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.
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Language Intelligence: Lessons on persuasion from Jesus, Shakespeare, Lincoln, and Lady Gaga
Cap and Trade is no Enron. Phil Graham snuck the Enron energy trading rules into a budget bill amendment. He assured the Senate it was routine material and no one asked questions or for a reading. The Senate was short on time and exhausted, right after the Clinton impeachment trial and under-the-gun to pass funding. The amendment rules were written by Enron and pushed by Graham’s lobbyist wife. They were never subject to testimony and questions, never read in committee, much less put into multiple drafts for lawmakers to read and analyze.
Thank you for exposing Haley Barbour for what he is..a greedy, servant of the oil and gas industry, and anyone else, including Big Tobacco that will support his nephew’s lobby firm in Jackson Mississippi and his old firm(he claims he no longer part of the take) in D.C. I suggest every American view the 2005 Sierra Club Documentary”Storm in the Gulf” to get an accurate picture of what this man is capable doing. He is the slickest of the slick and has done everything in his power to stop the state legislature’s green energy, clean water and air bills, including guuting protection of state and national parks. He is ruthless and has actually lobbied to bring the biggest national polluters and horrible federal projects to my state.
Please continue telling the facts about Barbour’s ties to the “Big Polluters. Americans deserve to no the truth about this rouge.
Is there a site that I can replay the hearing? I missed most of today.
Speak Up, McKinsey, “Please!”
I was a McKinsey consultant (Associate and Engagement Manager) from 1986 to 1990 or so. Before that, I was a chemical engineer (from Berkeley), had worked in the oil industry, and had graduated from Harvard B-School as a Baker Scholar.
(I know: You may now throw tomatoes. I understand.)
I have a great deal of respect for the firm.
I’ve also read, several times, the “Reducing US Greenhouse Gas Emissions” report. Bravo!
That said, I’d like to offer the following point: All things considered, I strongly believe that McKinsey (and other leading firms of bright people) have an obligation to speak out MUCH more vocally, and wisely, in fact-based ways, about the global warming problem and what must be done to address it.
Period! Simple as that.
McKinsey has people that understand science and that have read the IPCC reports and (as just one example) the Position Statement on Global Climate Change from the American Chemical Society. McKinsey has enough brains to understand the vital importance of achieving sustainability. McKinsey folks can do math. And, presumably, the majority of folks at McKinsey strive to be fully ethical, I hope.
McKinsey also values fact-based credibility. So I ask: What genuine credibility would be left in any organization (of a sort like McKinsey) that doesn’t take responsible action to ensure that we address the climate change problem, in a timely fashion?
On an issue such as global climate change, I believe that McKinsey has an obligation (to humankind) to do a lot . . . much more than they seem to be doing. Indeed, if it comes down to this, and if using excellent reasoning and standard communication approaches alone won’t accomplish the task, then McKinsey leaders SHOULD be right beside Bill McKibben and etc. later in the year, in the streets, to bring effective and responsible attention to the matter.
With intelligence and “position”, come responsibility.
C’mon McKinsey!
Cheers,
Jeff Huggins
Los Gatos, CA
NY Office, Summer, 1985
SF Office, 1986-90
This is a link to today’s Senate hearings:
http://cspan.org/Watch/Program/2009/07/07/Energy/A/42951/Senate+Environment+Public+Works+Hearing+on+Clean+Energy+Economy.aspx
Joe,
The McKinsey site notes that the work they did that is referenced (again) here, started in 2007. Depending when in that year that was, that was: (March) when Paulsen was saying everything was great but for some tweaking; (August) just some problems with the sub-prime market; (the Fall) nothing the Fed didn’t have in hand; (December) a new window or two being opened will fix this. And the economic assumptions of their analysis is dated (good at math or not—and maybe why McKinsey is not speaking up, Jeff, is that they know this).
Anyway, until I see proof otherwise, and the CBO report sure isn’t it, I’m rationally challenged to buy into the economic optimism that is been peddled through CAP. Pun intended, it just doesn’t seem to add up.
And even if it did add up, ACES/W-M doesn’t do so relative to it being legislation that will accomplish what the current science, and the trends in that science, say is needed to address AGW. Beyond what I have previously included in comments regarding this point, I stumbled across this analysis from the younger generation this evening that I think is worth a read (see http://www.openleft.com/diary/14083/the-progressive-failure-to-engage-the-grassroots-on-climate-change ).
While politics is part of the stated purpose of this blog, I feel Joe does better with the science.
Greg,
I am not sure what parts of Mckinsey’s abatement analysis your are being critical of. Other organizations have repeated the same work and come to similar results. Most of easy targets on the abatement curve are about efficiency
Efficiency is always better than inefficiency. Lovins worked that out in the 1970′s. Energy Star is a good example of that.. I mean, do you really want a refridgerator which uses three times as much energy than the one you have now? A car that gets 6 mpg?
W-M creates all sorts of new efficiencies. Transportation, grids, appliances, buildings, etc. And places the cost for that onto the fossil fuel burners. In a perfect world, the coal plant owners would acknowledge their pollution, and shut down. People would acknowledged efficiency, and buy smarter. World is not perfect. Need regulation.
