Published Date: 23 May 2009
SMALL BUT BEAUTIFUL
CERAMIC Fuel Cells, an energy company listed in Australia and on London's Aim, yesterday launched a "mini power station".The new unit – called BlueGen – converts natural gas to electricity and heat via ceramic fuel cells.BlueGen, which is about the size of a dishwasher, is designed to work in homes and offices, providing "low-emission electricity and hot water" and saving money.Ceramic Fuel Cells has signed a memorandum with VicUrban to showcase BlueGen units in the organisation's housing developments and wants to put the units on sale in the Australian state of Victoria early next year.BlueGen was unveiled yesterday by John Brumby, the premier of Victoria.Brendan Dow, Ceramic Fuel Cells' managing director, said: "Our units are far more efficient and produce far less carbon dioxide and other emissions than traditional electricity generators like coal-fired power stations."Ceramic Fuel Cells, which has a market cap of about £85 million, was founded in 1992 with backing from the Australian government and mining giant BHP Billiton. The company floated in Australia in 2004 and on London's Aim in 2006.
Saturday, 23 May 2009
Green lobby divided over cap-and-trade bill
By Fiona Harvey
Published: May 22 2009 18:48
The passage of the cap-and-trade bill through the committee stage has driven a wedge through the US environmental lobby.
Al Gore, former vice-president and the unofficial leader of US greens, led a chorus of approval for the bill: “[It] represents a crucial step forward in addressing the global climate crisis, the need for millions of new green jobs to end the recession, and the national security threats that have long been linked to our growing dependence on foreign oil and other fossil fuels.”
But while many of Washington’s green think-tanks and campaigners echoed the praise, the bill was attacked as inadequate by a coalition led by Greenpeace and Friends of the Earth, which vowed to fight against it.
“The decision-making process was co-opted by oil and coal lobbyists determined to sustain our addiction to dirty fossil fuels, even as the country stands ready to rebuild our economy and clean up the environment with real clean energy,” the dozen organisations said. “[It’s] the triumph of politics over science and the triumph of industry influence over the public interest.”
They have four criticisms: the emission reduction target is too low; loopholes would allow the biggest emitters to avoid cuts until 2027; big emitters get hundreds of billions of dollars in free permits; and it removes President Barack Obama’s authority to tackle emissions through existing laws.
But Jonathan Lash, president of the World Resources Institute, urged greens to rally round: “The alternative is not a better bill – it is no bill. If the House fails, nothing will happen in the US this Congress. That means [a crucial climate change meeting in] Copenhagen fails.”
Copyright The Financial Times Limited 2009
Published: May 22 2009 18:48
The passage of the cap-and-trade bill through the committee stage has driven a wedge through the US environmental lobby.
Al Gore, former vice-president and the unofficial leader of US greens, led a chorus of approval for the bill: “[It] represents a crucial step forward in addressing the global climate crisis, the need for millions of new green jobs to end the recession, and the national security threats that have long been linked to our growing dependence on foreign oil and other fossil fuels.”
But while many of Washington’s green think-tanks and campaigners echoed the praise, the bill was attacked as inadequate by a coalition led by Greenpeace and Friends of the Earth, which vowed to fight against it.
“The decision-making process was co-opted by oil and coal lobbyists determined to sustain our addiction to dirty fossil fuels, even as the country stands ready to rebuild our economy and clean up the environment with real clean energy,” the dozen organisations said. “[It’s] the triumph of politics over science and the triumph of industry influence over the public interest.”
They have four criticisms: the emission reduction target is too low; loopholes would allow the biggest emitters to avoid cuts until 2027; big emitters get hundreds of billions of dollars in free permits; and it removes President Barack Obama’s authority to tackle emissions through existing laws.
But Jonathan Lash, president of the World Resources Institute, urged greens to rally round: “The alternative is not a better bill – it is no bill. If the House fails, nothing will happen in the US this Congress. That means [a crucial climate change meeting in] Copenhagen fails.”
Copyright The Financial Times Limited 2009
Coal Generators Face Opposition on Credits
By REBECCA SMITH
State utility regulators and consumer advocates are urging Congress to eliminate a provision in the pending climate-change bill that gives free emission allowances to certain companies that burn coal to make electricity.
The Waxman-Markey bill, which cleared a key House committee Thursday, would give as much as 5% of initial credits to merchant coal generators and 30% to electric utilities when a cap-and-trade program is scheduled to begin in 2012. Unlike utilities, whose prices are controlled, merchant coal generators sell electricity to other companies at market prices.
Utilities are expected to use their credits to cover their own emissions, or sell the credits and use the money to hold down consumer energy costs, which are expected to rise as a result of the legislation. But there's no guarantee unregulated coal generators would use their credits to reduce electricity prices, which would ultimately benefit consumers. They could take the credits and not reduce their prices.
Under a cap-and-trade program, companies that produce greenhouse gases would be given credits covering a portion of their emissions. If some companies produce less than their "cap," they could "trade" their credits with others.
