Dan Farber argued recently that coal interests would likely find it hard to challenge EPA’s new source performance standards (NSPS), even though the standards would effectively ban construction of new coal plants without expensive and unproven carbon capture and storage technology. The reason: standing. Since few if any coal plants are being built (because of low prices for competing natural gas, and higher coal plant costs due to environmental regulation), then there’s no injury in the legal sense. As Farber put it:
Without any clear prospect for new coal plants, EPA’s rules won’t be causing a concrete injury to industry. No doubt the rules aren’t helpful, and industry would rather have them off the books. But that’s not enough to create standing.
I think this is right, with a couple of caveats. First, there are in fact three coal plants that have received permits but not yet begun construction (see page 163 of the proposed NSPS - hat tip to my colleague Art Fraas for pointing this out). EPA specifically excludes one (Wolverine’s plant in Rogers City, Michigan) from the proposed NSPS, requesting comment on how to treat it. The others two would be included. In the final rule, EPA may grandfather all these plants in, or plans might be scrapped anyway. But they’re some evidence that EPA’s claim that no coal will be built is untrue. Even if the plants are ill-advised business decisions, they are on the drawing board, permitted, and largely ready to build. If the NSPS blocks their construction, the firms behind them will likely have standing to challenge the rule.
Second, it’s possible that other operators will seek approval to build new coal plants in the future. If so, they’d have standing even if nobody does today. I mentioned this in a tweet responding to Farber’s post:
But what stops any prospective plaintiff from applying for a coal permit, having it refused, then suing? Cost seems relatively low. @dfarber
— Nathan Richardson (@ndrichardson) November 7, 2013
Farber critiqued this in a follow-up post this week, arguing that courts would take a dim view of permit applications made simply for litigation purposes, and that such an application would probably be insufficient to create standing. He’s right, and I shouldn’t have implied that strategic behavior would be enough to get into court.
But permit applications don’t have to be strategic. Someone might actually want to build a coal plant. EPA’s modeling concludes, and most analysts think, that this won’t happen. But it can’t be ruled out. Economic conditions might change, or operators might make a bet on coal contrary to the prevailing view of market trends (note that this is not necessarily irrational). If so, they’d likely have standing. Standing isn’t restricted to those that behave as predicted by models or analysts (nor has Farber or anyone else suggested it is).
In other words, Farber is probably right about there being a standing barrier to challenging the NSPS. But I think it’s pretty fragile. If someone, anyone, decides they legitimately want to build a coal plant, and can show that intent, they can get standing. If nobody at all wants to build one over the life of the NSPS, then standing doesn’t matter anyway since coal doesn’t matter anyway.
One last thought – most analysts agree that it’s future existing source performance standards, not the NSPS, that will be the real source of both economic costs and environmental benefits from Clean Air Act climate regulation. But ESPS require NSPS to be in place for similar sources. Could an existing source therefore claim to be injured by the NSPS, and get standing? I think not, since any NSPS for a group of sources can be the legal basis for ESPS. Technical flaws in the NSPS are irrelevant, since EPA could just issue a minimally-stringent NSPS and use that as a basis for the same ESPS the existing source claimed to be injured by. But it’s worth thinking about.
Updating the Cost of Carbon
The Office of Management and Budget recently released updated values of the social cost of carbon (SCC) and said that a new public comment process would be forthcoming. Revisions to the SCC have become a contentious topic, generating concerns about the US Environmental Protection Agency’s plans for carbon standards for power plants and questions from Republican leadership about agency transparency.
RFF’s Joel Darmstadter and Alan Krupnick noted that the complicated nature of SCC research and calculation means that “unanimous acceptance of such an estimated number is nearly impossible.” The authors conclude that the recent critique of the Interagency Working Group’s SCC estimation process is less substantive than meets the eye. Darmstadter also joined RFF’s Jan Mares in examining the global effects of an SCC value, highlighting a “distributive justice element” needed to help poorer countries adapt to energy policies.
Offshore Drilling Reforms
SNL Financial recently examined the inadequate number of safety reforms implemented by the Department of the Interior after the 2010 Deepwater Horizon explosion. Since the incident, 25 recommendations have yet to be addressed. Safety experts noted that some of the reforms are complicated, including “establishing a system to track investigation recommendations to verify that they get implemented.”
In research done at the request of the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, RFF’s Art Fraas, Richard Morgenstern, and coauthors Lynn Scarlett and Timothy Murphy recommend how agencies that manage deepwater drilling can improve regulatory capacity and safety performance. They note the value of external review and recommend independent, third-party audits and peer review, which “should become formal, regular requirements of the agency’s oversight.”
