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Baby Steps: The Senate Eyes a Renewable Electricity Standard September 22, 2010

Posted by Jamie Friedland in Climate Change, Politics.
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Just finished my second post at Change.org’s environment page:

At this point, we’ll take what we can get. This is the resigned tune being sung by many environmentalists and clean energy advocates as Senators Jeff Bingaman (D-N.M.) and Sam Brownback (R-Neb.) unveiled a proposal to implement a national renewable electricity standard on Tuesday. And, amazingly enough, it looks like the votes are actually there.

You can read the full post here, but I want to highlight the last paragraph:

Finally, I’d also like to take a moment to highlight the quality of criticism against a renewable energy standard.  You read above that a 15 percent by 2021 standard will have virtually no impact on the energy market.  Yet the energy experts at the conservative Heritage Foundation are sounding the alarm with their analysis that this basically symbolic law would “kill a million jobs and cut a trillion dollars from the national income by the end of the decade.”  Booga booga!

We have to raise the level of political discourse if we are to have sensible governance in this country.  Former President Clinton said yesterday that he thinks we may be entering a “fact free” period in politics.  Such a world might make for nice sound bites, but real problems need real solutions.  And I’m not saying that a weak RES typifies real solutions, but we need to have honest debate about matters of such importance to our country.  Let’s at least not blatantly lie.  Yes, I’m looking at you, Heritage Foundation.

Let Wasteful, Redundant Ethanol Tax Credits Expire July 22, 2010

Posted by Jamie Friedland in Climate Change, Congress, Politics.
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Background information about corn ethanol, including a discussion of its pros and cons, is contained in this separate post.

Oil has rightly dominated recent energy-related news coverage, but if you’ve been watching closely, you may have noticed that corn ethanol has crept back into the news hole.

Early last week, Sen. Amy Klobuchar (D-MN) introduced a bill (S. 3576) that is essentially a wish list from the corn ethanol industry; it is no surprise that the bill’s legislative text was available on the industry’s website before anywhere else.

Why is this bill being introduced now?  Because federal subsidies for corn ethanol – to the tune of $6 billion annually – are set to expire at the end of the year.

The main component of these subsidies is the “Volumetric Ethanol Excise Tax Credit” or VEETC: a $0.45 tax credit for marketers and fuel benders paid for each gallon blended with any ethanol.  “Small producers” get an additional $0.10 for their first 15 million gallons, and there is also a tariff on imported, foreign-produced ethanol.  This program began in 2005 as part of the Bush administration’s American Job’s Creation Act of 2004.

While propping up demand for corn ethanol helps the ethanol industry, this tax break largely benefits Big Oil: BP is one of the largest recipients of the VEETC, and is slated to claim about $600 million in corn ethanol credits this year.  It is estimated that over the program’s lifetime, $21 billion in credits have been funneled to Big Oil.

The Renewable Fuel Standard is doing a good enough job propping up corn ethanol demand. We don't need to throw more money at this unnecessary policy objective. Especially if that money is just going to BP.

Not only does this tax credit give even more money to oil companies, it is largely redundant.  The Renewable Fuel Standard (RFS) created in 2005 and expanded in 2007 mandates that American gasoline must include 15 billion gallons of ethanol by 2015 and 36 billion gallons by 2022.

The Center for Agricultural and Rural Development at Iowa State released a study about corn ethanol this week. According to that report:

The Renewable Fuel Standard is the primary driver of ethanol demand. The tax credit prompts blenders to use about 900 million gallons of ethanol each year above mandated levels. This costs taxpayers some $6 billion annually (or almost $7 per gallon). Ending the subsidy would save that amount.

We already have a government system propping up ethanol demand.  Why do we need two?  Heck, we shouldn’t even really need one; corn ethanol causes a whole host of environmental and social problems!

The corn ethanol industry has been around for decades.  It is mature and does not need a second layer of support.  This is an easy $6 billion/year of taxpayer money to save.

The corn ethanol industry claims that allowing the subsidy to expire could wipe out nearly 40% of the U.S. ethanol industry. Those not in the ethanol industry find that assertion dubious.