In the past few days, state regulators have urged bill authors Reps. Henry Waxman (D., Calif.) and Edward Markey (D., Mass.) to redirect to utilities all of the credits earmarked for merchant coal generators. The National Association of Regulatory Utility Commissioners, in a letter, wrote the congressmen that giving credits to the coal generators "will only lead to windfall profits for a particular sector of the electricity industry at the expense of end-use customers."
Other groups, including those that represent consumer advocates and public-power utilities, also oppose the allocation method laid out in the House bill, HB 2454. "Our concern is that market prices will rise anyway, and consumers won't get the benefit of the allowances given coal generators," said David Springe, consumer counsel of the Citizens' Utility Ratepayer Board in Topeka, Kan., and president of the National Association of State Utility Consumer Advocates.
Generators disagree that credits could result in windfall profits. The credits will cover only half the emissions they are expected to produce by generating electricity with coal, and they will likely have to buy the other half of the credits they need.
Dynegy Inc., NRG Energy Inc. and Edison International are among the companies that would receive credits, because they own coal-fired power plants that sell electricity at market prices. These merchant generators face more financial risks than utilities, because they aren't regulated monopolies, and they're allowed to earn higher profits than utilities.
Approximately one-quarter of the nation's coal-fired generating capacity is owned by merchant generators. Many power plants changed hands when states deregulated their retail electricity markets and utilities divested themselves of their generation fleets.
Ted Craver, chief executive of Edison, based in Rosemead, Calif., said that generators need free credits or some may be forced "to shut down, which creates reliability issues."
His company owns 7,400 megawatts of coal-fired generation in the Midwest. Coal-based generators face billions of dollars in costs from pollution-control upgrades that will be required in coming years. Generators need clarity about carbon costs, said Mr. Craver, so they will know which plants are worth upgrading.
Some coal generators are experiencing hard times, because low natural-gas prices are allowing gas generators to seize market share from coal generators. In March, the most recent month for which federal data were available, production from gas-fired plants increased 4.5%, while production at coal-fired plants fell 16.1% versus March 2008. Consumption slipped 3.9% from a year earlier.
Merchant coal generators were in better shape a few years ago when natural gas prices were high. At the time, they were able to sell electricity in deregulated markets at high prices set by gas units, even though their costs were low. Now, profit margins are compressed and costs of complying with pollution-control requirements are rising.
Write to Rebecca Smith at rebecca.smith@wsj.com
State utility regulators and consumer advocates are urging Congress to eliminate a provision in the pending climate-change bill that gives free emission allowances to certain companies that burn coal to make electricity.
The Waxman-Markey bill, which cleared a key House committee Thursday, would give as much as 5% of initial credits to merchant coal generators and 30% to electric utilities when a cap-and-trade program is scheduled to begin in 2012. Unlike utilities, whose prices are controlled, merchant coal generators sell electricity to other companies at market prices.
Utilities are expected to use their credits to cover their own emissions, or sell the credits and use the money to hold down consumer energy costs, which are expected to rise as a result of the legislation. But there's no guarantee unregulated coal generators would use their credits to reduce electricity prices, which would ultimately benefit consumers. They could take the credits and not reduce their prices.
Under a cap-and-trade program, companies that produce greenhouse gases would be given credits covering a portion of their emissions. If some companies produce less than their "cap," they could "trade" their credits with others.
In the past few days, state regulators have urged bill authors Reps. Henry Waxman (D., Calif.) and Edward Markey (D., Mass.) to redirect to utilities all of the credits earmarked for merchant coal generators. The National Association of Regulatory Utility Commissioners, in a letter, wrote the congressmen that giving credits to the coal generators "will only lead to windfall profits for a particular sector of the electricity industry at the expense of end-use customers."
Other groups, including those that represent consumer advocates and public-power utilities, also oppose the allocation method laid out in the House bill, HB 2454. "Our concern is that market prices will rise anyway, and consumers won't get the benefit of the allowances given coal generators," said David Springe, consumer counsel of the Citizens' Utility Ratepayer Board in Topeka, Kan., and president of the National Association of State Utility Consumer Advocates.
Generators disagree that credits could result in windfall profits. The credits will cover only half the emissions they are expected to produce by generating electricity with coal, and they will likely have to buy the other half of the credits they need.
Dynegy Inc., NRG Energy Inc. and Edison International are among the companies that would receive credits, because they own coal-fired power plants that sell electricity at market prices. These merchant generators face more financial risks than utilities, because they aren't regulated monopolies, and they're allowed to earn higher profits than utilities.
Approximately one-quarter of the nation's coal-fired generating capacity is owned by merchant generators. Many power plants changed hands when states deregulated their retail electricity markets and utilities divested themselves of their generation fleets.
Ted Craver, chief executive of Edison, based in Rosemead, Calif., said that generators need free credits or some may be forced "to shut down, which creates reliability issues."
His company owns 7,400 megawatts of coal-fired generation in the Midwest. Coal-based generators face billions of dollars in costs from pollution-control upgrades that will be required in coming years. Generators need clarity about carbon costs, said Mr. Craver, so they will know which plants are worth upgrading.
