McKibben, Liquid Natural Gas, and the Economy

Bill McKibben makes an impassioned argument in Politico about the dangers to the economy and the environment of building a facility for liquid natural gas (LNG) exports at Cove Point, MD. His case, however, rests heavily on the inaccurate assumption that the benefits of the exports will be limited only to the natural gas industry while the rest of us will foot the bill, both financially and in terms of environmental damage. In fact, the economic costs of the facility are zero to the American public, as they are covered by buyers of gas abroad through long-term contracts. Indeed, large tax revenues (larger than the Ravens Stadium he references) would be generated. Any incremental environmental costs will be small as well, since the footprint of this existing facility, built to import rather than export gas, is not to be expanded. Furthermore, the idea that natural gas prices will rise significantly if exports of LNG are permitted doesn’t hold water. Respectable studies of the effect of adding exports to US demand show that price increases would be minimal, because of both highly elastic gas supply and limitations on how much LNG the US can export in light of world supply and demand. And remember, it is the shale gas revolution that cut prices dramatically in the first place. So our cheaper home heating and electricity bills are owed to that. Indeed, McKibben’s stated agenda in the article of keeping the gas in the ground is what would dramatically raise domestic prices.

There are other benefits from converting Cove Point (and other plants) to LNG export. At the moment, these plants are close to useless because they were built on the premise of a growing US dependency on foreign natural gas. Aside from additional tax revenues from LNG exports and greater production, cheaper gas abroad reduces prices worldwide, including on energy-intensive goods we import. While domestic prices may rise a bit, increased prices for natural gas stimulate more drilling, which actually increases the supply of natural gas liquids (which are sometimes found along with the natural gas), and it is these liquids that companies use as feedstock to make chemicals and other products. So more drilling lowers the price of feedstock, which benefits feedstock-dependent domestic manufacturers. In addition, to the extent our exports make gas prices in Europe and Asia lower, that may enable more fuel substitution away from coal, lowering greenhouse gas emissions.

McKibben’s best argument for limiting exports, indeed, for keeping the gas and oil in the ground in the first place, is the effects on climate change. Here, let me focus only on his claim that the lifecycle emissions of natural gas (including most importantly, fugitive methane emissions) make it equivalent from a global warming perspective to the coal it is replacing. The fact is that nobody knows yet how this comparison will turn out. But, unlike coal, which would need complex and expensive technology to get greenhouse gas emissions down, stopping leaks is mainly what is required for natural gas. Between future regulatory actions and the companies’ own best practices, it is safe to say that fugitive methane leaks will be headed down, maybe even to where the environmental community will see gas as a bridge to a low carbon future.

Greenhouse gas emissions need to come down. But fighting exports of gas and oil is way down the list of actions that will be effective and economically sensible.

RFF ON THE ISSUES: EU goals and the post 2020 climate negotiations; Regulating power plant emissions; Philanthropy for parks

EU Goals and the Post 2020 Climate Negotiations

While many nations (including the United States) have had little public discussion regarding the post-2020 climate agreement to be adopted in Paris next year, public debate has been ongoing in Europe for some time. Last week, the European Commission announced new targets, recognizing that approaches should accommodate “the need for economic growth and industrial competitiveness.”

In a new issue of Resources magazine, RFF’s Brian Flannery writes that “the ultimate climate agreement is more likely to reflect bottom-up pledges based on national priorities and circumstances.” He suggests this approach may foster greater participation and long-term progress than approaches tied to strict, mandatory global outcomes.
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This Week in the RFF Library Blog

Each week, we review the papers, studies, reports, and briefings posted at the “indispensable” RFF Library Blog, curated by RFF Librarian Chris Clotworthy. Check out this week’s highlights below:

Fueling the Future with Natural Gas: Bringing It Home
Low natural gas prices resulting from the development of unconventional gas resources in North America will hold for the long term, creating opportunities to expand the economic benefits and cost savings to consumers through greater direct natural gas use, a new IHS report says. Increased use of natural gas also has the potential to contribute to energy efficiency and emissions reduction goals, the report adds… — via IHS

Economic Implications of Unconventional Fossil Fuel Production
In a paper released by the National Agriculture & Rural Development Policy Center, the researchers offer guidelines for communities and policy makers to use as they determine whether to encourage or discourage oil and gas production as an economic development strategy. — via National Agriculture & Rural Development Policy Center

Powering Forward: Presidential and Executive Agency Actions to Drive Clean Energy in America
Its 200 recommendations include many actions the administration is already taking or considering, including new DOE efficiency standards for appliances and more stringent standards for methane leakage from petroleum production sites. — via Center for the New Energy Economy

Flood Insurance: Strategies for Increasing Private Sector Involvement
According to stakeholders with whom GAO spoke, several conditions must be present to increase private sector involvement in the sale of flood insurance. First, insurers need to be able to accurately assess risk to determine premium rates. For example, stakeholders told GAO that access to National Flood Insurance Program (NFIP) policy and claims data and upcoming improvements in private sector computer… — via U.S. Government Accountability Office

The Economic Cost of Global Fuel Subsidies
By 2015, global oil consumption will reach 90 million barrels per day.  In part, this high level of consumption reflects the fact that many countries provide subsidies for gasoline and diesel. This paper examines global fuel subsidies using the latest available data from the World Bank, finding that road-sector subsidies for gasoline and diesel totaled $110 billion in 2012. Pricing fuels below cost is inefficient because it leads to overconsumption. Under baseline… — via U.C. Center for Environmental and Energy Economics

For more from the RFF Library blog, click here.

