As expected, dirty energy lobbyist-turned-Governor Haley Barbour never once mentioned the devastation his “drill, baby, drill” energy policy would cause (see “Mississippi burning “” and flooding: Haley Barbour to be remembered as man who gave his state 90°F temps 5 months a year plus countless Katrinas?“). Masochists can read his full Senate testimony here, and I’ll address his bizarre “scary” story about China at the end.
First, though, in the Q&A, Barbour claimed McKinsey found that a cap-and-trade bill would raise electricity rates $0.05 to $0.15 per kWh. Not!
In fact, Mckinsey has done many analyses showing that measures needed to stabilize emissions at 450 ppm have a net cost near zero (see here). McKinsey’s recent detailed analysis of “Reducing US Greenhouse Gas Emissions: How Much at What Cost?” concluded:
The United States could reduce GHG emissions in 2030 by 3.0 to 4.5 gigatons of CO2e using tested approaches and high-potential emerging technologies. These reductions would involve pursuing a wide array of abatement options with marginal costs less than $50 per ton, with the average net cost to the economy being far lower if the nation can capture sizable gains from energy efficiency.
A CO2 allowance price below $50/ton in 2030 would raise electricity rates well below the five cents a kilowatt hour Barbour claims, probably under two cents a kilowatt hour — and of course the rise in average rates over the next decade would be well under one cent a kilowatt hour.
But the climate and clean energy bill does have the kind of energy efficiency push McKinsey models (see The triumph of energy efficiency: Waxman-Markey could save $3,900 per household and create 650,000 jobs by 2030). Thus, the effect on overall consumer electricity bills will be quite small, as EPA found (see “New EPA analysis of Waxman-Markey: Consumer electric bills 7% lower in 2020 thanks to efficiency“).
Now let me turn to the bizarre — albeit original — Halloween fantasy that Barbour offers in his written testimony to scare the public:
The concerns I’ve cited are serious, even if the cap and trade tax works as planned. But many Americans worry it will be an Enron-style financial scheme where Wall Street manipulators make giant profits while ratepayers, motorists and Main Street businesses pay greatly increased costs….
A particularly scary feature of the cap and trade tax regime is that anyone can purchase emissions permits. There is nothing to stop a large government like China from investing heavily in CO2 emissions permits instead of US treasuries. The effect, of course, would be that US-located industries could not buy those permits or that they would have to pay much higher prices for the permits, thereby making our businesses even more uncompetitive with foreign (read: Chinese) manufactures. Market manipulation by speculators is bad enough; driving up demand and prices by foreign competitors is anathema.
Actually, there are many things that would stop China — or anyone else — from even trying to corner the market on permits.
First off, it is a huge market. Even purchasing 2% of the permits in, say, 2015, would probably cost $1 billion. And you’d have to purchase several times that to significantly run up the price.
Second, it will be so easy to meet the targets for at least the first decade (see here) that the “real” price of a permit will probably be slightly below the auction price (which has a floor). So it will be highly unprofitable to buy lots of permits, which would run up the price, in an effort to make money selling those permits sometime in the future. I can’t imagine a plausible scenario in which this would make economic sense for any entity even if they could get away with it, which they cannot.
Third, the bill requires EPA to promulgate regulations to cover the auction. As CQ‘s summary of the bill explains:
- Bidders must disclose all parties sponsoring their bids;
- Individual bidders would be limited to purchasing up to 5% of allowances sold at any quarterly auction;
- EPA would have to publish information about winning bidders
So it would be very difficult to do any major purchasing in secret, and virtually impossible to acquire a large fraction of the permits.
Fourth, the bill has a whole section devoted to “Carbon Market Assurance.” As the WRI summary describes it:
The Federal Energy Regulatory Commission is given regulatory authority over allowance and offset markets and allowance derivative markets (Sec. 761, pg. 449). The President is also delegated authority to instruct agencies to take on pieces of market regulation based on existing authority as long as regulations are consistent with this section. The draft makes it a federal crime to commit fraud or manipulate any carbon market. In addition, the regulations facilitate and maintain market oversight and transparency and require market monitoring to prevent fraud, manipulation and excessive speculation.
Fifth, the bill has a Strategic Reserve (with tons originally skimmed off from each year’s total target) that an entity can purchase permits from if the price sees a short-term run up of about 60%. So again the bill will is designed to prevent someone from cornering the market.
Sixth, until China has its own shrinking cap (presumably with a trading system), any effort by China to do what Barbour suggests would not merely be a surefire way to lose money — it would obviously be viewed as a very unfriendly act and inevitably be exposed — since nobody is going to be purchasing a few hundred million tons of U.S. emissions permits in secret. One can hardly imagine that the Chinese would risk their international reputation — and risk any climate deal they have entered into with the United States and/or the world community — in an effort to make a few bucks.
Barbour’s entire testimony is a laundry list of dubious scare stories and false statements. Mississippians — and all Americans — deserve better.