Some coal generators are experiencing hard times, because low natural-gas prices are allowing gas generators to seize market share from coal generators. In March, the most recent month for which federal data were available, production from gas-fired plants increased 4.5%, while production at coal-fired plants fell 16.1% versus March 2008. Consumption slipped 3.9% from a year earlier.
Merchant coal generators were in better shape a few years ago when natural gas prices were high. At the time, they were able to sell electricity in deregulated markets at high prices set by gas units, even though their costs were low. Now, profit margins are compressed and costs of complying with pollution-control requirements are rising.
Write to Rebecca Smith at rebecca.smith@wsj.com
Eco-vandals take on the gas-guzzlers
Spate of attacks on 4x4 vehicles in Manchester
By James Mann
Saturday, 23 May 2009
Police are searching for a gang of radical environmental activists after a series of attacks on 4x4 vehicles.
The gang, who claim to have targeted up to 80 vehicles across South Manchester, let down tyres and leave notes accusing the owners of adding to global warming and increasing the chances of road deaths.
In the last week tyres on 20 vehicles were slashed or deflated in the Ladybarn and Withington of the city. This follows similar attacks on 11 cars last month. Police classify the deliberate acts as criminal damage.
A statement from the activists said tyres were deflated rather than slashed. It added: "Given the threat of climate change and the Government's inaction, direct action such as this is, unfortunately, necessary. Large SUVs (Sports Utility Vehicles) emit substantially more greenhouse gases."
The statement also said accident victims were six times more likely to die if hit by an SUV rather than a smaller car.
Owners of SUVs – dubbed Chelsea tractors – have been branded irresponsible by environmentalists, for their vehicles' size and fuel consumption. Critics say the large four-wheel drive vehicles were originally intended for use by farmers on rough terrain in the countryside. But they have become popular with middle-class families living in cities and are used for school runs and shopping trips.
Patricia and Waris Ashraf had a tyre let down on their Mercedes ML outside their house in Whalley Range, making their daughter Natasha, 16, late for an A-level exam. A victim from Chorlton, who would not be named, said: "What concerns me most is that we have a child seat in the back of the car. They must have seen that, which suggests they don't care who they affect."
Doug McMillan, whose tyres were attacked in Parrs Wood, Didsbury, last week, said: "If they ever did have a noble, credible cause, they have blown it because they have reduced themselves to the status of common criminals. They are vandals, nothing else."
A member of the group calling himself James said: "These vehicles are totally unsuitable for the city, they're dangerous, polluting and an unnecessary status symbol. They should not be on our city roads."
Detective Inspector Damian Moran, from Greater Manchester Police, said: "Those responsible might believe they are making a point, but this behaviour is criminal.
"It is mindless vandalism with no regard for the distress and nuisance caused to decent members of our community and will not be tolerated.
"If anyone knows anything or has seen anything suspicious during those two nights that might help us catch those responsible, please contact me."
By James Mann
Saturday, 23 May 2009
Police are searching for a gang of radical environmental activists after a series of attacks on 4x4 vehicles.
The gang, who claim to have targeted up to 80 vehicles across South Manchester, let down tyres and leave notes accusing the owners of adding to global warming and increasing the chances of road deaths.
In the last week tyres on 20 vehicles were slashed or deflated in the Ladybarn and Withington of the city. This follows similar attacks on 11 cars last month. Police classify the deliberate acts as criminal damage.
A statement from the activists said tyres were deflated rather than slashed. It added: "Given the threat of climate change and the Government's inaction, direct action such as this is, unfortunately, necessary. Large SUVs (Sports Utility Vehicles) emit substantially more greenhouse gases."
The statement also said accident victims were six times more likely to die if hit by an SUV rather than a smaller car.
Owners of SUVs – dubbed Chelsea tractors – have been branded irresponsible by environmentalists, for their vehicles' size and fuel consumption. Critics say the large four-wheel drive vehicles were originally intended for use by farmers on rough terrain in the countryside. But they have become popular with middle-class families living in cities and are used for school runs and shopping trips.
Patricia and Waris Ashraf had a tyre let down on their Mercedes ML outside their house in Whalley Range, making their daughter Natasha, 16, late for an A-level exam. A victim from Chorlton, who would not be named, said: "What concerns me most is that we have a child seat in the back of the car. They must have seen that, which suggests they don't care who they affect."
Doug McMillan, whose tyres were attacked in Parrs Wood, Didsbury, last week, said: "If they ever did have a noble, credible cause, they have blown it because they have reduced themselves to the status of common criminals. They are vandals, nothing else."
A member of the group calling himself James said: "These vehicles are totally unsuitable for the city, they're dangerous, polluting and an unnecessary status symbol. They should not be on our city roads."
Detective Inspector Damian Moran, from Greater Manchester Police, said: "Those responsible might believe they are making a point, but this behaviour is criminal.
"It is mindless vandalism with no regard for the distress and nuisance caused to decent members of our community and will not be tolerated.
"If anyone knows anything or has seen anything suspicious during those two nights that might help us catch those responsible, please contact me."
