What The Election Of 2010 Means For Green: Not much.

As a self-proclaimed East Coast liberal intellectual who drinks Starbucks Grande Nonfat Decaf Lattes on a regular basis, I woke up this morning after the Mid-term elections of 2010 with a heavy heart.  I thought to myself, as I took public transportation to my office from my energy efficient townhouse in Center City Philadelphia, what will happen to environmental policy in this country? Now that the Republicans have the majority of the House, and spooked the pants off my latte-drinking bretheren on the left, has the green revolution been quashed before it even really got started? Surely cap-and-trade is off the table, and incentives for renewable energy and green building will be scrapped or allowed to sunset without renewal under the guise of "balancing the budget."

Reading the headlines did nothing to cheer me up. Politico calculated the cap-and-trade losses:

Nearly 30 (and counting) who cast ‘aye’ votes for Waxman-Markey were swept away on Tuesday’s anti-incumbent wave.

As I moped through my morning coffee, considering the appeal of starting a hedge fund or opening a high-end craft store (my secret dream), it slowly dawned on me that the mid-term elections had essentially changed nothing.  Even with majorities in the Senate, the House AND the White House, cap-and-trade went nowhere.

Incentives are valuable for renewable energy projects and green buildings, but projects that depend entirely on incentives to pencil out are not sustainable in the long run.  The incentives would have to end eventually, and this way Democrats will not be forced to make the hard decision about when and how to do it.  They will not have to spend political capital and material resources on propping up or renewing stimulus incentives, but can instead devote their energy towards building the political climate which will embrace green. 

Not that this helped my mood, but the world is still warming and there are still terrorists in the Middle East.   The green revolution may have suffered a setback in yesterday's election, but the two essential underpinnings for the green revolution and moving to renewable energy have not changed.  

Finally, perhaps this is a wake up call to recognize how hard the task of creating a green America really is.  The winds of politics are very changeable, and the American people have priorities other than the environment.  If Americans are not electing politicians who prioritize the environment, then the revolution has not come yet.  Moreover, if the success of the green revolution depends entirely on who is in power politically, it is not a revolution at all.  It is a pork project.  To have a revolution, the hearts and minds of the people (to borrow a phrase) have to be changed, one person at a time.  That process is slow, and subject to lots of setbacks.  Just ask Jimmy Carter. 


Keep Your Children Locked Up Safe--Climate Change Legislation Is Coming

EENews (subscription required) reported today that the organization "CO2 Is Green," a front organization for energy companies, published a particularly rabble rousing ad in today's Washington Post.

Because describing it is so much less satisfying, I reprint the ad in full here (you can see an image of the ad here):

The Kerry-Lieberman Cap and Trade Bill will drive the USA away from cheap efficient energy and permanently increase your cost of electricity, transportation fuel, and food.
• The bill is based on the false premise that man-made CO2 is a major cause of climate change. Real, empirical evidence indicates it is not. But even if CO2 was a major factor, using the Intergovernmental Panel on Climate Change's own formula and numbers, the bill would only reduce Earth's temperature by one tenth of one degree within the next 90 years!
• Wall Street, the Administration, green industries, environmental extremists, academia, and the media will love Kerry-Lieberman; you will not because you will pay for the costs.
• Passing Kerry-Lieberman will not stop the oil spill. Cost of the spill will be
paid for by BP. Don't let the President get the bill passed by riding the unrelated oil spill tragedy which will cost you money.
• The Obama Administration is touting energy independence by passing Cap and Trade. You cannot run your cars, planes, businesses, and homes on Wall Street's profits. Wind and Solar pr ovide less than one percent of our energy and that will not increase by a meaningful amount for decades. Fossil fuels provide 83% of our energy. Our economy will never recover if Obama's attack on this industry succeeds.
Cap and Trade proponents are buying support from industries on Wall Street with various corporate giveaways as he did with the very expensive Health Care Bill. Do not let this happen again with the Kerry-Lieberman Cap and Trade Bill.

If you are interested in who CO2 green is according to EENews,

Spokesman H. Leighton Steward sits on the board of directors of EOG Resources Inc., an oil and natural gas development company. He also is an honorary director at the industry trade group American Petroleum Institute, according to a biography on EOG's website...CO2 is Green is bankrolled by Corbin J. Robinson, chief executive of and leading shareholder in Natural Resource Partners, a Houston-based owner of coal resources.

According to Mother Jones

Natural Resource Partners is also a member of the American Coalition for Clean Coal Electricity (ACCCE), the scandal-plagued coal front group currently under investigation for its role in the forged letters sent to members of Congress criticizing the House climate bill.

