While the results of the 2010 midterm elections are still be digested, the impact on the energy industry seems likely to be net positive if you believe in a balanced energy future that includes using more of America’s domestic energy potential. If you are the American Wind Energy Association you probably are still drinking to ease your pain. This gallows humor is meant to suggest that the GOP and TEA Party view that America should have a well rounded, domestic product focused energy strategy is likely to move forward in search for common ground with the Democrat view of climate change action and renewable energy.
From RES to CES. The panel said that AWEA’s push for a national renewable energy standard (RES) had little chance of passing but a modified clean energy standard (CES) that included tax support for building new nuclear power plants and investing in clean coal technology along with continued tax credits and loan guarantees for renewable energy might find common ground. As you can imagine adding tax supported competition for new baseload generation from zero emission nuclear power and low emissions from clean coal carbon capture and sequestration was not what the wind boys wanted to hear on top of their other problem competing with China. But that is where they are like it or not so the debate is shifting toward finding a compromise number higher than the 15% RES proposed by AWEA but allowing nuke and clean coal to count. Unless you raise the target it becomes a zero-sum game with the larger baseload plants swamping the smaller wind and solar plants. Do I hear 33% anybody?
Waxman-Markey is Dead and AB32 Got a Stay of Execution. It seems clear that hell will freeze over before any kind of carbon tax bill makes it out of Congress. Even the president admitted this was dead until at least after the next Presidential election. Even in California where voters rejected Proposition 23 to suspend AB32 the California Global Warming Solutions Act those same voters approved Proposition 26 which reclassified administrative fees and impact fees just like CARB expects to impose to tax carbon releases under AB32 as a “tax” and thus requires a 2/3 vote of the Legislature or voter approval. Carbon taxes are going to be radioactive in this new political environment.
New Nukes. It is time to step up the nuclear licensing, standards and regulatory approval process for new standard technologies for smaller scale, safe nuclear power plants. We should create a competitive market among the major architect-engineers and take advantage of the construction experience in other countries while America has been on the nuke sidelines to accelerate our go-to-market strategies. America needs more baseload power for the future and now is the time to build the next generation of nukes to expand the current fleet and progressively replace the oldest units. And we need to do this BEFORE inflation eats our lunch and sends us déjà vu into the same death spiral cost overrun conditions that hurt the first generation nuclear units.
Drill Baby Drill. Domestic oil and gas production won new champions in this election in the belief that America should produce more of its own energy book and put its best technology to work to do so efficiently, cleanly and effectively. Horizontal drilling and hydraulic fracturing are America’s current technology wonder of the world and we should use to our own advantage. States like New York and Pennsylvania that seek to restrict the use of these technologies in the Marcellus shale risk being left behind with higher price energy costs and lower tax revenues.
Will Clean Coal still be King? The technology risk associated with carbon capture and sequestration and other clean coal technologies make them very costly and commercially un-viable today. More R&D is needed to unlock that potential and drive down the cost. There is a role for the government in encouraging and supporting such R&D efforts but the coal industry must now step up and spend more of its own money to extend its useful life. Similarly, creating a market for the captured carbon and turning it into useful CO2 gathering products makes perfect sense and also need to be supported. Meanwhile, add scrubbers and other pollution control equipment to the current units and mitigate their negative impacts.
EPA and New Rules for Regulatory Accountability. A likely scenario to a wounded President unable to get his energy and environmental agenda through a disbelieving Congress is to use his executive authority to regulate everything that moves in the energy industry through the US EPA and other Federal agencies. The new Republican majority in the House will need to guard against this over-reach. And the TEA party members will probably welcome one more revolutionary idea—all Federal regulations must reasonably balance policy objectives intended with the public and economic interests of the nation and be submitted to Congress for an up or down vote. Give Congress 90 days from submittal to act or the rules go into effect but force legislative accountability for regulatory actions. Also sunset every regulation at least every ten years so we have to rethink this stuff periodically. If the goal is to control the size and reach of government and force it to balance interests reasonably the Congress must fix the problem of regulatory free will.
There ends the rant!
Proposition 23 got a stay of execution with 60% of Californians favoring the Global Warming Solutions Act. California voters see themselves as responsible environmental advocates and thus are emotionally and–some say—spiritually tied to anything green.