Emissions bill faces tough Senate fight
By Edward Luce in Washington
Published: May 22 2009 18:39
The US Congress has taken its first big step towards passing a cap-and-trade bill to tackle global warning but it faces a tough fight to get the legislation passed by the Senate.
The vote, which took place on Thursday night in the key House committee on energy and commerce, would reduce US carbon emissions to 17 per cent below 2005 levels by 2020 and by 83 per cent by 2050.
Barack Obama, president, who is pushing Congress for a bill to sign before the global climate talks in Copenhagen in December, described the committee vote as “historic” even though it has yet to be passed by either chamber.
In his statement, Mr Obama reflected the often messy compromises that were necessary to bring along the so-called “brown Democrats” from the mid-west and south whose input drastically changed the bill from the original version put forward by the president.
Mr Obama campaigned on the promise to introduce a 100 per cent auction for all carbon permits. Under the House compromise, more than 80 per cent of the permits would be given away to electricity utilities, energy-intensive manufacturers, car companies and the oil refining sector.
“The bill is historic for what it achieves, providing clean energy incentives that encourage innovation while recognising the concerns of sensitive industries and regions in this country,” said Mr Obama.
Some environmental groups also applauded the measure which they said reflected the best possible deal in the current political climate. In recent polls, tackling climate change has dropped sharply down the agenda of public concerns for ordinary Americans.
“You should not let the perfect be the enemy of the good,” said one environmental advocate. “If you look at the big picture, this would put a cap on carbon emissions, which is the main purpose.”
However, the bill, which is likely to be put to a full House vote before the summer recess in late July, faces continuing criticisms from both left and right. On the left, some environmentalists say that the decision to give away, rather than auction off, the bulk of the carbon trading permits would blunt the price signals needed to get consumers to change their behaviour.
Under one estimate, the permits given to local electricity distribution companies would result in a $750bn (€534bn, £471bn) subsidy to consumers between now and 2030 when the system would have moved to a full auction. Proponents of the bill say that step is essential to win public support by avoiding sharp rises in their electricity bills at a time when the economy is contracting.
The bill is also designed to avoid the windfall that European energy companies received by ensuring that the value of the free permits is passed on to the consumer, rather than producers. On the right, Republicans say they will continue to oppose the bill. Only one Republican voted for it, which passed the committee by a majority of 36 to 22.
A number of influential Democrats expressed doubts about the bill’s merits. “This stuff is going no place in the Senate,” said Collin Peterson, the Democratic chairman of the House agriculture committee.
“They can do whatever they want with this, but I can tell you, there is no way this is going to pass.”
Charlie Rangel, chairman of the House ways and means committee, which also has jurisdiction over the bill, hinted he might not co-operate unless healthcare reform had first been enacted.
In addition, Mr Rangel, along with many economists, has argued that a simple carbon tax would be more efficient.
“There are those who want a simple tax who have this platonic ideal in mind rather than a focus on the political realities of what it takes to get something passed,” said Steve Cochran, from the Environmental Defense Fund, an advocacy group.
Copyright The Financial Times Limited 2009
Published: May 22 2009 18:39
The US Congress has taken its first big step towards passing a cap-and-trade bill to tackle global warning but it faces a tough fight to get the legislation passed by the Senate.
The vote, which took place on Thursday night in the key House committee on energy and commerce, would reduce US carbon emissions to 17 per cent below 2005 levels by 2020 and by 83 per cent by 2050.
Barack Obama, president, who is pushing Congress for a bill to sign before the global climate talks in Copenhagen in December, described the committee vote as “historic” even though it has yet to be passed by either chamber.
In his statement, Mr Obama reflected the often messy compromises that were necessary to bring along the so-called “brown Democrats” from the mid-west and south whose input drastically changed the bill from the original version put forward by the president.
Mr Obama campaigned on the promise to introduce a 100 per cent auction for all carbon permits. Under the House compromise, more than 80 per cent of the permits would be given away to electricity utilities, energy-intensive manufacturers, car companies and the oil refining sector.
“The bill is historic for what it achieves, providing clean energy incentives that encourage innovation while recognising the concerns of sensitive industries and regions in this country,” said Mr Obama.
Some environmental groups also applauded the measure which they said reflected the best possible deal in the current political climate. In recent polls, tackling climate change has dropped sharply down the agenda of public concerns for ordinary Americans.
“You should not let the perfect be the enemy of the good,” said one environmental advocate. “If you look at the big picture, this would put a cap on carbon emissions, which is the main purpose.”
However, the bill, which is likely to be put to a full House vote before the summer recess in late July, faces continuing criticisms from both left and right. On the left, some environmentalists say that the decision to give away, rather than auction off, the bulk of the carbon trading permits would blunt the price signals needed to get consumers to change their behaviour.
Under one estimate, the permits given to local electricity distribution companies would result in a $750bn (€534bn, £471bn) subsidy to consumers between now and 2030 when the system would have moved to a full auction. Proponents of the bill say that step is essential to win public support by avoiding sharp rises in their electricity bills at a time when the economy is contracting.
The bill is also designed to avoid the windfall that European energy companies received by ensuring that the value of the free permits is passed on to the consumer, rather than producers. On the right, Republicans say they will continue to oppose the bill. Only one Republican voted for it, which passed the committee by a majority of 36 to 22.