Last week, Department of the Interior Secretary Sally Jewell called upon industry to provide better information to the public about the fracking process. She said the public debate is “confused” and “not well-informed,” stating that industry is responsible for making sure “that the public understand what it is, how it’s done, and why it’s safe.” Industry has also admitted the need to “raise the public’s comfort level,” especially in states like Colorado where three cities recently approved bans or moratoriums on hydraulic fracturing. Providing information is important, but isn’t simple or easy. New RFF research shows that industry will need to provide not just more information, but better information if it is to improve public confidence.
A national tax on carbon dioxide (CO2) emissions is a cost-effective and efficient tool to achieve environmentally beneficial emissions reductions that will generate billions of dollars per year in revenue for the US government. These carbon revenues can serve a range of purposes. They can pay for energy efficiency investments; they can finance cuts in current distortionary taxes, payments to negatively affected stakeholders, or dividend checks to all households; or they can help reduce the federal deficit.
We examine the impacts of alternative revenue recycling options in our recent paper, in which we compare lump-sum rebates (dividend checks), cuts in personal and/or corporate income taxes, and a tradable exemption option for carbon-intensive industries. Using the Goulder-Hafstead E3 model of the US economy, which offers a detailed representation of domestic energy supply and demand alongside a detailed tax system, we show that using carbon tax revenue to finance marginal tax rate cuts can significantly lower the cost of the carbon tax relative to lump-sum rebates.
Overall, personal income tax cuts reduce GDP costs by 42 percent relative to lump-sum rebates while corporate income tax cuts offer a 58 percent cost reduction relative to lump-sum rebates. Tradable exemptions are able to reduce a carbon tax’s negative impact on profits for the carbon-intensive industries that receive the exemptions; however, exemptions reduce the revenue that can be used to finance tax cuts and therefore they are a less cost-effective method than using all of the carbon revenue to reduce distortionary taxes.
Carbon-intensive industries such as coal mining, coal-fired electricity generation, and petroleum refining potentially suffer significant profit losses when revenues are recycled through personal income tax cuts. The losses to carbon-intensive industries are considerably smaller when the revenues are devoted to corporate income tax cuts. When tradable exemptions are offered to these industries, however, their losses are reduced even further; in fact, a well-designed allocation of exemptions could completely eliminate profit losses in the most vulnerable industries.
We estimate that a carbon tax that starts at $10 per ton and increases by 5 percent each year has the potential to generate $690 billion in gross revenue in the first 10 years of the policy. The net revenue—the amount that can be devoted to cuts in distortionary taxes—will be considerably lower because of declines in the tax revenue generated by other taxes and increases in nominal government spending induced by increases in the price level. Despite these offsets, a carbon tax generates significant revenue that can be used to contribute to meaningful general tax reform while reducing harmful CO2 emissions.
Natural Gas Vehicles
Boasting smaller carbon footprints, lower fuel prices, and less mechanical corrosion, natural gas vehicles already number in the millions in countries such as Iran and Argentina. The United States could be next, as “issues that have limited [natural gas] use in cars are being rethought.”
Learn more about this topic on November 13 when RFF’s Richard Morgenstern, Arthur Fraas, and Winston Harrington present new research at an RFF First Wednesday Seminar, “Cheaper Fuels for the Light-Duty Fleet.” They will discuss the economic, environmental, and security gains associated with natural gas–based fuels, as well as the regulatory and political challenges that accompany their use. Register here to attend in person or watch the webcast live and tweet your questions to #AskRFF.
West Coast Carbon Pact
The governors of California, Oregon, and Washington and British Columbia’s environmental minister have signed a pact to encourage the use of clean energy while mitigating climate change impacts. The “Pacific Coast Action Plan” begins to align carbon policies in the region and pledges to move forward on new plans to price carbon. The leaders believe that the group initiative will better allow the region to reach its emissions reductions goals.
Regional efforts in the United States and Canada are already primed for a carbon agreement in many ways, according to a report by RFF’s Dallas Burtraw, Karen Palmer, Clayton Munnings, Paige Weber, and Matt Woerman. They point out that many jurisdictions in the western United States and Canada have already linked their carbon pricing approaches “through cooperation and sharing of information, mutual learning, and borrowing from each other’s program design.” And, California has formally linked its carbon market with Quebec. Burtraw and Munnings also note that the intent to align policies “means that California, Oregon, and Washington are more likely to influence the US Environmental Protection Agency as it moves to craft regulations under the Clean Air Act.”