What to Expect From EPA Climate Rules

I have a new piece in the Milken Institute Review that looks at EPA’s current and near-future carbon emissions rules. It starts at the beginning of the story and is aimed at a more-or-less general audience, so if you haven’t been following the issue it’s a good place to start. Among other things I point out how the biggest critics and biggest advocates of the Clean Air Act in my view both have it wrong:

Significant climate policy is, in fact, being made today at the federal level, using existing law. But the legal and political limits on executive discretion act as a check on rash, disruptive changes. Moreover, Clean Air Act regulation need not be (indeed, never has been) as rigid as its critics claim. But the bang for a buck possible from regulation under the Clean Air Act is very much in doubt. That’s why decisions made this year and next – above all, about how much flexibility emitters will have in responding to new mandates and how the country’s armada of coal power plants is treated – will be the most significant ones that any president has ever made on climate.

….how flexibility matters a great deal:

The Clean Air Act therefore should make it possible to achieve the country’s short- to-medium-term climate-policy goals, even in the absence of new legislation. There will certainly be obstacles: important parts of the act are untested legally and litigation over new rules is certain. But an overabundance of caution on the part of the EPA would lead to inflexible, unambitious programs that achieved little. And while lawsuits will be costly, they are unlikely to delay implementation, since courts rarely stay regulations during litigation.

…and why I’m cautiously optimistic:

Even if it is designed poorly or undermined by litigation, climate regulation under the Clean Air Act cannot be the costly disaster predicted by its critics. Using the Clean Air Act for climate policy will not destroy the American economy, and if, over time, it destroys the American coal industry, it will not have acted alone. Cheap natural gas and environmental regulation that has nothing to do with climate (and that carries large health benefits) have already dealt coal a serious, and possibly mortal, blow.
On the contrary, there’s every reason to believe that well-designed and, above all, flexible Clean Air Act climate regulation can deliver a lot of emissions cuts for relatively little money and economic disruption. The president’s ambitious emissions goals and his call for flexibility, along with the important role for the states, warrant optimism about smart policy design. There is no other approach to climate policy available today or, given political realities, in the near future, with similar potential.

RFF on the Issues: Sea level rise; Strategies for sustainable businesses

Sea Level Rise

While scientists continue to study rising sea levels, research has found that land on the densely populated East coast is also sinking, making it a “global hot spot for a rising sea level over the coming century.” Coastal communities are beginning to look for answers, and city planners remain uncertain about how bad it will get—and how fast.

RFF’s Roger Cooke notes that his method for developing “structured expert judgment” can help quantify uncertainty—and it has also been applied specifically to questions about sea level rise. (More on this can be seen in an RFF First Wednesday Seminar, “Ice Sheets on the Move”). In the meantime, RFF’s Carolyn Kousky suggests an option for climate-ready coastal development that “allows us to enjoy all the ocean has to offer, and yet reduces the risks” of oceanfront flooding.

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Will Philanthropy Solve Park Funding Problems? Not Likely

Source: Matthew Knott / flickr

Source: Matthew Knott / flickr

State and local park system budgets have been slashed in recent years, leading many communities to turn their attentions toward philanthropy. Oftentimes, especially in large cities, the philanthropy works through park conservancies and other nonprofit organizations. In other cases, there is direct fundraising. The new crowdfunding movement, in which small monetary contributions are solicited from a large number of people over the Internet, is being used for park projects in several cities.

The hope that charitable donations will be able to provide significant and sustainable park funding arises, in part, from successes in New York City and some other major cities. In New York, conservancies relying largely on donations from individuals and corporations have turned around Central Park and Brooklyn’s Prospect Park and created wholly new parks such as the unique and popular High Line.

In a new RFF Issue Brief, I discuss this trend toward park philanthropy and lay out some of the drawbacks. Read More

This Week in the RFF Library Blog

Each week, we review the papers, studies, reports, and briefings posted at the “indispensable” RFF Library Blog, curated by RFF Librarian Chris Clotworthy. Check out this week’s highlights below:

Clean Water Act: Changes Needed If Key EPA Program Is to Help Fulfill the Nation’s Water Quality Goals
More than four decades after Congress passed the nation’s landmark clean water law, progress toward cleaning up the nation’s rivers, lakes and creeks has stalled, largely due to uncontrolled pollution running off farms, parking lots and suburban lawns, a government watchdog said yesterday. — via U.S. Government Accountability Office

Increasing the Efficiency of Existing Coal-Fired Power Plants
Coal has long been the major fossil fuel used to produce electricity. However, coal-fired electric power plants are one of the largest sources of air pollution in the United States, with greenhouse gas (GHG) emissions from burning of fossil fuels believed to be the major contributor to global climate change. Regulations under development at the Environmental Protection Agency (EPA) would impose new requirements… — via U.S. Congressional Research Service

