Introductory Energy Post and the Clean Power Plan

Hi.  My name is Ken Malloy and I am a Senior Scholar with the Mark H.  Berens Family Charitable Foundation, the non-profit organization that publishes this website, TheRightInsight.org.

My expertise is in the integration of energy, environmental, and economic (E³) for short) policy.  I hesitate to use the term “energy policy” alone to describe my expertise.  I have found that energy policy issues have come to intersect so significantly with economics and environment that the term energy policy can sometimes become too limiting.  I also found that too often experts were organized into silos of one discipline and only marginally qualified in the other disciplines to make sound energy policy decisions that have strong environmental and economic implications.  I have worked at the intersection of these three disciplines for three decades, especially in electricity and the radical restructuring of natural gas markets to promote wellhead and retail competition.

A good example of this type of confusion relates to oil imports.  From an energy/security policy perspective, many analysts argue that imports of oil from hostile regions are a bad thing and thus they support various policies to reduce reliance on oil, focusing on vehicle efficiency standards, ethanol requirements, petroleum reserves, etc.  An environmentalist might regard using oil as a problem because it depletes a finite resource or causes pollution and thus support policies that either reduce demand for oil, i.e., vehicle efficiency standards, or establish technology standards to reduce pollution, i.e., a catalytic converter.  Most economists, assuming reasonably competitive global markets, would not be very worried about oil imports or consuming a “finite” resource and few economists support technology standards as the most efficient means of dealing with the third-party effects of pollution.  Thus, I have concentrated my efforts on understanding the integration of policy in order to promote a sound and efficient energy industry.

In addition to the integrated analysis issue, I also believe that energy policy can be misleading in that I believe most people immediately think of “fuels” (such as oil, natural gas, or coal) when they hear “energy policy.”  In my view the most important “energy” policy issue is the electric system.  Yet, at least at the federal level, the electric system receives decidedly less attention than do fuel issues.  But as you will see in future blog posts, I think that the electric system presents more challenges for the future than does the “fuels” industries.

So, who am I?  I have been analyzing energy issues since 1978.  I was a law professor that taught several courses that had as one of their defining characteristics the line between economic activity that would ordinarily be limited only by competition and free markets and the interests of the state or the federal government in “regulating” or affecting the competitive rules related to such activity.  The period between 1978 and 1981 was a surprisingly fertile time for this focus since the Federal Government was deregulating airlines (1978), railroads (1980) and trucking (1980), but heavily regulating energy (1978).

In 1981, I joined the Reagan Administration at the Federal Energy Regulatory Commission and began working on the rules related to price controls of natural gas under the Natural Gas Policy Act of 1978.  I eventually continued that work at the US Department of Energy until 1992, where I picked up issues relating to oil pipeline deregulation.  The radical reforms that were adopted for natural gas in the 1980s and early 1990s and the dramatic success of those reforms informs much of my analysis of E³ policy. After 1992, I also began working on issues related to the electric industry competition.  For reasons detailed in other sections of TheRightInight.org, the reform of the electric industry has not been as successful as other connective industry reforms.

The work I did promoting competition and deregulation of natural gas for 11 years turned out to be very successful.  The nation increasingly relies on natural gas as an abundant energy source that is the cleanest burning fossil fuel, is plentiful, is reasonably priced and is responsive to market forces.  Not bad for an energy resource that both the Ford and Carter Administrations had declared in short supply.   Even a liberal professor at Berkley Professor Richard Muller,  with a PhD in physics concluded:

Natural-gas use will grow rapidly, not just in the United States but around the world. This fuel is going to be so important that [the President] might consider launching a nationwide program, called something like The Natural Gas Economy, that recognizes the value of the new gas source and develops a coherent policy and infrastructure to encourage its exploitation.[1]

While I don’t agree with his conclusion regarding the need for a “nationwide program,” I share his sentiment that we have experienced a remarkable transformation in natural gas markets over the last two decades and that natural gas will continue to play an increasingly significant role in the US’s energy future.