A number of influential Democrats expressed doubts about the bill’s merits. “This stuff is going no place in the Senate,” said Collin Peterson, the Democratic chairman of the House agriculture committee.
“They can do whatever they want with this, but I can tell you, there is no way this is going to pass.”
Charlie Rangel, chairman of the House ways and means committee, which also has jurisdiction over the bill, hinted he might not co-operate unless healthcare reform had first been enacted.
In addition, Mr Rangel, along with many economists, has argued that a simple carbon tax would be more efficient.
“There are those who want a simple tax who have this platonic ideal in mind rather than a focus on the political realities of what it takes to get something passed,” said Steve Cochran, from the Environmental Defense Fund, an advocacy group.
Copyright The Financial Times Limited 2009
Pollution Politics and the Climate-Bill Giveaway
By DAVID WESSEL
President Barack Obama was emphatic during his campaign and after his election: The best way to fight climate change is to cap carbon emissions and auction off tradable permits to emit carbon.
"If you're giving away carbon permits for free, then basically you're not really pricing the thing and it doesn't work -- or people can game the system in so many ways that it's not creating the incentive structures that we're looking for," he told the Business Roundtable in March.
"If you're giving away carbon permits for free, then basically you're not really pricing the thing and it doesn't work -- or people can game the system in so many ways that it's not creating the incentive structures that we're looking for," he told the Business Roundtable in March.
His budget director, Peter Orszag, was blunter: "If you didn't auction the permit, it would represent the largest corporate welfare program that has ever been enacted in the history of the United States," he told the House Budget Committee in March.
This past week, Rep. Henry Waxman's House Energy and Commerce Committee passed a climate-change bill that gives away 85% of the emission permits until 2026. President Obama applauded, calling the bill "a historic leap."
Huh?
The point of climate-change legislation is to raise the price of activities that emit carbon so consumers and businesses engage in fewer of them, and favor alternatives that contribute less to climate change. Taxing carbon is one way to do that, but it's unpopular.
Cap-and-trade became the politicians' favorite alternative because it accomplished what a carbon tax would, without an explicit tax. Auctioning off the permits, economists advised, was the most efficient way to allocate the rights; steer at least some of the money raised toward research and development and to compensate lower-income consumers for higher energy prices.
Republicans called that "a light-switch tax." Democratic old-timers warned about being "BTU'd," a reference to President Bill Clinton's ill-fated energy tax. Support for auctioning permits evaporated. Under the House bill, only 15% of the emission permits will be auctioned initially.
The rest of the permits will be given away -- 2% to oil refiners, 5% to free-standing "merchant" coal plants, 9% to regulated natural-gas distributors, and so on. Permits are valuable; recipients can sell them if they don't need them.
Orszag on the Bill
White House budget director Peter Orszag, House Budget Committee, March 3, 2009:
QUESTION: [L]et me turn to the issue you were just discussing about global warming, because I believe that the vote that we will take on this budget resolution will be the first major test of our commitment here in Congress to support President Obama in implementing an effective cap and trade or cap and invest system to place the carbon -- a price on carbon pollution, and transition to an economy that is both more energy independent are more carbon independent.
Like the testimony, the hearing that you participated in over in the Ways and Means Committee with us last September, we had another hearing on this subject in Ways and Means last week. And unfortunately the Republican reaction ranged from many old fashioned global warming deniers to those who aggressively attack any role for government regulation. I would like you to explain if you would, why you and our president recommend auctioning 100 percent of pollution allowances rather than just giving away pollute free cards to the polluters.
I believe that the revenues that you've included, and I think it's conservative; it's kind of the bottom end of the revenues through 2019 in this budget outline, is about $650 billion. How is it that the American people are better served by auctioning the revenue instead of just returning the value to the polluters who created the problem?
Peter Orszag: The reason is that if you didn't auction the permit, it would represent the largest corporate welfare program that has ever been enacted in the history of the United States. In particular, all of the evidence suggests that what would occur is the corporate profits would increase by approximately the value of the permit.
So that -- whatever that is, $600 billion, $800 billion, whatever the value is, would go in a sense almost directly into corporate profits rather than being available to fund energy efficiency investments and to provide a cushion or some compensation to American households.
That is why the president, I think, has made absolutely the right choice in saying that the permit should be auctioned.
As Europe's experiment with cap-and-trade demonstrated, giving away permits can fatten polluters' profits without protecting consumers from higher prices.
"How one gives them away, what restrictions are on that gift, makes all the difference in the world for the economic effects," said Douglas Elmendorf, director of the Congressional Budget Office. In other words, Congress will put strings on the gifts. And then things get complicated.
Giving away allowances yields windfall profits -- unless the government controls prices, as it does with electric utilities. The bill gives 30% of the permits to utilities that buy electricity from power plants and then sell that power to consumers. Congress is counting on state regulators to make utilities pass the benefits of free emission permits along to consumers.
That eliminates the windfall-profits problem, but creates another one.
