Oil, Climate, and the Politics of Greening Gasoline
It had to happen, and not a minute too soon. Oil prices are soaring, if you hadn't noticed, and the stock market is in a steep dive as a result. The major airlines have sent a remarkable email letter to their customers (and who isn't one?) asking them to agitate for regulation and enforcement to combat oil costs’ T. Boone Pickens, who can afford to field a private army, has declared war on oil with his strategy to pincer OPEC between wind on one side and domestic natural gas on the other. The candidate who jumps out ahead to answer Pickens' challenge will win the election ("it's the cost of gasoline, stupid") and garner the credit next spring when prices come down. The problem is, rolling back the price of oil and gas will cause greenhouse gas emissions to rise. Some have suggested “greening gasoline” by letting the price of a barrel of oil stay high but imposing a tax -- some say a windfall profits tax will do the job -- that is earmarked for further carbon reduction projects.
They began arriving on July 9th. First Delta Airlines and then United and the rest of the airlines. The letters are remarkable, even extraordinary. They ask airline customers to pressure Congress to act to curb speculation and vigorously regulate oil futures. The airlines say that laws to "control excessive, largely unchecked market speculation and manipulation" were put in place seventy years ago but that "over the past two decades these regulatory limits have been weakened or removed." They point to a new lobbying organization, S.O.S. NOW, and ask customers to write their congresspersons and take action. Does this sound familiar? Yes, if you have ever received urgent campaign mail from environmental organizations seeking your help in convincing Congress to act on one of their causes. The airlines write:
Today, oil speculators purchase 66 percent of all oil futures contracts, and that reflects just the transactions that are known. Speculators buy up large amounts of oil and then sell it to each other again and again. A barrel of oil may trade 20-plus times before it is delivered and used; the price goes up with each trade and consumers pick up the final tab. Some market experts estimate that current prices reflect as much as $30 to $60 per barrel in unnecessary speculative costs.
It is extraordinary that the letter comes from so many high-level executives in the airlines. It has a whiff of desperation in it. How unusual to have conservative businessmen of high corporate rank calling for federal regulation and enforcement of any economic sector. The plain message is that speculators control the market and are responsible for the price of oil today -- quite a claim that warrants close examination by Congress or other groups such as the National Commission on Energy Policy or the Energy Future Coalition. If speculation is the heart of the difficulty, then the airlines are not the only sector hit. The airlines dominate the list of organizations supporting SOS NOW, but a closer look shows the organization’s membership is also a little pregnant with agricultural, labor, and other interests. But some major sectors are still missing, such as chemicals.
Exit the airlines, enter T. Boone Pickens. To fanfare in USA Today, Pickens has announced his Pickens Plan to beat the oil crisis with a one-two punch from wind and natural gas. Like the airlines, he has a website, and a plan to be on TV more often than Obama and McCain. "Neither presidential candidate is talking about solving the oil problem. So we're going to make 'em talk about it," Pickens says.
To the delight of the American Wind Energy Association, Pickens says the US can produce enough wind power within a decade to be able to divert twenty percent of the natural gas used to fuel power plants to fueling cars and trucks. Pickens wants to see a third of all vehicles powered by natural gas within a few years, if the distribution system can be put in place.
Pickens, of course, has business interests in both wind and natural gas but says at his age and with over four billion dollars net worth, his Pickens Plan is not a booster plan for his financial interests. Pickens is building what would be the world's largest wind farm near Pampa, northeast of Amarillo in the Texas Panhandle. USA Today reports he has spent two billion dollars on the project, including purchase of almost 700 wind turbines this year from General Electric. He will invest up to $10 billion in the project and generate electricity by 2011.
What do the candidates for president say about all this? Very little yet, except splitting over the idea of a gas tax holiday, with Senator McCain and ex-candidate Senator Clinton for it and Senator Obama, sensibly, we think, against it. But is it too much to predict that the candidate that jumps out front to lead on this issue will win the election in November? President Clinton's staff famously admonished themselves over sixteen years ago in setting his campaign priorities that "it's the economy, stupid." This year “it's the price of gas, stupid.” Moreover, the candidate who jumps on this and gets elected will probably be able to claim major credit within his first hundred days, according to the report of Agence France Presse that the International Energy Agency and OPEC predict that oil demand will slacken next spring, sending oil prices lower.