There is much to admire in this willingness to lead rather than follow. California’s leadership in energy efficiency, as one example, has succeeded beyond all expectations in reducing the energy intensity of the state to 50% of the national average.
But Politico reports that in the rest of the country 30 House members who voted for Waxman-Markey were defeated Tuesday. With even a growing number of Democrats lining up against Cap and trade legislation and Senator-elect from West Virginia won a tight race by running a commercial using his gun to shoot a hole through Waxman-Markey nailed to a Mountaineer tree.
I don’t think California is going to get much help with AB32 from Congress. And to make matters worse, several states are lined up to sue California over AB32 because, they allege, just like ObamaCare, AB32 violates the interstate commerce clause of the US Constitution by imposing California terms and conditions on out of state power producers and manufacturers.
And California voters also approved Proposition 26 which reclassifies administrative impact fees like those the California Air Resources Board expects to use to enforce AB32 as “taxes” and thus subjects them to the same 2/3 vote or voter referendum as increases in income or sales taxes.
Jerry Brown said it best in his remarks after the election summarizing the voters message. He said California voters believe in creating a clean energy economy but they also said loud and clear that the state should take it hand out of our pocket.
It won’t be easy being green even though Proposition 23 was defeated.
Did you read the op-ed by TJ Rogers in the WSJ today? He describes the real choice we have here in California and elsewhere between growth and the environment. It’s not a throw the baby out so we can keep the bath water lesson. That is improving environmental quality does not have to destroy jobs. But that is often the unintended consequence of the cumulative impact of rules and regulations that seem reasonable at the moment but haunt us over time.
California is an example of both extremes at work. Some of the early environmental policy decisions made in California involved establishing energy efficiency standards on a wide range of products sold in the state. Yes manufacturers opposed such unilateral actions, but California lived into it best traditions as laboratory and trendsetter in focusing on reducing wasteful energy use. Today the energy intensity in California of about 50% of the national average and the size of the California consumer market meant that manufacturers could do well by doing good by adopting the California efficiency standards for the products sold across the United States.
Similarly, setting renewable energy portfolio standards requiring utilities to get 20% of energy consumed from clean, renewable sources indeed jump started the market for wind and solar energy and a range of other technologies and California utilities are closing in on the 20% targets.
But TJ Rogers talks about his company’s acquisition of money losing Sun Power and how the decision needed to save the company from bankruptcy and return it to profitability meant moving the solar panel production from increasingly high cost California to lower cost Malaysia while growing its sales and customer service functions in the California market. Eventually, he said 4000 jobs went to Malaysia while 800 new jobs were created in California.
Over time the cost of doing business in California is having impacts that even threaten our environmental goals. While we still generate ideas and our venture capital in Silicon Valley builds new companies and new products they can’t afford to build them here and thus our high cost status deprives us of the job creating benefits of that cleantech investment as R&D turns into manufacturing.
Proposition 23 on next week’s ballot would suspend AB32 the California Global Warming Solutions Act until unemployment in the state is below 5.5% for four consecutive quarters. As I write this the polls suggest that California voters are likely to vote the proposition down. Doing so will not improve the odds that California will achieve its greenhouse gas emission reduction targets but it may cost the state as many as 1.1 million jobs as business shifts its manufacturing and other operations out of state. Even if California held its GHG emissions steady at it 0.36 gigaton 1990 levels (the target for 202 under AB32) TJ Rogers described the impact as reducing the total US GHG emissions of 5.98 gigatons in 2007 to 5.94 gigatons. NONE of those emissions would actually go away they are just exported to other markets along with California jobs.
And that’s the lesson, when California policy makers stick to environmental strategies that encourage real changes in energy intensity and use that is lasting we can have a profoundly positive environmental impact within the state and well beyond our borders. But when those policies are a zero-sum game that induces business to go elsewhere California forfeits both its environmental leadership and its economic growth and standard of living.
So pay attention to how California voters decide three propositions on the ballot: Prop 23 on suspends the Global Warming carbon tax, Proposition 24 adds $1.3 billion in new taxes on business by eliminating investment tax credits on new plant and equipment for business growth and Proposition 25 reduces the legislative votes required to pass a budget from 2/3 to a simple majority.