Morning Mike,
Thanks for asking for the clarification.
My challenge to trust the McKinsey analysis is due to the macro economic assumptions it seems to be based on. The details of the analysis are, as you note relative to conservation, persuasive, even rational. Is the same true for the modeling/understanding of the macro economic that the details relate to? Are there unanalyzed threats to the macro economic assumptions that relegate the detailed analysis to something approximating what the deniers do with science?
We have a deflating consumer credit based bubble, whose growth has been about a century in duration. Its most recent round of inflation was effected through the derivatives market (and a blind trust in the risk “management” formula at this link — http://www.wired.com/images/article/magazine/1703/wp_quant4_f.jpg ). Isn’t it non-rational to feel that good analysis of details conclusively validates the macro economic assumptions those details relate to?
As a comparison, consider my critique of the CBO vetting that has similarly been promoted as a rationalization for ACES/W-M: the following link and the subsequent interchange with John http://climateprogress.org/2009/06/21/cbo-stunner-waxman-markey-postage-stamp-a-day-low-income-families-efficiency-savings/#comment-81089 . I think the following additional post may help clarify the point I am trying to keep before Joe/CAP: http://climateprogress.org/2009/06/25/obama-waxman-markey-job/#comment-85245
I concur that regulation is needed. Due to our fears it is inevitable. The choice we still have before us/US is what kind of regulations and government will we embrace an act from?
If the current attempt at regulation is inadequate to the science, as is the case of ACES/W-M, my discipline to try to be critical/rational leads me to ask what it is adequate for. The best answer I have come up with, to date, is that it is primarily adequate as a short term “get-out-of-jail/responsibilities-free card for the fossil fuel industries, BAU for corporate agriculture, and a boon to the financial sector as a new means to try to re-inflate a collapsing bubble and/or slow its continued collapse. Consequently, my hypothesis is that the “regulation” I see this scientific inadequate legislation leading to is the geoengineering debacle and the next iteration of much-less-friendly fascism that will implement it; enforce it.
The solution that is not on the table is one that would align human fear and greed with the social need to systemically tip out of having tipped into klimakatastrophe: a constitutional currency sustainably coined in CO2e credits (and the three other Constitutional crises I’ve identified as systemic obstacles to effecting scientifically relevant AGW mitigating legislations—see http://home.roadrunner.com/~robie/opento/klimakatastrophe/DiscoveringMetanoia.html#ConstitutionCrises ). To the degree that makes any sense, I find it helpful to remember that paradigm shifts are gut-wrenching conundrums of “impossible” choices. They are rarely, as Chu, quoting Joe, note in his written testimony yesterday, a cost-of-a postage-stamp-a-day hop, skip, and a jump to salvation.
A line from the “Princes Bride” come to mind, and is likely an insight into the frame of thinking I am writing from (which I hope is not my iteration of motivated reasoning): “Life is pain princess, and anyone telling you different is trying to sell you something.”
Hi Mike,
I just posted a lengthy response with, I think, four links in it. I had expected it to be moderated. Instead it disappeared. I must have triggered an anti-spam rule that I am now wiser about. Regardless, I did not copy it before submitting so it is gone.
[JR: It's back! I am letting this post and even though it is rather unjustifiably and needlessly harsh. I will say that there is no possibility whatsoever that decentralized solutions can solve this problem. None. That said, ultimately everybody will have to dramatically change their carbon footprint, as I have blogged many times, when the Ponzi scheme finally collapses.]
I may try to rewrite it, but in the meantime, bottom line, yes regulation is required and it will happen. Efficiencies are a HUGE wedge of all the wedges. My concern with McKinsey (and CBO) relates to the macro economic assumptions the detailed analysis is based on. Isn’t anything from 2007 dated? Isn’t anything that limits its analysis to 2020 trying to sell something?
Avoiding a rational critique of the macro economic assumptions protects the “winners” of ACES/W-M (fossil fuel industries, corporate agriculture, (and the dominate one) Wall Street) and their strategizing to adapt BAU to external changes; to seize AGW as another opportunity for their particular iterations of self-interest. Consequently, everything I see points to the trusted/desired AGW regulation being effected by geoengineering.
Is ACES/W-M is scientifically inadequate because, strategically, such is a means to that end? Wall Street is in charge. Fear and greed are in control of this society’s psyche. To the degree this is so, what the social sciences know about humanity is being cynically/”practically” applied. Joe/CAP may be pawns in all this. We seem to be being fast-tracked not only to “need” geoengineering, but a less-friendly-iteration of fascism to effect and enforce it. Big centralized solutions are where the money is to be made for the financial sector. Decentralized, individually responsible solutions are not on the table. Are they not even “realistic” in our thinking?
Conspiratorialist? Maybe. Cynical? Yes. Realistic?