What is the relevance to climate change, you have been impatient to ask? Plenty. Any solution that emerges from the efforts of the airlines, T. Boone Pickens, Congress, the President, the candidates, and the host of others seeking a solution -- will be bad for greenhouse reduction. Congress is searching for solutions to both the economic problem -- voters bankrupting themselves at the pump and the nation sending $700 billion a year abroad to buy oil primarily from the Middle East -- and the climate problem. If it solves only the first problem, it worsens the second.
The problem is, Congress has yet to consider a win-win solution. To achieve such a solution, some have suggested that it’s best if we leave the price of oil high and recover the windfall the oil companies receive in the form of a tax that in turn is earmarked for investment in climate-friendly technologies and projects to “green” the tax proceeds. It could be called a windfall profits tax or a green gasoline tax, but whatever it is called, it would achieve precisely the benefits a direct carbon tax such as the one Congressman Dingell once proposed (as a provocation) and then withdrew -- an incentive to drive less, buy less-polluting vehicles, and use less oil and gas. Thus what critics almost universally say is a political non-starter, i. e., a direct federal tax on carbon fuels, could be indirectly achieved, at least for oil and gas, in two steps by tolerating the high price of oil and gasoline but building a large green fund from the tax on the oil companies.
The green gas tax will not solve the balance of payments and energy independence concerns that deserve the most serious consideration, but by deliberate design it would give a stimulus to the types of technologies that would both help the US achieve a greater measure of energy independence and thus ultimately bring down the price of oil: wind and solar, biofuels, further conservation, flex fueled vehicles, a hydrogen fuel economy, and clean-coal plants. The one-two punch of a green gas tax and the auction of a significant portion of the carbon emissions rights created by federal and state climate legislation would put the nation firmly on the path to a responsible greenhouse gas reduction program and a greater measure of energy independence and weaning from Middle Eastern oil.
One last hurdle exists -- keeping revenues firmly linked to the environmental and energy objectives they would be used to pursue. A green gas tax and its dedicated revenues nicely link climate protection, green technology, and energy conservation, but the temptation to use the revenues to offset the costs of other expensive social programs may be very strong with a new Congress and new administration. For example, one member of the House Ways & Means Committee spoke recently of taxing carbon emissions in lieu of cap-and-trade and using at least some of the funds generated to offset payroll tax increases that may be necessary to fund existing or expanded entitlement programs. The pressure on entitlements, for which the Ways & Means Committee has principal responsibility, is finally starting to be felt. Naturally, that Committee looks toward taxation since tax legislation would bring the funds generated under the Committee’s jurisdiction.
The revenues that would be created by defining carbon emissions as units of value to be either taxed or traded would, either way, be enormous. It will take leadership from the new White House to unify congressional leaders and avoid diverting the funds from investment in green technology and reducing our reliance on foreign oil to other legislative objectives. If the new president is Democrat, as not a few prognosticators are predicting, his first priority may well be funding health care and in particular expanded Medicare and Medicaid programs. The revenues generated by either a carbon tax or by auction of emission rights under cap-and-trade may tempt the new president, who could try to kill two birds with one stone by launching a US climate program (tax or trade) and funding health care reform with the proceeds.
Climate Change and Aviation Fuel: A Tough Problem to Solve
Large aircraft require high energy fuel, and lots of it. But jet fuel is very difficult to clean up to satisfy climate protection imperatives, which has led to a major dispute in the US over the role coal-to-liquids and other alternative aviation fuels may play. Congress, the US Air Force, the major airlines, the US Environmental Protection Agency, its Federal Aviation Administration, a special Defense Department task force, coal-state senators, and many, many others are getting into the dogfight, which may go on for a long time.
