EDF’s and MIT’s magical thinking on carbon caps and oil

Last week I critiqued EDF’s pointless video/graphics competition (see EDF’s bizarre $10,000 contest: “What is a carbon cap and how will it cure our oil addiction?”). The contest is pointless because a carbon cap can’t cure our oil addiction. Indeed, under any plausible cap, U.S. oil consumption rises.

Gernot Wagner, an economist at Environmental Defense Fund, responded with a post at Grist: ‘Bizarre’? No. Tough? Yes Joseph Romm’s critique of EDF’s contest is misguided. As I expected, EDF claimed that auctioning off the allowances would “generate large sums of money. Part of that could be used to jump-start our transition to a greener transportation sector that’s less dependent on fossil fuels.” That takes us to Fantasyland Shellenberger-Nordhaus-land, which we’ll visit below.


But what I did not expect is that someone from EDF, particularly an economist, would actually argue the cap itself “goes a long way toward solving the problem. Let’s look at the numbers”:

MIT’s analysis of the Climate Security Act [CSA] using their EPPA model says that net crude oil imports would be 22 percent lower by 2015 under CSA than without. These savings rise to 31 percent by 2020, 41 percent by 2025, and 66 percent by 2030. (Savings decrease in the next years due to some modeling assumptions around other countries taking on caps, but are up to 62 percent again by 2050.) Sure, that’s technically not “solving the problem” entirely. However, solving two thirds of it isn’t all that bad in my book.

I stand corrected — not! Needless to say, I was quite shocked to see my old alma mater cited as the source of a claim that so blatantly flies in the face of both standard economics and practical logic.

After all, if you go to a standard economic analysis of CSA, say the one by the Energy Information Administration, Energy Market and Economic Impacts of S. 2191, the Lieberman-Warner Climate Security Act of 2007, you can see quite clearly in the Executive Summary’s Table E32 that in every single case they analyze, U.S. energy consumption of liquid fuels in 2020 and 2030 is higher than it is in 2006. And that’s true even though “all cases include the 35-mile — per-gallon corporate average fuel economy (CAFE) standard recently enacted.” In the “Core” case, the allowance price is not cheap, $61 a ton of carbon dioxide in 2030 (adding about 56 cents to a gallon of gasoline), but U.S. liquid fuel consumption in 2030 is a mere 4.5% lower than it would have been without CSA, and still 5% higher than it is today. The oil consumption numbers are hardly any different in the case with a $91 a ton CO2 price in 2030.


So how did the Massachusetts Institute of Technology analysis get such a staggering reduction in oil consumption from the Climate Security Act using an economic model that yields only slightly higher CO2 prices than EIA? The answer — sadly or laughably (either way, you end up with tears) — is also magical thinking.

Journey with me now to a land far, far away from ours, where you can find the original MIT analysis, “Appendix D: Analysis of the Cap and Trade Features of the Lieberman-Warner Climate Security Act (S. 2191)” of their Assessment of U.S. Cap-and-trade Proposals. It turns out that virtually all of the amazing reduction in US oil consumption that MIT finds comes from “Net Bio Liquids Imports” — see Table D6 on page D18. In 2020, MIT projects/assumes/prays the United States will be importing $39 billion worth of biofuels and in 2030 that we will be importing an astonishing $94 billion a year in biofuels!

How is this possible and what does it have to do with the cap? Magical thinking and nothing whatsoever. The cap is all but completely incidental here, since in 2020 it has added about $.75 a gallon to the price of gasoline. If you think that would lead to $39 billion in biofuels imports in this country, then I have a video/graphics contest I’d love to sell you for $10,000.

Frankly, what MIT has done is so absurd that it isn’t even terribly productive to waste a lot of time looking into their various assumptions. They simply wave a magic wand and grant superpowers to global biofuels. If you are a big fan of science fiction, you can read what MIT has done in their main report here:

Biofuel liquids in the EPPA model are based on the assumption that cellulosic conversion processes are successfully commercialized and that the energy needed in the conversion/distillation process is also supplied by biomass so that there is no net CO2 release.

Why not just assume Santa Claus is going to hand out free carbon-eating toys to everyone on the planet? Oh, wait, that’s what M.I.T. did. In the real world, cellulosic biofuels have major challenges (see “Are biofuels a core climate solution?”). The United States has been investing in biofuels R&D for three decades now and still we don’t have a single commercial plant in the country. Obviously we should continue pursuing cellulosic technology aggressively, but it is criminal for an independent economic modeling analysis to simply assume we will get the breakthroughs needed to deploy the technology at massive scale by 2020.


As a side note, if I am reading the report right, then the amount of biofuels that MIT is assuming for the United States alone in 2030 would require the equivalent worldwide of roughly one third of all US cropland, grassland, and forest land dedicated to biofuels. You think it’ll be a problem finding the necessary land and water in a world where most countries don’t have the excess arable land that we do, in a 2030 world where we’ll have another billion people to provide food and water for, in a world where global warming is already causing droughts, desertification, and water shortages, and our very, very limited use of crops and cropland for energy is already jacking up the price of food to record levels and promoting deforestation around the globe? Well, you’ve obviously never been to the joint MIT-EDF laboratory for “happy thoughts and fairy dust.”

Back in the semi-real world, EDF’s critique of my analysis then claims:

Depending on how many of the carbon allowances are auctioned (as opposed to given away for free), a cap will also generate large sums of money. Part of that could be used to jump-start our transition to a greener transportation sector that’s less dependent on fossil fuels. It’s tough to put a number on this. Yet it wouldn’t be too surprising if a combination of these measures could take care of the remaining third of the problem.

How exactly would spending billions of dollars on technology take care of the remaining third of the problem? This time, however, I’m going to insist that EDF answer that question without using magic.

Advances in technology are great, and indeed I have spent much of my career working as hard as possible to achieve those advances. But the vast quantities of money that the federal government put into hybrid vehicle joint research with the big three automakers in the 1990s went nowhere because the big three abandoned the technology as soon as George W. Bush became president. You can lead a horse to water, but you can’t make him commercialize the process.

Yes, incentives can jumpstart the transition to a greener transportation sector, but only with magical thinking can incentives get you the kind of mass-scale rapid deployment of alternative fuels and alternative fuel vehicles and alternative fuel infrastructure needed to replace one third of our oil consumption by 2030.


Note to EDF: Your contest is about how a carbon cap will “cure our oil addiction” not about how a carbon cap will eliminate oil imports. You know as well as anybody that the climate problem is not driven by our oil imports but by our total oil consumption. And yes, people like Shellenberger and Nordhaus believe that throwing government money at the problem is the critical strategy needed to solve it (see “We have argued for five years now that efforts to build the clean energy economy needed to be centrally defined around energy independence not global warming”). But, unlike you, they don’t believe in or even like government regulations.

I reassert for the umpteenth time that no country in the world has ever successfully introduced alternative fuels and alternative fuel vehicles into the consumer market on a large scale without mandates and regulations. Also I seriously doubt there will be much money from auctioning permits available “to jump-start our transition to a greener transportation sector” through at least the year 2020, but that will have to be the subject of another post.

EDF finishes its critique:

These arguments also show why the ad competition is a good idea. It’s tough to translate economic modeling results into an accessible language without sounding overly wonkish, let alone describing the potentials for these additional measures.

So, any idea for a memorable image? It would indeed be neat to come up with something that mirrors the “This is your brain. This is your brain on drugs” campaign.

Actually I can easily translate MIT’s economic modeling results into a accessible language without sounding overly wonkish: “This is your energy system. This is your energy system on magic”:

Where’s my $10,000?