Remember, if electricity prices don't rise, households won't conserve and carbon emissions won't be reduced. So emissions elsewhere in the economy will have to be reduced to meet the national cap on carbon. How? By boosting prices for carbon-heavy activities besides electricity production. Can you say "gasoline"?
Waxman defenders hope state regulators will allow electricity prices to rise so people use less, and then give a quarterly or annual rebate. But Robert Stavins, a Harvard University economist, warns: "The political instinct is not to compensate, but to insulate consumers" from price increases. That's a mistake.
Unregulated industries are different. Producers will charge what the market will bear, whether they pay for permits or get them for nothing. Congress, for good reason, worried about boosting the costs for American factories that compete with factories in countries that don't require producers to buy emission permits. The Waxman bill gives such producers 15% of the permits, and more permits if they increase production in the U.S. That reduces the temptation to move production abroad but blunts the incentive to reduce pollution.
White House Statement
On Waxman-Markey bill, May 22, 2009:
"Coupled with the announcement about setting a new national policy to both increase fuel economy and reduce greenhouse gas pollution, the legislation that passed out of House Energy and Commerce Committee is a historic leap towards providing clean energy incentives that will reduce our dependence on foreign oil and create millions of new jobs all across America. The President has been clear that if there are disparate impacts on consumers and business during the transition period, they should be compensated. Make no mistake – this bill sets aggressive emissions reductions targets and provides for a program that invests in the technologies needed to bring about a clean energy future."
Among the arguments for giving away permits, two have merit. One, allocation rules can be crafted to award free permits to protect parts of the country that otherwise would see very steep increases in energy prices from a carbon cap, such as those that rely on coal. Two, this approach may be the only politically possible way to get any cap on carbon emissions through Congress.
But there's another rub: Without the auctions, there isn't any revenue. Mr. Obama's budget proposal projected more than $75 billion a year from the auction, much of which was supposed to go to his "making work pay" tax break.
The U.S. government entered the recession with promises to pay health-care and retirement benefits far greater than its anticipated revenue. It's now borrowing heavily to resuscitate the economy and rehabilitate the financial system.
The deficit is tolerable now because the recession is so deep and foreigners so willing to lend to the U.S. at low rates. But at some point, like it or not, the federal government will need more revenue. Giving away emission permits instead of auctioning them crosses one big potential source of revenue off the list.
Write to David Wessel at capital@wsj.com
This past week, Rep. Henry Waxman's House Energy and Commerce Committee passed a climate-change bill that gives away 85% of the emission permits until 2026. President Obama applauded, calling the bill "a historic leap."
Huh?
The point of climate-change legislation is to raise the price of activities that emit carbon so consumers and businesses engage in fewer of them, and favor alternatives that contribute less to climate change. Taxing carbon is one way to do that, but it's unpopular.
Cap-and-trade became the politicians' favorite alternative because it accomplished what a carbon tax would, without an explicit tax. Auctioning off the permits, economists advised, was the most efficient way to allocate the rights; steer at least some of the money raised toward research and development and to compensate lower-income consumers for higher energy prices.
Republicans called that "a light-switch tax." Democratic old-timers warned about being "BTU'd," a reference to President Bill Clinton's ill-fated energy tax. Support for auctioning permits evaporated. Under the House bill, only 15% of the emission permits will be auctioned initially.
The rest of the permits will be given away -- 2% to oil refiners, 5% to free-standing "merchant" coal plants, 9% to regulated natural-gas distributors, and so on. Permits are valuable; recipients can sell them if they don't need them.
Orszag on the Bill
White House budget director Peter Orszag, House Budget Committee, March 3, 2009:
QUESTION: [L]et me turn to the issue you were just discussing about global warming, because I believe that the vote that we will take on this budget resolution will be the first major test of our commitment here in Congress to support President Obama in implementing an effective cap and trade or cap and invest system to place the carbon -- a price on carbon pollution, and transition to an economy that is both more energy independent are more carbon independent.
Like the testimony, the hearing that you participated in over in the Ways and Means Committee with us last September, we had another hearing on this subject in Ways and Means last week. And unfortunately the Republican reaction ranged from many old fashioned global warming deniers to those who aggressively attack any role for government regulation. I would like you to explain if you would, why you and our president recommend auctioning 100 percent of pollution allowances rather than just giving away pollute free cards to the polluters.
I believe that the revenues that you've included, and I think it's conservative; it's kind of the bottom end of the revenues through 2019 in this budget outline, is about $650 billion. How is it that the American people are better served by auctioning the revenue instead of just returning the value to the polluters who created the problem?
Peter Orszag: The reason is that if you didn't auction the permit, it would represent the largest corporate welfare program that has ever been enacted in the history of the United States. In particular, all of the evidence suggests that what would occur is the corporate profits would increase by approximately the value of the permit.
So that -- whatever that is, $600 billion, $800 billion, whatever the value is, would go in a sense almost directly into corporate profits rather than being available to fund energy efficiency investments and to provide a cushion or some compensation to American households.
That is why the president, I think, has made absolutely the right choice in saying that the permit should be auctioned.