The Iowa State study refutes that claim.  NRDC’s Sasha Lyutse has a great post explaining the study.  These are her major summary points:

  • Allowing the VEETC and import tariff to expire would have almost no impact on U.S. corn ethanol markets in 2011.
  • If the purpose of the VEETC is to push ethanol consumption beyond mandated levels, the magnitude of the costs greatly outweighs any benefits.
  • Eliminating the VEETC would not have major implications for U.S. employment and any jobs created by the VEETC come with at unacceptably high price tag.

In regard to the third point, the ethanol industry has issued alarmist claims that without this annual $6 billion in taxpayer money, 160,000 jobs will be lost.  Sasha finds that hard to believe when, according to the industry, the average corn ethanol plant employs only 45 people.  I tend to agree with her:

“Babcock [the lead researcher] finds that the decrease in U.S. ethanol production in 2011 caused by allowing the VEETC to expire would result in the loss of only 407 direct jobs. At a cost of nearly $6 billion, this is nearly $15 million per direct job.”

This report is the second major dose of reality to hit the corn ethanol industry in two week.  Lawmakers wanted to know what benefits American taxpayers really derive from the VEETC program, so Sen. Jeff Bingaman (D-NM) instructed the Congressional Budget Office (CBO) to conduct an analysis.

That report was released last week, and it was not good news for the industry.  The CBO report found that the VEETC rewards the corn ethanol industry for producing roughly the same amount of ethanol that they would produce without the subsidy because of the Renewable Fuel Standard.  According to the CBO, we’ve wasted $6 billion each year since 2005 and have no reason to waste another $31 billion the same way.

The argument against corn ethanol is strong.  In fact, the only argument for corn ethanol is a political one: corn producers have a lot of clout in the sparsely populated Midwestern states, which gives them outsized influence in the Senate.  Additionally, Iowa is a major corn producer, and because Iowa is the permanent location for the first presidential primary, opposing such a major demand of corn producers is political suicide for a presidential candidate.

But Bob Dinneen, president of the Renewable Fuels Association, knows the truth about why we environmentalists oppose this senseless subsidy: “a lot of the problem with the environmentalists is that they just don’t like corn…” Hey, I love corn.  It’s yummy. “…and don’t want it used for fuel.”  …There’s the ticket.  Using food for fuel is not a solution to any problem.

I hope that Congress can side with the American people on this issue and overcome the administration’s stated support for corn ethanol.

Watered-Down “Energy-Only” Climate Bill Approaches July 14, 2010

Posted by Jamie Friedland in Climate Change, Coal, Congress, Politics.
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Earlier this week, Senate Majority Leader Harry Reid announced that he will introduce energy legislation in two weeks.

Sen. Reid said he will push a bill that accomplishes four goals:

  1. Enhance oil rig safety requirements
  2. Create clean energy jobs
  3. Boost alternative energy/reduce oil consumption (read: increase efficiency)
  4. Reduce “pollution” from electric utilities

An aide later confirmed that the “pollution” to which he referred was in fact GHGs, but that he would not even mention GHGs or carbon dioxide explicitly is indicative of the political volatility surrounding this issue.

On the one hand, it is heartening to hear that the Senate will attempt to pass a climate/energy bill this year.  Just this week, four leading climate scientists explained in Politico that “The urgent need to act cannot be overstated.”

Even if a bill cannot pass, Sen. Sheldon Whitehouse (D-RI) correctly opined that merely having an energy debate is advantageous for the Democratic energy agenda because it forces the “Party of No” to again block necessary and largely popular reform, with its job creation and increased energy security.

Chief of Staff Rahm Emanuel signaled last month that a utility-only bill would have the White House’s blessing, which is not surprising given their track record of centrist compromises.

However, many in the environmental community are less than thrilled that Sen. Reid has decided on a utilities-only approach.  After all, the House or Representatives passed an economy-wide cap last year.

But the Senate has a different political climate, and with the filibuster in place, senators representing just 10.2% of the nation’s population can block any bill they choose (go down to the “SPECIAL RANT.” Also I’d like to take this moment to profess my love for Gail Collins to the world). The prospects of even just a utilities-only bill passing are slim, so the comprehensive energy reform this country so desperately needs is simply not possible at this time.