What I am particularly amused by is the imaginary cabal of Wall Street bankers and the Obama administration against the unlikely pairing of energy companies and the common man.  Last I checked (which was today), EOG Resources is listed on the New York Stock Exchange.  In their 2009 annual report, this scrappy upstart champion of the little guy stated:

For the three, five and 10-year periods ended December 31, 2009, EOG’s stock appreciation was 56 percent, 173 percent and 1,008 percent, respectively, significantly exceeding the performance of the S&P 500 Oil and Gas Exploration and Production Index for these three periods.

EOG’s persistence in managing costs and maximizing reserve recoveries has resulted in superior returns, year after year. Our average ROCE(2) for the 10-year period ended December 31, 2009 was 18 percent. EOG’s outperformance on stockholder returns and ROCE validates its long-term organic growth strategy.


That's right--for the past 10 years, stock of EOG has increased 1,008 percent.  So Wall Street's profits are...EOG profits.   

Moreover, let's take a brief look at the proposition that "Our economy will never recover if Obama's attack on this industry succeeds." Does this mean that the economy cannot afford even a slight reduction in EOG's 1,008 percent stock price increase? Let's play my favorite statistical game. If we reduce our dependence on fossil fuels by half, which in turn reduces EOG's profits by half, their stock will only have gained in value 504% over the last five years. 

This doomsday conclusion also assumes that there will be a massive negative economic impact of weaning off fossil fuels, which evidence indicates is not the case. 

According to the Congressional Budget Office, the cost of Cap & Trade to each American household on a net economywide basis would be...wait for it...

On that basis, the Congressional Budget Office (CBO) estimates that the net
annual economywide cost of the cap-and-trade program in 2020 would be
$22 billion—or about $175 per household.

But we will never recover from this increase.  To put it in perspective, $175 is less than the cost of an Amazon Kindle or about the cost of a subscription to cable, cell phone and internet access (cable is $71 and internet access about $45 and cell phone about $73) FOR A MONTH. 

Little Energy Bill Likely To Include Energy Efficiency Code

Kerry and Lieberman are due to unveil their long awaited--and until Lindsay Graham's recent exit, nominally bipartisan--cap-and-trade bill this week.  But in a less heralded move, Harry Reid indicated that he could do a smaller energy bill which would likely include national energy efficiency codes.  According to EENews (subscription required):

The "smaller" proposal Reid referred to centers around legislation (S. 1462) the Senate Energy and Natural Resources Committee approved last June. The bill, which won the votes of four Republicans, would impose a national renewable electricity standard, overhaul federal financing for "clean energy" projects, establish a suite of efficiency measures, mandate new federal electricity-transmission siting power and allow wider oil and gas leasing in the eastern Gulf of Mexico.

So, even if cap-and-trade fails, this year may be a big one for federalizing green  building regulations. 

Bad Apples That Ruin The Whole Bunch

According to Business Green, the United Nations suspended its third carbon credit auditing company in 15 months.  Essentially, the auditors failed to follow protocols for confirming that carbon offset projects actually provide the environmental gains they promise:

The executive board in charge of the Clean Development Mechanism (CDM) last week suspended Germany's TUEV SUED and also partially suspended Korea Energy Management Corporation, after spot checks undertaken at their offices revealed procedural breaches.

Why do we care? In order for an effective carbon regulation scheme, the carbon offset program has to be measurable and verifiable.  To do so, there needs to be auditors confirming that the projects are valid. 

On the one hand, the suspensions are a positive sign because they indicate that the UN is maintaining some sort of oversight over the auditors, on the other hand, it is distressing that three of the companies which have been charged with verification have been suspended, including TUEV SUED, "the second largest CDM validator" which "had approved 1,147 renewable energy projects – almost one fifth of the total – by the end of February this year" according to Business Green. 

As the United States builds its GHG regulatory scheme, it needs to take into consideration how to ensure that the guards of environmental validity are properly guarded--that auditing procedures and confirmation of the validity of the audits is build robustly into the system.  Nothing will erode the credibility of a cap-and-trade system faster than discovering that the carbon offsets at the base of the market are fraudulent.

Boxer Climate Bill Redraft Adds Nothing To Energy Efficient Building Code Provisions

On Friday, Senator Barbara Boxer released a 923-page climate change and energy bill.  A draft of the bill had been leaked to the media in late September, and I discussed it here

Although the overall bill has swelled from 600+ pages to 900+ pages, there is still just 1.5 pages on the National Energy Efficiency Building Code, first proposed as Section 201of the Waxman-Markey Bill.  In the Waxman-Markey Bill, the House called for: 

1. Establishing a “national energy efficiency building code” for residential and commercial buildings, sufficient to meet each of the national building code energy efficiency targets.