As Europe's experiment with cap-and-trade demonstrated, giving away permits can fatten polluters' profits without protecting consumers from higher prices.
"How one gives them away, what restrictions are on that gift, makes all the difference in the world for the economic effects," said Douglas Elmendorf, director of the Congressional Budget Office. In other words, Congress will put strings on the gifts. And then things get complicated.
Giving away allowances yields windfall profits -- unless the government controls prices, as it does with electric utilities. The bill gives 30% of the permits to utilities that buy electricity from power plants and then sell that power to consumers. Congress is counting on state regulators to make utilities pass the benefits of free emission permits along to consumers.
That eliminates the windfall-profits problem, but creates another one.
Remember, if electricity prices don't rise, households won't conserve and carbon emissions won't be reduced. So emissions elsewhere in the economy will have to be reduced to meet the national cap on carbon. How? By boosting prices for carbon-heavy activities besides electricity production. Can you say "gasoline"?
Waxman defenders hope state regulators will allow electricity prices to rise so people use less, and then give a quarterly or annual rebate. But Robert Stavins, a Harvard University economist, warns: "The political instinct is not to compensate, but to insulate consumers" from price increases. That's a mistake.
Unregulated industries are different. Producers will charge what the market will bear, whether they pay for permits or get them for nothing. Congress, for good reason, worried about boosting the costs for American factories that compete with factories in countries that don't require producers to buy emission permits. The Waxman bill gives such producers 15% of the permits, and more permits if they increase production in the U.S. That reduces the temptation to move production abroad but blunts the incentive to reduce pollution.
White House Statement
On Waxman-Markey bill, May 22, 2009:
"Coupled with the announcement about setting a new national policy to both increase fuel economy and reduce greenhouse gas pollution, the legislation that passed out of House Energy and Commerce Committee is a historic leap towards providing clean energy incentives that will reduce our dependence on foreign oil and create millions of new jobs all across America. The President has been clear that if there are disparate impacts on consumers and business during the transition period, they should be compensated. Make no mistake – this bill sets aggressive emissions reductions targets and provides for a program that invests in the technologies needed to bring about a clean energy future."
Among the arguments for giving away permits, two have merit. One, allocation rules can be crafted to award free permits to protect parts of the country that otherwise would see very steep increases in energy prices from a carbon cap, such as those that rely on coal. Two, this approach may be the only politically possible way to get any cap on carbon emissions through Congress.
But there's another rub: Without the auctions, there isn't any revenue. Mr. Obama's budget proposal projected more than $75 billion a year from the auction, much of which was supposed to go to his "making work pay" tax break.
The U.S. government entered the recession with promises to pay health-care and retirement benefits far greater than its anticipated revenue. It's now borrowing heavily to resuscitate the economy and rehabilitate the financial system.
The deficit is tolerable now because the recession is so deep and foreigners so willing to lend to the U.S. at low rates. But at some point, like it or not, the federal government will need more revenue. Giving away emission permits instead of auctioning them crosses one big potential source of revenue off the list.
Write to David Wessel at capital@wsj.com
How Boeing Fights Climate Change
The efficiency of jets has increased by 70% over the past 50 years.
By SCOTT CARSON
Addressing climate change is a particularly difficult challenge for commercial aviation. While technologies like batteries work for cars, they don't work for airplanes that require powerful propulsion systems. The good news is that there are things we can do to significantly reduce the carbon footprint of commercial planes -- and we're well on our way.
At Boeing, we're tackling carbon emissions on three fronts.
First, we are working to make each new generation of airplane lighter and more fuel efficient. There's plenty of incentive to develop more efficient airplanes. Historically, fuel has been the airlines' second-biggest operating expense next to labor. Last year, with oil reaching $140 a barrel, fuel costs even outstripped labor costs, rising to 40% of total airline operating expenses. So airlines have demanded increased efficiency from airplane and engine manufacturers. And manufacturers have responded big time. Over the past 50 years, the efficiency of commercial jets has risen an astounding 70%. This means that carbon emissions per mile flown have dropped 70% -- all without a regulatory requirement for greenhouse gas emissions.
That said, we believe properly structured regulations could be useful. It's not often that an industry asks for additional regulation, but Boeing, GE and other airplane and engine manufacturers are convinced that a fuel-efficiency standard for new airplanes is an effective way to drive the development of fuel-saving technologies.
Specifically, we're advocating for an efficiency standard for new airplane designs. An efficiency standard would be straightforward and easier to implement than a standard for aircraft operators. And it would help ensure that we continue to see the kind of technological and environmental breakthroughs we pioneered with the 787. The International Civil Aviation Organization should define the new standard, just as it successfully established global standards for both airplane noise and oxides of nitrogen emissions.
While it's important to make airplanes more efficient, it's also critical that the system in which they fly is modernized. That's why our second major initiative is the work we're doing to improve air-traffic management.
Fortunately, the technologies needed to give controllers and pilots a more precise picture of weather conditions and airplane positions, and the networking technologies needed to instantaneously share that information, already exist. Precision information, commonly shared, safely enables such fuel-saving and emissions-reducing operational changes as continuous, low-power descents, more direct routing, closer spacing, and curved approaches to landing.