With all the publicity aircraft greenhouse emissions are receiving, one might conclude that they rank right up there with electrical utilities, vehicle emissions, and other prominent categories in terms of greenhouse threats. In fact, US aircraft operations account for 10 - 12 percent of greenhouse emissions from the transportation sector and for only about three percent of total US greenhouse emissions, which is also about the total percentage contribution to greenhouse gases from aviation worldwide. The difficulty is, controlling aircraft carbon emissions is a particularly intractable problem, and the problem is going to become much worse over the next few years as demand for air travel and transport doubles or even triples by 2025. The issue is exacerbated by scientific uncertainty about just how much more potent at high altitudes aircraft emissions are in causing the greenhouse effect as compared to emissions on the Earth’s surface.
The airline industry has done a great deal already, however, to increase its efficiency and lower the rate of increase in greenhouse emissions per air mile traveled. The industry claims that improvements in operational efficiency over the past 30 years have reduced carbon dioxide emissions 70 percent in the course of improving fuel efficiency 110 percent. The most promising pathways at present to further reduce the carbon footprint of aviation involve improved air traffic control systems, on-ground aircraft operations management, lighter engines and more aerodynamically designed aircraft, and flight altitude and speed adjustments. Still, attempts to improve jet fuel composition and performance have received the lion’s share of attention in recent months.
Finding less climate-challenging fuels for today’s jet fleet is proving to be a particularly challenging and controversial topic. Some promising experiments in fueling aircraft reminds one of a trip to a botanical garden, to a marsh, or to the supermarket, or of the early days of flight at Kitty Hawk. Recent forays include biofuels derived from babassu nuts, coconut oil, algae, or the central American plant, jatropha (a relation of castor oil). A very light, albatross-like solar-powered aircraft is under development in Germany, while Boeing has actually flown – for twenty minutes at 60 miles an hour – a manned aircraft powered by hydrogen fuel cells and lithium battery-stored electricity. But the major battle over alternative aircraft fuel is taking place over fuel liquids derived from coal or oil (tar) sands.
Coal-to-liquids (CTL), whether for aircraft or for other consumption as a fuel, is hardly new. Germany pioneered the process in the Second World War, and for the past nine years South African Airways has flown its jets on a 50-50 mixture of CTL synthetic and ordinary commercial fuel. The US Air Force has completed a test program very much like the South African fuel mix, using 50 percent Fischer-Tropsch synthetic fuel and 50 percent commercial fuel. Even B-52s can safely burn the fuel.
The Air Force and members of the Senate and House from coal-producing states, not to mention proponents of tapping the vast reserves of oil sands in Canada, are pushing strongly for development and use of CTL aviation fuels. The difficulty is, among other things, that a lifecycle analysis conducted by the US EPA found that CTL fuel releases 118.5 percent more greenhouse gases than conventional fuel (EPA, 2007). Perhaps carbon capture and sequestration technology, were it to be developed, could be used to overcome this large carbon deficit? No, said EPA, even after going to the difficult and expensive effort of capturing and sequestering CTL carbon compounds, emissions would still be 3.7 percent greater than for conventional petroleum. The Defense Department has already asked MIT to study the lifecycle carbon profile of CTL production and use, and Senator Lautenberg intends to re-insert in the Federal Aviation Administration funding re-authorization bill making its way through Congress a provision requiring the National Academy of Sciences to organize a study committee to address the question. While these studies are pending it may be correct to say that the jury is still out on the climate implications of CTL and other alternative aviation fuels, but it is clear that widespread adoption of CTL and oil sands to liquids fuels would be accompanied by major environmental challenges.
The Air Force is particularly partial to CTL as a source of aviation fuel and is aggressively pursuing its development. However, a major study done by the Defense Science Board Task Force on DoD Energy Strategy at the request of the Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics, titled “More Fight – Less Fuel,” has concluded that domestically produced synthetic fuel will not contribute to the DoD’s most critical fuel problem – delivering fuel to deployed forces. The Task Force, co-chaired by James Schlesinger and retired General Michael Cairns, wrote that full carbon life-cycle analysis should be performed and that synthetic fuels should have a carbon footprint less than conventional petroleum fuels before they are adopted.