After leaving DOE in 1996, I worked for an international consulting firm for three years helping companies understand the significance of the transition between previously heavily regulated natural gas and electric markets and the emergence of policies relying on competition in those markets.  Then, I started a think tank on issues of competition in the electric industry from 1999-2006.  I then started another think tank in 2009 to focus more broadly on E³ policy” issues related to that enigmatic line between free markets and government policy, CRISIS & energy markets!, of which I am the Executive Director.

Two issues led to this broader scope for the think tank, the impact of the BP Deepwater Horizon on the resurgence of the debate about oil policy and the growing impact of global warming/climate change on E³ policy.  I realized that increasingly a “crisis” was too often used to justify interventions into energy markets that were ill-advised.  (Full disclosure, most recently I was the energy and environment advisor to the presidential campaign of Dr. Ben Carson.  You can find the document I worked on for the campaign here.)

TheRightInsight has asked me to write three types of documents.  The first is a comprehensive summary of “energy policy.”  Energy Policy 1.0 has been completed and can be found here.  The goal of Energy Policy 1.0 is to provide a broad, market-oriented view of the current state of E³ policy for an audience that is not expert in energy policy, a Wikipedia on E³ policy but from a free-market perspective.  I will provide two types of updates to this article.  The first type of update will be minor technical corrections or changes as the underlying facts change.  These changes will be highlighted in the document on the website so that you can see the evolution of the document (for example Energy Policy 1.1).  The second type of change will possibly be an Energy Policy 2.0 if at some point in the future it becomes necessary to publish a new edition of the article, as for example might be the case with new legislation or dramatically new policies in President Trump’s Administration.

The second type of document is a Commentary.  Commentaries will be 6 to 10 page  analyses of a single E³ issue that is more in-depth and analytical than is found in the more general Energy Policy article.  We anticipate publishing a Commentary about once a month.  So far we have published three Commentaries, oil markets, electricity, and the consensus on climate change.

The third type of document is a Blog Post.  The document you are currently reading is the first Blog Post.  Our goal is to publish a Blog Post on an energy issue once a week.  A Blog Post is typically about 600 words, though the nature of this first Blog Post exceeds that length.

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That completes my introduction to this effort now let’s get on to substance.

Right now, the most important E³ issue is the Clean Power Plan (CPP) issued by the US Environmental Protection Agency (EPA).  Ed Reid, another Scholar with the Mark H.  Berens Family Charitable Foundation, has written a recent blog posting on the CPP broadly focusing on the impact on coal and the fact that both industry and Congress have requested that the Supreme Court issue a stay of the EPA’s CPP.  (Mr. Reid has also published a lengthy Article on the science of climate change for TheRightInsight.)

President Obama announced the final version of the CPP on August 3, 2015.  The Supreme Court issued a stay of the CPP on February 9, 2016, thereby temporarily preventing it from being implemented until the Supreme Court has an opportunity to review the Plan after the courts below had completed their review.

This is the setup to possibly the most significant E³ decision in the history of the United States (dramatic music playing in the background).  Both the Democratic and Republican Parties had specific language in their 2016 party platforms on the CPP.  Not surprisingly, the Republican Platform advocates repeal of the CPP, while the Democratic Platform supports the CPP.

So in plain English what is the CPP?

There is considerable debate about the impact of carbon emissions on global warming and what should be done about it.  Energy Policy 1.0 has a broad discussion of climate change and E³ Commentary 3 is an expanded discussion of the climate change “consensus.”  This Blog Post is not the place to engage in that debate.  Rather, it merely explains the significance of the CPP’s role in the national climate change debate.

Electricity generated from coal and natural gas emits carbon dioxide and about 66% of the Nation’s electricity is generated from coal and natural gas.  Generating electricity with fossil fuels accounts for about 40% of manmade carbon dioxide emissions.  If one accepts that carbon emissions cause some global warming that will be catastrophic at some point in the future, then one strategy for dealing with global warming is to reduce carbon emissions from the generation of electricity.  (Recognize, however, that it is not the only possible strategy.  Even some strong believers in climate change harm recognize the limitations of this strategy.)

Congress has not declared a national policy on climate change.  They came pretty close in 2009 with the Waxman-Markey bill, which passed the House but not the Senate (even though the Democrats had enough votes to overcome a possible Republican filibuster).