Regardless, what Joe doesn’t seem to focus on much here at CP is what the social sciences study and could contribute to understanding the REAL timeline the IPCC report contains for mitigating AGW. This blogs strength, a focus on the physical sciences, relative to the threat of AGW and politics, is only part of the story (and likely the lesser half). The marketing of ACES/W-M on dated and limited economic analysis seems to be an example of motivated reasoning taht I think CP would benefit from a guest blog post on.
Thanks for the recovery of the “disappeared” comment , Joe. Now I can go do my irrelevant bit toward adapting to global warming’s climate shift toward easterlies (and rain) here in the northeast by harvest the garden’s slugs to recycle through the chickens. =)
Any advice from the northwest on how to psychologically adapt to lots of rain? BTW, if you find yourself homesick for it (I hear you are getting less of it), come east!
Greg,
Thank you for extending your previous comments.
I will stand by my previous statement. We need to get to an economy which wastes less energy in our buildings, cars, factories, etc. We need to undo all the massive government supports for fossil fuels. Sticking with old hardware and non renewables is a recipe for economic failure.
Please read the 1428 page bill. As you do, split it up into functional sub units. I think you will see that this bill is well written and easy to understand. Very practical. It covers a lot of areas.
Intersting that you would suggest that the IPCC has a timeline for mitigating “AGW”. The IPCC makes scientific reports only–the do not create policy. That is up to our elected officials.
Hi All,
In mentioning the McK report and the need (in my view) for McKinsey to get much more active and vocal, I wasn’t suggesting that the analysis in the report is completely up-to-date. Parts of it might not be.
But, it’s far too easy to lose sight of the forest by locking-in to individual trees or assumptions that are based on anything other than grounded first principles.
In other words, set aside any particular analysis for a moment, realizing that it can be re-done by a group of super bright people if they have the right motives and put enough energy into it.
Then, think about the basics at a foundational level: The very “stuff”, font, and enabler of “worth” and value themselves is LIFE. And LIFE needs energy to live and to do its thing, but NOT necessarily energy that comes from hydrocarbons that result in putting CO2 in the air.
So, LIFE, and CLEAN energy.
The rest is detail. In other words, we humans can (and should, and must) set our thinking and value systems such that life is possible, and healthy, and ultimately sustainable in a way that also maintains a healthy and sustainable climate and planet.
In many cases, perhaps most, economists and many other people make assumptions and take them as givens when they aren’t “givens” and when they are actually mere assumptions, themselves based only on human paradigms and assumptions and traditions and unexamined historic choices.
So, we need to go (quickly) to first principles, and we need to realize that we CAN change some things (and had better do so) to address the climate and energy problems. McKinsey (and other top-quality places) CAN do that — if they choose to do it and force themselves to do it.
If they don’t, they’ll be committing a failure that is either intellectual or ethical, and most likely both.
Cheers,
Jeff
Mike and Jeff,
Mike, my confession: I have not read H.R. 2456, “AN ACT To create clean energy jobs, achieve energy independence, reduce global warming pollution and transition to a clean energy economy.” I have trusted the writing of others that the limits of the reductions intended in this legislation is inadequate relative to the science. To the degree we all stand on a trust that we afford others, such is on what I stand. Paradoxically, such is my “leap of faith.” But I also have as part of my mix observations relative to atmospheric methane, its renewed increase in a global average, and its source distribution re: the Arctic—and that regions apparent unabated increase in the emission of CH4. Since the originating committee’s website for this bill has listed on its “Science Basics” page that atmospheric methane is stabilized (and I have twice (unsuccessfully) communicated this error to my Congressperson, John Hall, a member of this committee, to correct this), is the science this policy is based on flawed on this point (setting the matter of the economic assumptions aside)?
Regardless, to my sensibilities—or to use Jeff’s framing, sense of morality—a baseline of 2005 GHG emissions is significantly more that those of 1990, and relative to CO2, about 35 ppm. Combined with a 2050 target of only 80% of what the science states is required needs to be reduced to not pass a 2°C rise in the average of global temperature, doesn’t this mathematically compound the short fall incorporated into this policy? With the evolving science suggesting that 2°C is increasing likely to be too high a target . . . well, we all stand somewhere relative to what we trust; we all make our “leap of faith.“ Interesting, if not directly related, questions are: why we trust; what is trust. (BTW, I posit the answers are all about oxytocin.)
Anyway, I did not intend to imply that the IPCC was a policy report. You are correct, policy is a matter of politics. And I would add that lifestyle choices are a matter of personal integrity—and need to be included in the framework of social discourse regarding the scientific efficacy of ACES. The personal IS (also) political.
Jeff, the concepts of “Life, liberty and the pursuit of happiness“ being inalienable rights, as stated in our Declaration of Independence, gives legal precedent to the moral assertion you make, Jeff. Even so, the devil IS in the details. To the degree that there is a difference between human and corporate ”persons” under the law, isn’t there, now, a legal ambiguity as to which “person’s” perception of these rights apply? Is this not THE human moral dilemma of our day? It is one of the four Constitutional crises I’ve identified as requiring redressing for AGW to be addressed to a scientifically sapient and significant standard.