Power plants burning fossil fuels unsurprisingly release large amounts of GHGs. A utility-only bill would limit the amount of carbon dioxide they can emit.

So, what would a utilities-only bill look like?

Sen. Jeff Bingaman (D-NM), chair of the Senate Energy and Natural Resources Committee, introduced a utilities-only energy over a year ago: S.1462.  It passed out of his committee in June 2009 with bipartisan support.  This bill, the America Clean Energy Leadership Act of 2009, aka “ACELA”, would reduce energy-sector emissions by 17% in 2020 and by 42% by 2030.

Environmental groups hate this bill.  David Roberts at Grist has been covering this bill for over a year now.  His two-word summary: “ACELA sucks.” Why?  A number of reasons outlined here.  But I will explain the major ones that are the result of the utilities-only approach and apply to any bill of this type.

Senators John Kerry (D-MA) and Joseph Lieberman (I-CT) have abandoned their earlier cap-and-trade bill (the American Power Act) in favor of their own utilities-only approach.  One thing their new bill has in common with Bingaman’s is the emissions targets.  Both bills seek to lower electric sector emissions by 17% in 2020 and 42% in 2030 (Kerry/Lieberman also set an additional target of 83% by 2050.)

As Joe Romm, a former Assistant Secretary of the Department of Energy and arguably the nation’s most authoritative commentator on energy policy put it:

“Meeting such a 17% target [for 2020] in the utility sector alone, as in the latest incarnation of the watered-down bill, would be utterly trivial.” -Joe Romm, Climate Progress.

This is because we are currently underusing our natural gas power plants.  American utilities have built an excess of relatively efficient natural gas combined cycle (NGCC) plants over the last 20 years.  Currently, the NGCC fleet operates at an average of 41% of its capacity.

In that absence of carbon-pricing, utilities choose to meet increased electricity demand by ramping up their dirtier, more inefficient coal plants because coal is currently cheaper than cleaner natural gas.  A recent MIT study found that ramping up production at existing natural gas plants instead of coal plants could cut U.S. power-sector CO2 emissions by 10% today, and without any additional capital investment.

In other words, utilities could meet over half of their emission reduction obligations for 2020 simply by pulling back the coal lever and pushing forward the natural gas lever and not changing a single thing.  I’m not saying we shouldn’t make this switch: it would reduce not only GHG emissions but also those of other coal air pollutants like sulfur and nitrogen oxides.  But a 17% utility-only decrease is barely even a step in the right direction and hardly constitutes energy reform.

More information on our underutilized natural gas capacity here.

Note that even the Waxman-Markey climate bill that passed the House last year had the same 17% target.  It is also far too weak.  However, that was an economy-wide reduction.  Limiting that reduction the energy sector guarantees that this bill will be largely ineffective in the short term.

Grist’s David Roberts and CFR’s Michael Levi wrote good pieces explaining the pros and cons of a utility-only approach a few weeks ago.  A note for reading Mr. Levi’s piece: it defends a utility-sector cap-and-trade program.  Bingaman’s bill caps the energy sector without a trading program.  We do not yet know whether the upcoming Senate bill will contain cap-and-trade, but I personally doubt it.

The morale of the story is that a utilities-only would be a very small step in the right direction.  Like potential EPA regulations, if paired with strong followup bills that address manufacturers and transportation etc, this could potentially be part of the solution.

Electric utilities release about 1/3 of our GHG emissions, and even in an economy-wide cap-and-trade program, roughly half of the emission reductions are expected to come from utilities.  When we generate roughly half of our electricity with a fuel as dirty as coal, switching off of it offers major reductions.

This graph shows the relative emission reductions in different sectors that would be expected under an economy-wide cap-and-trade program. Energy is by far the biggest column.

However, a 17% target, which is highly likely, is too weak, and a utility-only bill is, on its own, not a climate solution.  For those people who support incrementalism to achieve reform in this political climate, such a bill is a tiny increment.  But it is a short shuffle down the path to a sustainable energy future.