The challenge is getting the government to make the Federal Aviation Administration's plan for implementing these technologies, called NextGen, a priority. The government should commit long-term funding to ensure that it's completed as swiftly as possible.
Third, we have been testing various advanced, sustainable biofuels with the goal of finding renewable fuels for aviation that don't compete with food crops for land and water and that emit 50%-80% less carbon than petroleum. We have conducted test flights using mixtures of standard jet fuel and several different sustainable biofuels, among them fuels made from algae and camelina (a plant that produces seeds that aren't used for food). All performed extremely well in flight. What's more, we have demonstrated that these and other sustainable biofuels have a lower freeze point than petroleum -- a very important characteristic for aviation. They also can have higher energy content per gallon.
We're confident that sustainable biofuels will be price competitive with petroleum in the long-term. But government help -- consistent with international trade agreements -- is needed to get an aviation biofuels industry up and running. One proposal is that government could provide loans to refiners to make biofuels competitive when the price of petroleum is low and get repaid when the price of petroleum is high. We hope government officials will seriously consider such ideas because biofuels, in our view, are the ultimate answer to aviation's carbon-emissions challenge.
These three initiatives represent the best path forward for reducing aviation's carbon footprint. Establishing an international fuel-efficiency standard, modernizing air-traffic management, and commercializing an aviation biofuels industry would seriously address the issue of climate change. Our industry is eager to take on this challenge, but we need government help to make it happen.
Mr. Carson is president and CEO of Boeing Commercial Airplanes.
By SCOTT CARSON
Addressing climate change is a particularly difficult challenge for commercial aviation. While technologies like batteries work for cars, they don't work for airplanes that require powerful propulsion systems. The good news is that there are things we can do to significantly reduce the carbon footprint of commercial planes -- and we're well on our way.
At Boeing, we're tackling carbon emissions on three fronts.
First, we are working to make each new generation of airplane lighter and more fuel efficient. There's plenty of incentive to develop more efficient airplanes. Historically, fuel has been the airlines' second-biggest operating expense next to labor. Last year, with oil reaching $140 a barrel, fuel costs even outstripped labor costs, rising to 40% of total airline operating expenses. So airlines have demanded increased efficiency from airplane and engine manufacturers. And manufacturers have responded big time. Over the past 50 years, the efficiency of commercial jets has risen an astounding 70%. This means that carbon emissions per mile flown have dropped 70% -- all without a regulatory requirement for greenhouse gas emissions.
That said, we believe properly structured regulations could be useful. It's not often that an industry asks for additional regulation, but Boeing, GE and other airplane and engine manufacturers are convinced that a fuel-efficiency standard for new airplanes is an effective way to drive the development of fuel-saving technologies.
Specifically, we're advocating for an efficiency standard for new airplane designs. An efficiency standard would be straightforward and easier to implement than a standard for aircraft operators. And it would help ensure that we continue to see the kind of technological and environmental breakthroughs we pioneered with the 787. The International Civil Aviation Organization should define the new standard, just as it successfully established global standards for both airplane noise and oxides of nitrogen emissions.
While it's important to make airplanes more efficient, it's also critical that the system in which they fly is modernized. That's why our second major initiative is the work we're doing to improve air-traffic management.
Fortunately, the technologies needed to give controllers and pilots a more precise picture of weather conditions and airplane positions, and the networking technologies needed to instantaneously share that information, already exist. Precision information, commonly shared, safely enables such fuel-saving and emissions-reducing operational changes as continuous, low-power descents, more direct routing, closer spacing, and curved approaches to landing.
The challenge is getting the government to make the Federal Aviation Administration's plan for implementing these technologies, called NextGen, a priority. The government should commit long-term funding to ensure that it's completed as swiftly as possible.
Third, we have been testing various advanced, sustainable biofuels with the goal of finding renewable fuels for aviation that don't compete with food crops for land and water and that emit 50%-80% less carbon than petroleum. We have conducted test flights using mixtures of standard jet fuel and several different sustainable biofuels, among them fuels made from algae and camelina (a plant that produces seeds that aren't used for food). All performed extremely well in flight. What's more, we have demonstrated that these and other sustainable biofuels have a lower freeze point than petroleum -- a very important characteristic for aviation. They also can have higher energy content per gallon.
We're confident that sustainable biofuels will be price competitive with petroleum in the long-term. But government help -- consistent with international trade agreements -- is needed to get an aviation biofuels industry up and running. One proposal is that government could provide loans to refiners to make biofuels competitive when the price of petroleum is low and get repaid when the price of petroleum is high. We hope government officials will seriously consider such ideas because biofuels, in our view, are the ultimate answer to aviation's carbon-emissions challenge.
These three initiatives represent the best path forward for reducing aviation's carbon footprint. Establishing an international fuel-efficiency standard, modernizing air-traffic management, and commercializing an aviation biofuels industry would seriously address the issue of climate change. Our industry is eager to take on this challenge, but we need government help to make it happen.
Mr. Carson is president and CEO of Boeing Commercial Airplanes.
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