regulations Swap is Unrealistic. Kreutzer and Loris quote Henry Waxman as saying "[b]ecause it's so complicated, I would not support preempting EPA. EPA can assure us that we can actually get the reductions we need." They conclude that carbon tax or cap-and-trade advocates like Waxman don't actually have any intention of abandoning command-and-control regulation of greenhouse gases under the Clean Air Act. Funny, if you check out Kreutzer and Loris's cite for that Waxman statement, it leads back to a National Journal blog post by Kreutzer. Did Waxman ever say this? I have been unable to find any other support for Waxman's quote. Besides, if you look a bit more carefully at the 2009 Waxman-Markey bill, it is quite clear that cap-and-trade was meant to displace command-and-control regulation under Title I of the Clean Air Act. See a Columbia Law School issue paper for credible analysis of the cap-and-trade bills.

Why Conservatives Should Support a Carbon Tax, Part III: They'll Blame You for Going Over the Fiscal Cliff

Did I not correctly predict that Republicans would find themselves disappointed on the morning of November 7? I have another conditional prediction: that if we go over the fiscal cliff, conservative Republicans will be blamed for it more than the President, and more than Democrats.

I've been eager to sell the carbon tax in the form of a revenue-neutral tax swap -- reduce personal and corporate income taxes, and reduce payroll taxes, and pay for them with a carbon tax. $30 per ton will get you about $150 billion in at least the first few years of a carbon tax (after that, revenues may go down if people substitute away from CO2 emissions -- we should hope they do, indicating that emissions are going down!). For fiscal cliff-avoiding purposes, that's not much, but it's something. As part of a larger package of budget cuts, entitlement reform (yes, let me be on the record with my view -- entitlement reform including Medicare should be on the table), tax reform, and unavoidably, new revenues, a carbon tax must be a piece of the puzzle. It will almost certainly be the least obnoxious piece, of all the pieces that will be negotiated. It will be the most transparent piece, being a very obvious price and a very trackable paper trail. It will be the only piece that accomplishes the side benefit of addressing -- partially -- the most dangerous environmental problem the world has ever faced.

So Bill McKibben will blame you for Hurricane Sandy. That won't be fair. And Harry Reid will blame you if the country goes over the fiscal cliff. That won't be fair, either, in my view, since neither Democrats nor Republicans have yet to part with their sacred cows. But if I take away one thing from this election cycle, it is that most Americans really don't like the Tea Party, believe that the Tea Party is steadfastly opposed to anything resembling compromise, and that the Tea Party strongly influences the Republican Party. And so if we go over the cliff, you conservatives are going to get blamed. Cry me a river.

Why Conservatives Should Support a Carbon Tax, Part II: Sandy

I am sitting here in my parents' darkened West Windsor, New Jersey home, early Sunday morning, November 4, six and a half days after Hurricane Sandy made landfall, and a now a full five working days from the first opportunity for local, state and federal officials to recover from a storm that is now estimated to cost more than $50 billion.

Even more striking than the price tag, however, is the utter helplessness of government officials in getting the New York-New Jersey area back on its feet. As my brother and I, in New Jersey looking after our elderly parents, drove down venerable Highway 1 – perhaps the nation's first real "highway," we could not help but be struck by telephone poles leaning inward toward the highway, threatening to fall down on traffic. Also striking is the sight of cars crawling along Highway 1, gingerly navigating their way through intersections with non-functioning traffic lights. No looting was apparent in broad daylight, but numerous businesses still without power had boarded up their storefronts and secured them with chain-link fences.

I was also in Washington, D.C. on September 11, 2001. Then and there, too, there was a palpable sense of tragedy that had touched everyone. As a professor at George Washington University, I was told to stop my classes immediately and go home, and send all my students home. Outside, from across the hall from my office, I could see a wisp of smoke rising up from the Pentagon, a symbol of invulnerability if there ever was one. Yes, that was a dark time, too, but there was something different about being in Central New Jersey after Hurricane Sandy. Whereas in the aftermath of September 11 troops were out in full force and maintaining order, they were not present in Central New Jersey. We remember then-mayor Rudy Giuliani marching purposefully through the streets of lower Manhattan, ordering first responders around, and generally giving off the aura of defiance in the face of disaster. This time, this place, nothing doing. Governor Chris Christie and President Barack Obama came, did their best, and left, but this time around there was no reassuring presence. This is what is so frightening about climate change, perhaps even more so than terrorism: that nature, unlike Al Qaeda, is capable of overwhelming governmental ability to restore order.

 What does this have to do with a carbon tax and conservatives? A carbon tax will give the Republicans some record on climate change. Right now, Republicans are mostly out-and-out deniers and obstructionists. I have strenuously avoided blaming Republicans for American intransigence on climate change, because I have never seen the point. I still don't think it is productive, but given the consequences of Hurricane Sandy, others will. The front page of Bloomberg News contained a photo of a flooded New York City street, and the enormous headline, "It's Global Warming, Stupid." This is Mayor Michael Bloomberg, the seventh-richest person in America, a Republican, and no freakish tree-hugger. He has endorsed President Obama because he believes that he will do something about climate change, whereas Mitt Romney will still feel beholden to his Tea Party faction.

Not that Bloomberg attributes Hurricane Sandy to climate change, nor could anyone responsibly do so. Really, the best that the best hurricane scientists can say at this point is that climate change will not produce more hurricanes, but it will produce more strong hurricanes. So it is wrong and even irresponsible to attribute Sandy to climate change. But that won't stop people like Bill McKibben, the not-so-smart environmental activist who said after Hurricane Irene that "[Irene]'s got a middle name, and it is global warming." I've always detested McKibben's alarmism, because it detracts from the credible messages that the rest of us are sending. But if we get another Hurricane Sandy next year – as a climate changed-world might give us – what will people say? As mistaken as it is, people are going to start pointing fingers. You don't have to be a political genius or even a Bill McKibben to know who they're going to point their fingers at.