This last remark may be directed at a DoD-commissioned legal analysis attempting to show that in the Energy Policy Act of 2005, Congress did not intend for the military services to be considered as “federal agencies.” Why? Because section 526 of the 2005 law bans federal agencies from purchasing any fuels that produce higher levels of greenhouse gases than conventional jet fuels. (This provision is kicking up sand in many quarters and may not survive the political pressure that is being brought to bear.)
The EPA plans to join with the FAA in considering regulation of aviation greenhouse emissions in the course of the climate “town hall” comment period that EPA has called for to gather thoughts about using the Clean Air Act to broadly regulate greenhouse gas emissions, a topic we have covered in an earlier blog. The European Union first tried to ignore aircraft greenhouse emissions in its first round of actions under its climate authority (the issue, is, as we said above, a very difficult one), but it is now considering requiring airlines to participate in the emissions trading system.
The debate over how the US will attempt to come to grips with the difficult issue of direct aircraft engine emissions of greenhouse gases is just getting started.
Coal: The Energy Source of the Future?
Gas, oil, nuclear energy, biofuels, other alternative energy, energy conservation – are they enough to cause plentiful, Btu-rich, relatively inexpensive coal to take a back seat to post-Kyoto climate concerns in the developed and developing economies of the world?
With high prices for oil and gas and other promising sources of energy, precisely the opposite appears to be happening, with uncertain implications for carbon dioxide emissions levels and the success of technological fixes for Old King Coal’s dark side.
The expanding global demand for electricity, the skyrocketing prices of oil and natural gas, and the stubbornly high price of alternative energy sources have led to a global re-examination of the place of coal in supplying energy. Despite global attention to climate change, Old King Coal is receiving a new look, as well it might considering worldwide energy price pressures for all other fuel sources. Coal use in the United States, however, could face a less certain future.
As the price of natural gas has surged, utility companies have begun to reexamine coal-fired electrical generation. Coal offers utilities several advantages:
- Oil and natural gas reserves are expected to last for another 50 years, coal reserves will last for another 200 years.
- Coal is less expensive than oil and natural gas.
- Coal is found throughout the world and is exported by many countries. With so many supply sources, no coal cartel exists and buyers have more room to negotiate prices.
As surprising as the statistic may be to observers of the climate debate in the US, the Post-Kyoto economies of Europe contemplate adding about 50 coal-fired plants over the next five years. Although the European Union operates a greenhouse emissions trading program which forces utilities to purchase permits to emit carbon dioxide, the price of oil and natural gas is so high that burning coal represents the cheapest mode of electricity production in Europe, even after accounting for the permit cost. Further, countries like Italy and Germany have banned and are phasing out nuclear power, departing sharply from the pro-nuclear path France has chosen. Facing a narrow range of options, Italy’s largest power producer, Enel, has focused on coal and will soon produce 50 percent of its power from coal. As a country, Italy will increase its reliance on coal from 14 to 33 percent over the next five years.
In India, Tata Power recently received 450 million dollars in funding from the International Finance Corporation to open a 4,000 MW coal fired power complex. Between India and China, the worlds largest producer and user of coal, a new coal-fired plant opens almost every week.
Of course, the growth in coal as an energy source has major ramifications for climate change. Even under optimal conditions, coal emits more than twice as much carbon dioxide per unit of electricity produced as natural gas, according to the Electric Power Research Institute. While “clean coal” plants can reduce particulate matter, sulfur dioxide, and nitrous oxide emissions, clean-coal technology has a minimal impact on carbon emissions. Further, carbon capture and sequestration are not currently commercially available and, even if they become available relatively soon, many power plants cannot be retrofitted for sequestration without major renovation. With a growing global population and a growing global middle class demanding more energy, and over two billion people lacking access to viable energy sources, the world’s hunger for energy will not subside anytime soon. Coal, as a relatively inexpensive and readily available energy source, will play a major, and likely growing, role in supplying the world’s energy needs.
