Some might ascribe that rise to the shaky financial markets, to fear and anxiety about the global economy. Underlying that obvious connection, however, is the equally obvious fact that the United States and the world have become far too dependent on oil. Oil is the new gold. To investors it's safe harbor in an economic storm.
So the concept that the Western Climate Initiative (cap and trade framework announced today at http://www.westernclimateinitiative.org/) could raise energy prices is 1) not very convincing in today's economy, with huge harmful energy price fluctuations occurring day-to-day, month-to-month, and year-to-year; and 2) improbable in light of economic analysis.
Economic analysis? In a penetrating and thorough economic analysis two years ago, commissioned by the British government, Sir Nicholas Stern showed that the costs of addressing global climate change were minute compared to the costs of climate change itself (http://www.hm-treasury.gov.uk/independent_reviews/stern_review_economics_climate_change/sternreview_summary.cfm). Impacts of converting to a lower-emissions economy, as a percentage of gross world product, were calculated in the low single digits over coming decades.
That global analysis was helpful. More pertinent to today's issuance of a regional emissions trading system by seven western states is the analysis of California's emissions global warming program recommendations, released last week by the California Air Resources Board (http://www.arb.ca.gov/cc/scopingplan/document/economic_analysis_supplement.pdf).
The main findings of the recent California analysis:
The California economic analysis is conservative. It "likely understates" the positive impact of emissions reduction because it can't adequately capture price risk. It can't predict sharp, unexpected costs of our current energy system like those experienced in the last five or six years, and most painfully in the past year, when the price of oil rose far beyond the high-price scenarios the U.S. Energy Information Administration.
In 2006 the California Public Utilities Commission found that energy efficiency efforts over the previous 20 years had produced enormous economic benefit for Californians, whose per capita electricity consumption has stayed level since about 1985 (while average U.S. consumption rose about 60%). All those new hot tubs, plasma TV's, and computers running all night? The system handled them, at lower cost. Customer savings with cost-effective energy efficiency, in 2006, were estimated at over $1 billion per year (ftp://ftp.cpuc.ca.gov/Egy_Efficiency/CalCleanEng-English-Aug2006.pdf). Being efficient isn't expensive; it's the highway to affordability. Under the WCI's new regional emissions cap and trade program, it will be the first place for cost savings throughout the economy.
Today Americans spend about $500 billion to import foreign oil. Using energy more efficiently and providing new alternatives will allow the western states to keep some of that money flowing in the regional economy. Providing low-emissions alternatives and creating efficiency also means we can avoid the most expensive schemes to produce more and more oil - heating shale, drilling in marginal geographies, forcing more and more oil out of expiring fields through tertiary recovery. Some of these higholy costly schemes make sense only in an economy that is too dependent on oil - and is ignoring viable, practical alternatives. WCI will mobilize efficiency and alternatives, creating competition and choice in the energy marketplace.
Of course there are other non-economic costs to today's energy system. Should we sacrifice the Rockies to a tight network of natural gas and oil fields and pipelines? Should we drill everywhere, including the Arctic National Wildlife Refuge and offshore, before converting to new energy sources? Should we continue creating conditions causing health problems like asthma in our cities and oilfield/refining communities? The list of human and environmental costs of not changing our energy systems is long and scary.
The Western Climate Initiative is a bold step forward - but it isn't a costly step. Conventional energy resources are already growing more and more expensive, and the WCI offers a route to a more affordable, profitable, inclusive, and sustainable energy future in the western United States.
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First, it commits to a serious new climate protection goal: a 15% reduction in 2005 global warming pollution by 2020. More and faster might be better, but these are fast-growing states and they must start with turning their emissions trends around.
Second, the agreement brings together seven governors (and a number of Canadian premiers) from disparate states and political persuasions. Togetherness, of course, is not a result in itself. But achieving change is more likely when a larger, more diverse group of elected leaders work together. Has there been such a diverse band of climate protagonists anywhere else on earth? Utah, Arizona - very conservative states. California, Oregon, Washington - greenish-blue states. New Mexico, Montana - top producers of coal, oil and natural gas. Only when Russia joined the Kyoto Protocal several years ago has there previously been a similar meeting of strange bedfellows.