2. Setting energy efficiency targets for the national building code: “on the date of enactment of the American Clean Energy and Security Act of 2009, 30 percent reduction in energy use relative to a comparable building constructed in compliance with the baseline code…effective January 1, 2014, for residential buildings, and January 1, 2015, for commercial buildings, 50 percent reduction in energy use relative to the baseline code; and…January 1, 2017, for residential buildings, and January 1, 2018, for commercial buildings, and every 3 years thereafter, respectively, through January 1, 2029, and January 1, 2030, 5 percent additional reduction in energy use relative to the baseline code.”

3. If consensus based codes provides for greater reduction in energy use than is required under the ACESA, the overall percentage reduction in energy use provided by that successor code shall be the national building code energy efficiency target.

4. Requiring that states and local governments comply with or exceed the national energy efficiency building code, and providing for enforcement mechanisms for states which are out of compliance.

The original Boxer-Kerry draft backed off of the Waxman-Markey structure entirely, simply mandating that the Department of Energy or "other agency head or heads as may be designated by the President shall promulgate regulations establishing building code energy efficiency targets...beginnning not later than January 1, 2014... "

The exact same language is mirrored in the current version of the Senate Bill at Section 163 (starting at page 200 of the current bill).  No structure, no mandatory energy efficiency targets, no requirments that states adopt energy efficiency codes by a certain date.  

This is a fascinating development because of the vast energy savings possible through regulation of new buildings and retrofits of old buildings.  According to a study by McKinsey on energy efficiency,

by 2020, the United States could reduce annual energy consumption by 23 percent from a business-as-usual projection by deploying an array of...efficiency measures, saving 9.1 quadrillion BTUs of end use energy...

The majority of the 900 page bill is dedicated to defining and establishing a cap-and-trade program.  While a worthy goal, I think that the Boxer bill misses the opportunity to grasp low-hanging fruit in energy savings through energy efficient building requirements.


Be Afraid. Be Very Afraid. Now Do Something.

Yesterday, the Obama Administration released a study analyzing the potential impact of climate change in the United States. It read like the Ten Plagues at my family's annual seder:

heavy downpours, rising temperature and sea level, rapidly retreating glaciers, thawing permafrost, lengthening growing seasons, lengthening ice-free seasons in the ocean and on lakes and rivers, earlier snowmelt, and alterations in river flows

And if that wasn't enough...

heat stress, waterborne diseases, poor air quality, extreme weather events, and diseases transmitted by insects and rodents

That's right, all that is missing is slaying of the first born. 

This study is very positive in that it is a frank assessment in relatively plain language of what we will have to address in terms of the impact of climate change.  Hopefully, now that the issues have been named, we will be able to be more proactive about enacting market-based and regulatory amelioration, and ideally, solutions. 

The current amelioration mechanism on the table--Waxman-Markey--seems to be in trouble.  First, the bill has not been very effectively communicated or sold to the American public.  Second, it seems to be subsumed beneath the health care media juggernaut.  Finally, agrobusiness interests have been successfully gaining a foothold in tying up the process. 

We need to get on with it.  Cap-and-trade or carbon tax, regulation of GHG under the Clean Air Act, green building market and regulatory programs.  Either that, or be prepared to host a giant tropical cockroach at your next seder.

Market Stability--The Holy Grail of Green

Many months ago I wrote about the need for a floating gas tax to stabilize fuel prices, allow predictability and incentivize eco-friendly developments.  Now Ford chairman Bill Ford agrees.

Earth2tech reported:

“If prices are gyrating wildly,” he said, it becomes extremely difficult to know whether the company is planning the right vehicle or technology (if you’re operating under the assumption that automakers should supply what the market demands, and that there’s a lot less demand for fuel-sippers when gas is cheap). Ford noted that in the EU, diesel fuel “became an easy decision” for drivers after the government decided to make it much cheaper than gasoline.

When major environmental regulations were passed in the early 1970s, there was a lot of hand-wringing over how it was going to destroy the economy.  Now, with cap-and-trade, similar arguments are being made. Senator James Inhofe said yesterday, about EPA's declaration of greenhouse gases as harmful to human health:

This move by EPA will unleash a torrent of regulations that will destroy jobs, harm consumers, and extend the agency’s reach into every corner of American life.

But it turns out, in capitalism, the rules of the game don't matter, as long as they are predictable. So Obama should implement cap-and-trade, and those companies that can adapt and thrive in the new regulatory environment will survive.  And those that cannot, will not, but others will take their place.  I predict that with the attitude expressed by Bill Ford, Ford will survive...and the others should not.