In the United States, coal could be facing a less certain and stable future as investors, legislators, and the public have taken a keen interest in climate change and carbon dioxide emissions. According to Global Energy Decisions, an energy information supplier, natural-gas and renewable power projects have leapt ahead of coal in the development pipeline. Gas and renewables each show more than 70,000 megawatts under development compared with about 66,000 megawatts in the coal-power pipeline. In 2007, utilities scrapped plans for 59 coal power plants. The investment banks Citigroup, J.P. Morgan, and Morgan Stanley also recently announced that their financing for new plants would be contingent on the utilities’ plans to control greenhouse gas emissions. In Congress, Senate Majority Leader Harry Reid recently said that “there’s no such thing as clean coal,” and House Oversight Committee Chairman Henry Waxman recently called for a ban on new coal-fired power plants unless they come up with a way to control their carbon dioxide emissions.
The three presidential candidates seem committed to cap-and-trade for all greenhouse emissions when discussing climate change policy. Further, a report released by Synapse Energy Economics, Inc. stated that utilities that plan their futures around new coal-fired power plants will face “risks and uncertainties” comparable to those that derailed the US nuclear power industry in the 1970s. The risks associated with nuclear power led to fierce legal opposition to new plant construction, resulting in delays and cost overruns and causing investors to pull out of nuclear investments. The Synapse report concludes that “coal is losing its appeal as a predictable investment and is instead fraught with uncertainty.”
The United States is not immune to the input price pressures which are causing energy companies in other countries to turn to coal. Such pressures are amplified by a desire for energy independence from Middle Eastern energy sources, residual opposition to nuclear energy, and vastly underdeveloped renewable energy sources. Today, 22 new coal-fired power plants are under construction and more are on their way as companies rush to get them operating before carbon-emissions standards are enacted. But, energy must come from somewhere, so unless consumers are willing to pay substantial premiums for energy, coal should remain a major energy source in the United States for the foreseeable future.
Climate Change Tort Suits: Hot or Cold?
Kivalina, Alaska, a village located eighty miles north of the Arctic Circle on a barrier island, is falling into the sea.
Since the early 1980s, sea ice ‑ which offers seasonal protection from storm surges ‑ has been forming later and melting earlier. As a result, the village is exposed to more winter storms of increasing severity.
In 2006, the US Army Corps of Engineers (“CoE”) concluded that the situation in Kivalina had become “dire” and that the entire town would have to be relocated within six years. A group of 400 Kivalina residents have filed suit against twenty petroleum producers, coal-burning utilities, and other energy companies, asserting that their carbon dioxide (CO2) emissions create a public nuisance and that they conspired to mislead the public about climate change.
Native Village of Kivalina v. ExxonMobil Corp. et al., CV 08-1138 (N.D. Cal., Filed Feb. 26, 2008). Citing a report by the CoE, the Kivalina villagers allege that environmental changes associated with global warming have exacerbated flooding and erosion threats to Kivalina and other coastal villages in the Arctic.
They seek recovery of the estimated $400 million cost to relocate their village, which they claim is a result of the defendants’ climate-changing activities.
By no means is the Kivalina suit the first action in which plaintiffs have sought to recover climate change-related damages from a CO2-emitting industry. Electric utilities and leading automobile manufacturers have each defended similar actions. They defeated these suits by filing motions to dismiss, asserting that the lawsuits raised a political question ‑ how best to address climate change ‑ which is the type of policy determination that should be reserved for the political branches of government, rather than the courts.
So long as the legislative and executive branches remain undecided on climate change, the political question doctrine promises to keep such litigation in check. Many observers, however, believe that Congress eventually will pass, and the President will sign, climate change legislation. At that point, courts may have less ability to dismiss cases on the ground of the political question doctrine.
How will these climate change tort actions fare then?
In this Legal Backgrounder, we explore the next line of defenses to such actions. In brief, defendants to climate change tort suits likely can assert several other facial challenges, such as lack of standing and preemption, which may stop such litigation in its tracks. Moreover, climate change suits must overcome formidable causation problems. The charge of civil conspiracy adds a new wrinkle: it is the same strategy that forced big tobacco to settle. There are numerous differences, however, between tobacco and CO2, which portend a steeper climb for plaintiffs in climate change tort suits.
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