These states have all done state-level climate plans. Now they are taking their work to the regional level, and setting up a market-based system to control emissions and create economic conditions encouraging energy efficiency and new technologies. Unfortunately, the transition to a new energy economy isn't going to happen without this kind of mechanism. It takes some foresight and some courage for these governors and premiers to try tackling this problem together when they could have just pointed fingers at each other.
Some of these governors and premiers will have trouble getting buyin at home, from industry, from legislative and regulatory bodies. But they are stepping out instead of hiding behind the refrigerator.
Third, the WCI is a very encompassing proposal. The northeast states include about a third of the region's emissions in their trading system; the European Union includes about 40% of its members' emissions. The WCI will be the first to include transportation (in 2015, after a startup for other emitters such as electricity producers and oil and gas operations in 2012) and will include almost 90% of the region's emissions. This sets a good example for would-be emissions trading systems all over the world.
The WCI proposal is also encompassing just for the sheer size of the emissions footprint in the participating states and provinces. Taken together, these jurisdictions would constitute one of the world top six or seven economies.
There are criticisms of the WCI - it has a horribly low threshold for the percentage of permits that will be issued by allocation rather than sold at auction. This could allow some emitters actually to make a profit from their free permits which they could turn around and sell just by (for instance) deciding to shutter an old, dirty facility that was already destined for the dungheap. It would be a far better thing to require everyone to buy permits at the beginning rather than let government decide who should have one. The individual states can achieve these higher auction percentages, the way California's Public Utilities Commission recently proposed 100% auction of permits by 2016, creating revenue for consumer benefits and eliminating t he possibility of windfall profits for companies that might score unneeded emissions permits in a politically overseen free-permit allocation process.
The West is already experiencing some disturbing symptoms of global warming - heat, drought, wildfire. NRDC's excellent report on western climate impacts, Hotter and Drier, released in March '08 (http://www.nrdc.org/globalWarming/west/west.pdf), gives a science-based sense of what is happening and what we can expect in the West. It isn't a pretty picture. Imagine Denver feeling like the Chihuahuan Desert, Phoenix being ten or fifteen degrees hotter on a typical summer day. Imagine longer, hotter summers, with increased air conditioning demand. Imagine rivers flooding heavily in the spring as the snow season shortens and the snowmelt is compacted into a much shorter timeframe. Imagine rising sea levels and damage to coastal infrastructure (ports, levees, sewer plants, roads), like a slow-motion West Coast tsunami.
These are basic changes affecting our lifestyle and our environment that will affect everything we know about our western communities. In the Mountain West, where water already sets limits on activity, we will need to learn how to consume even less. Storage won't do the job, either. Longer summers will mean more evaporation, making surface water storage less and less practical.
Opponents of WCI who point to cost and science are wrong. The science is clear and peer-reviewed. It doesn't matter whether a political candidate or climate skeptic says he or she is not convinced about global warming, or whether they say there's no proof and a list of 30,000 scientists disagrees with the Intergovernmental Panel on Climate Change. The world's leading climate experts - thousands of them - have done rigorous, conservative research and modeling over two decades, and they believe that global warming is happening, is accelerating, and is largely caused by human activity (mainly the combustion of fossil fuels, although warming itself will inevitably release vast amounts of methance from permafrost zones if we don't act to reduce emissions quickly). As for cost, our current model of procuring and distributing energy is obviously very expensive. In many cases, for everyday folks, it precludes consumer competition and choice (for instance, electric cars that could be operated at a small fraction of the cost and environmental impact of today's petroleum-based fleet). These changes are going to save money over time. And they will keep our dollars from turning into petrodollars overseas.
No one says the Western U.S. can solve the international climate crisis by itself. Instead, the West is protecting its own interests, and helping the nation achieve energy efficiency and self-sufficiency, by moving ahead with regional climate policy. Someday, there will be leadership in Washington to take note of the states' progress, and we will see a national program. Till that day dawns, the West is doing what it can.
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