Texas Water Report: Going Deeper for the Solution
…Texas is experiencing extended drought, and while the state may enjoy wetter conditions in the near future, a burgeoning population may already be reaching the limits of its available water. In many places, groundwater is being used more quickly than it can replenish… — via Texas Comptroller of Public Accounts

Can Negotiating a Uniform Carbon Price Help to Internalize the Global Warming Externality?
It is difficult to resolve the global warming free-rider externality problem by negotiating quantity targets. By contrast, negotiating a single binding minimum carbon price (the proceeds from which are domestically retained) counters self interest by incentivizing agents to internalize the externality. — via Belfer Center, Kennedy School, Harvard University

Household Decision-Making and Valuation of Environmental Health Risks to Parents and their Children
This paper empirically discriminates between alternative household decisionmaking models for estimating parents’ willingness to pay for health risk reductions for their children as well as for themselves. Models are tested using data pertaining to heart disease from a stated preference survey involving 432 matched pairs of parents married to one another… — via U.S. Environmental Protection Agency

For more from the RFF Library blog, click here.

Will Europe Scrap its Renewables Target? That Would Be Good News for the Economy and for the Environment

This post originally appeared on Robert Stavins’s blog, An Economic View of the Environment.

The European Union is considering scrapping the use of binding renewable energy targets as part of its global climate change policy mix that will extend action from 2020 to 2030.  The Financial Times reported that this move – presumably due to concerns over high European energy costs during the ongoing economic turndown – will “please big utility companies but infuriate environmental groups.”  The International New York Times framed the story in similar ways.

The press coverage has missed the very important reality that this potential decision by the European Commission will be good news both for the economy and for the environment.  The fundamental reason is that in the presence of the European Union’s Emissions Trading Scheme (EU ETS) – its pioneering, regional cap-and-trade system that covers electricity generators and large-scale manufacturing – the “complementary” renewables mandate conflicts with, rather than complements other policies.  Without the renewables mandate, the cap being planned for the EU ETS will be achieved at lower cost and will foster greater incentives for climate-friendly technological change.

Some Background

In 2007, the European Union established three sets of targets and related policies:  (1) a 20% reduction in greenhouse gas (GHG) emissions below 1990 by 2020, to be achieved by the cap-and-trade system; (2) a 20% target for 2020 for the share of Europe’s electricity consumption coming from renewable resources; and (3) a 20% improvement in energy efficiency by 2020.  These are the so-called “20-20-20 targets” for the year 2020.  A wonderful slogan, but a flawed policy, because of perverse interactions among the three elements.

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How Have Recent Fuel Economy and GHG Standards for New Passenger Vehicles Affected the US and European Markets?

Figure 1. Fuel Economy Technology Adoption for US Light Trucks

Figure 1. Fuel Economy Technology Adoption for US Light Trucks

In the second post of a two-part series, RFF Fellow Joshua Linn examines how recent standards have affected the type and rate of technology adoption in new vehicles. Click to read the first installment.

Concerns about global warming and energy security have caused many countries to tighten passenger vehicle standards for greenhouse gases and fuel economy. As noted last time, US fuel economy standards will roughly double by 2025. This is part of a larger trend—European standards, for example, will tighten by about 30 percent by 2015.

Economic theory suggests that tighter standards will have two effects on the vehicles that manufacturers offer. First, the standards create a stronger incentive to adopt technology that raises power train efficiency, spurring manufacturers to adopt technology more quickly. Second, tighter standards cause manufacturers to use more of that improved efficiency to raise fuel economy than boost other vehicle attributes, compared to how they would allocate that efficiency if standards were held constant.

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New Issue of Resources Magazine

Resources 184

Image: Resources for the Future

In the new issue of Resources magazine, RFF researchers examine long-lasting environmental issues, the future of natural gas fuels in the light-duty fleet and more, including:

Business Motivations for Conservation
James W. Boyd
Pro-environment business behaviors are driven by a rich set of political and social factors that affect profitability—all of which conservation advocates can use as leverage to motivate change.

Negotiating a Post-2020 Climate Agreement in a Mosaic World
Brian Flannery
Although negotiations are set to conclude in 2015, progress on a post-2020 climate agreement is already hampered by funding shortfalls, stark differences among key groups, and a top-down approach ill suited to address the diverse priorities and circumstances characterizing the nations of the world.

Getting to an Efficient Carbon Tax: How the Revenue Is Used Matters
Jared Carbone, Richard D. Morgenstern, Roberton C. Williams III, and Dallas Burtraw
The past 20 years of economic research suggests that the negative effects of carbon taxes on low-income groups are not as extensive as some believe.

Would You Pay to Reduce Risks from Shale Gas Development? Public Attitudes in Pennsylvania and Texas
Alan J. Krupnick and Juha Siikamäki
A study designed to bring the public’s views into the policy debate over shale gas development shows that a majority of people support development and are willing to pay to reduce its impacts on the environment.

To view all articles from this issue of Resources, visit our website or download the Resources app for iPad, iPhone, or Android.