Without a national policy, chaos has reigned in energy policy relating to climate change.  Even if one is an ardent believer in the likelihood that carbon emissions will inevitably have catastrophic consequences, a fair-minded person would have to admit that the current pattern of policy implementation is haphazard, dysfunctional, costly, and ineffective.

The CPP, if allowed to go into effect, will require each state to develop a plan for its electric utilities to meet certain carbon emissions targets set by the Environmental Protection Agency.  The CPP gives states some flexibility to meet the carbon emissions target.

The CPP permits a combination of three strategies to attain a state’s carbon reduction targets. The first is to improve the efficiency of existing coal plants, thus allowing the same amount of coal to produce more electricity thereby reducing carbon emissions per unit of electricity. The second is to increase the use of natural gas generation, thereby reducing carbon emissions since natural gas emits about half as much carbon dioxide as does coal. The third is to increase the use of renewable energy. In addition, states can also promote increased energy efficiency as a way of using less energy, thus reducing the demand for electric generation. If a state fails to file a plan that meets the target, the rule allows the EPA to develop and implement a federal plan for that state. (For some reason, the EPA does not encourage the use of new nuclear power plants to reduce carbon emissions.  Nuclear power does not emit any carbon.)

There are several key points to be made about the CPP:

1. The CPP requires a 32% reduction in carbon emissions over 2005 levels by 2030.
2. It  is based on the premise that climate change is a serious problem.  While few scientists disagree that carbon emissions have an impact on the greenhouse effect or that the earth’s temperature has had a small increase during the 20^th Century, there is still considerable debate about whether the continuing impact of carbon emissions will be catastrophic.  For almost two decades, there has not been any significant warming as predicted by the climate models, the so-called “pause.”
3. If climate change will not cause catastrophic consequences, then actions such as the CPP are unnecessary and impose significant costs on the economy. Given that there are scarce resources available to address society’s needs, it would be wasteful to dedicate those resources to a problem that does not exist.
4. Even if one assumes that climate change is a serious problem, there are a variety of policy strategies that are being debated as to what to do about climate change.  Broadly, there are three competing strategies for dealing with climate change.

• The first and most often discussed is a radical reduction in carbon emissions. The theory that supports this strategy is that by reducing carbon emissions we will be able to better control the temperature of the earth.  There are three ways to achieve such reductions: mandates such as the CPP, a permitting program such as cap-and-trade, and a carbon tax.
• The second strategy is called geo-engineering. This strategy posits that we can develop technologies by mid-century that will address the issue of the warming of the atmosphere caused by carbon emissions if such warming continues and it becomes clearer that the consequences would be catastrophic. For example, suppose that we could develop algae that would absorb carbon in the world’s oceans or that an aerosol could be developed that could be emitted into the atmosphere that would block radiation and control the temperature of the earth.
• The third strategy is adaptation. Weather conditions vary dramatically across the globe. Humans adjust to this variation in a wide variety of ways. For example, Amsterdam built a series of canals in the 17^th Century to make the land more habitable.  Given that the projected impact of climate change will have both benefits and detriments, it may be more cost-effective to adapt to a changing climate than to try to control the climate.
• These strategies are not mutually exclusive. Thus, a fourth strategy would be to combine pieces of all three strategies as a way of coping with the potential impact of climate change. 

5. The CPP adopts a specific strategy of requiring dramatic reductions in carbon emissions.
6. Few would argue that this strategy will not be expensive and require massive adjustments to the electric utility system.  For example, it is likely that no new coal plants will be able to be built under the CPP unless a technology is developed that allows the sequestration of carbon dioxide emissions. Additionally, many existing coal plants that have significant useful life remaining will have to be closed. To make up for the loss of coal, there will have to be significant actions taken to enhance energy efficiency and to develop renewable resources. While this may be beneficial, there is no question that it will be expensive and even potentially disruptive to the electric system.
7. Supporters of the CPP argue that such dramatic measures are required to address the serious consequences of climate change. Opponents of the CPP broadly argue either that climate change is not a serious problem or that the strategy of radical carbon reduction is ill advised for a variety of reasons.

There is no question that the election of Donald Trump and the Supreme Court review of the CPP will have a major impact on the implementation of the CPP.