Wednesday, 9 December 2009

Clean-thinking America prepares to fire the starting gun in its dash for gas

Carl Mortished: World business briefing

Carbon dioxide is dangerous, says Lisa Jackson, administrator of the US Environmental Protection Agency (EPA). It is dangerous, like the growling exhaust pipe of a 25-year-old Chevy Corvette or the sulphurous plume from a coal-fired power station. Overnight, America has decided: carbon-dioxide pollution is a public health hazard and emitters will be shunned like cigarette smokers.
The EPA’s decision on Monday to treat CO2 as if it were a noxious poison was craved and dreaded in equal measure by climate activists and industrialists. It is a bombshell, more than just a public relations ploy to make President Obama look cool at the Copenhagen summit. It unleashes one of the toughest US regulators and gives it a mandate to go after heavy industry with compliance orders and fines. Power generators, oil refiners, chemical manufacturers and cement makers have been warned: the bloodhounds of the EPA will hunt you down and curb your emissions.
This is politics, of course. A lot must happen before the EPA begins to slap fines on recalcitrant power companies. The agency needs to draw up regulations that work — a monumental task. It needs to decide which CO2 abatement technologies are effective and affordable — at present, there are no commercial carbon-capture technologies, only government-subsidised pilot projects.
But make no mistake: this is the beginning of America’s puritanical crackdown on carbon. If you are surprised that the atmospheric gas that feeds the roses in your garden is being labelled a dangerous poison, remember that America doesn’t regulate its citizens with the gentle persuading hand of the Queen; it does so with the passion of the religious convert. If the EPA is unchallenged, carbon will be hunted down, in the tailpipes of cars in Los Angeles and in the stacks of power plants in Virginia.

America’s electricity industry has reacted with alarm to Ms Jackson’s decision. The US is mostly powered by coal, a fossil fuel that accounts for 80 per cent of America’s abundant greenhouse gas emissions. America has enormous coal reserves — indeed Warren Buffett has just made a big bet on the coal industry, buying a controlling interest in Burlington Northern Santa Fe, a railroad group that trucks coal from mines in Wyoming to Texas and southern California.
There is an alternative to the EPA’s bloodhounds: two climate change Bills making their way through the US Congress would create cap-and-trade systems to offer incentives to industry to curb emissions. The two Bills are similar and both give huge exemptions to power companies in the form of free emission allowances. The American legislation is, in microcosm, what a new Copenhagen climate treaty might look like: a hotchpotch of complex regulation, extravagant concessions, get-out clauses and bribes to politically sensitive groups.
On the one hand, America has the hydroelectric-powered Washington State, where Democratic Senator Maria Cantwell waves the climate-change hockey stick. At the other end of the country, you have coal-fuelled states, such as Georgia, where a federal tax on top of the monthly utility bill spells political death. So, inequality in the carbon burden means taxing Pacific Coast liberals in order to subsidise coalmining rednecks.
It begs the question whether a climate change Bill is possible. That is where the threat of the EPA looms. In a landmark case in 2007, the Supreme Court found that CO2 was an air pollutant within the meaning of the America’s Clean Air act, opening the door for Monday’s statement by Ms Jackson. Climate activists have been waiting for this moment, when the EPA would aim its guns at Big Oil and Big Coal.
Mr Obama is probably not keen to let the EPA do its job. It would be a blunt instrument and politically dangerous, for the important reason that the EPA would be “fair”. Unlike a congressional Bill, with its tweaks, trade-offs and bungs, the EPA would regulate carbon, everywhere. There would be no concessions: every tonne, whether emitted by car, cow or chemical plant, would have to be measured and fined.
The impact on US industry would be harsh and investment would flee from energy-intensive industries. Carbon leakage to Asia would become a flood and, quickly, a hue and cry would build for stringent US tariffs on Chinese goods.
There would be another important consequence of an EPA audit of US industry and that would be a huge rush to natural gas. Coal has secured a get-out for the time being in the congressional Bills. Without special treatment, however, the only quick lower-carbon solution available to US power utilities is huge investment in efficient gas-fired generation plant. Gas produces a third of the CO2 emissions of coal and, after new discoveries, gas in the US is extremely cheap. If Ms Jackson has her way, this could be America’s big dash for gas.