Whether you’re designing a carbon tax or experimenting with a cap-and-trade policy, carbon pricing affects all participants differently. Potential inequality under a carbon tax has been a particular concern for energy-intensive, trade-exposed (EITE) sectors, whose energy-heavy processes and competitive global markets make them particularly vulnerable to carbon pricing disparities across countries. Politicians acting in the interests of EITE businesses, which produce everything from glass and steel to paper and chemicals, previously ensured that allowances were given to these sectors during the framing of the Waxman-Markey Bill.
Now, as carbon pricing garners greater attention, a method to reduce the negative impacts on these industries of a carbon tax has become an important goal for policymakers. In a recent paper, I analyze the role that tax mechanisms could play in solving possible competition and leakage problems in EITE sectors. Ultimately, I examine the feasibility of a plan for compensation under a carbon tax that could eliminate the need for EITE-specific aid. The result is a number of findings regarding the potential role of a carbon tax in broader tax reforms, as well as the possibility of striking a balance between efficiency goals and competitiveness concerns.
At $20 per ton, a carbon tax would raise about $100 billion annually—money that would allow for the flexibility to seek such a balance. My focus involves using some of this money for direct compensation in the form of corporate income tax credits, which would be given to EITE firms for carbon tax payments. Using direct compensation may be justified on a political or distributional basis, but my analysis also reveals its potential to interfere with other efficiency considerations. Any funds used for direct relief to EITE firms can’t be used to lower marginal tax rates on existing taxes, as that would reduce gains made in tax reforms that include a carbon tax.
Additionally, using corporate income tax as a route for direct compensation offers its own challenges. Because EITE sectors have a higher carbon tax liability than corporate tax liability, their existing tax appetite wouldn’t be large enough to offset the former through the latter. Though offering lump-sum relief to these firms would keep marginal emissions reduction incentives intact, competitiveness would still remain a concern. Some of these problems could be addressed by pinning tax credits to output-based allocation, or by setting a firm-level credit at a “best-practices” benchmark formed according to a sector’s emissions intensity.
As I also discuss, indirect compensation may offer some favorable benefits as well. Firms in EITE sectors disproportionately benefit from corporate income tax rate reductions on average, given their relative capital intensity. Using carbon tax revenues in part to lower corporate income tax rates might lead to reduced political pressure to provide specific and direct relief to EITE sectors.
Economic theory predicts that it would be costly to use carbon tax revenue to compensate EITE sectors, and that policy risks should be treated as any other risk by EITE firms. But politics may be a game-changing variable here—and if it is, my analysis suggests that some approaches are better than others for creating targeted relief at minimal cost.
Saving Endangered Species
Wildlife workers in Africa have revised the number of elephants they believe have been poisoned by impoverished Zimbabwe locals since July. Over 300 African elephants have died as a result of cyanide ingestion, allowing poachers to harvest and sell their tusks in illegal ivory trades, which have more than doubled since 2007. Current conservation efforts in the region have failed to protect the species, whose dwindling population has been classified as “vulnerable” by the World Wildlife Fund.
Though operating within a more developed and accountable framework, US conservation efforts still face challenges of their own, according to RFF’s Rebecca Epanchin-Niell and coauthors Lynn Scarlett and Matthew McKinney. In a recent issue of Resources magazine, they examine the opportunities for improving the 40-year-old Endangered Species Act’s sustainability and efficacy, stressing the importance of comprehensive and collaborative approaches to funding, management, conservation, and private sector involvement. The authors say that future generations will benefit from “larger, landscape-scale efforts that use incentives to engage private landowners and nonprofit partners” in future species protection measures.
Hazardous Materials Transportation
The Canadian National Railway is defending its safety record after its third major derailment this month involving hazardous materials. The train’s contents, which included crude oil and petroleum gas, were similar to those involved in the fatal Lac-Mégantic accident in July, which left 47 dead. The high numbers of accidents involving the transportation of hazardous materials have many concerned about the capacity of current Canadian infrastructure to handle future increases in fossil fuel and chemical transportation.
Similar questions are being asked in the United States, where shale gas extraction has increased dramatically in the last few years. In a recent blog post and upcoming report, RFF’s Lucija Muehlenbachs and Alan Krupnick examine the relationship between shale gas development and traffic accidents in Pennsylvania involving shale-related transportation. They find a positive correlation between well numbers and traffic accidents, and are able to link the accidents to shale development due to the “large degree of spatial and temporal variation of shale gas well development and knowing whether a heavy truck was involved in the accidents
The governors of California, Oregon, and Washington and the premier of British Columbia signed a climate pact on Monday that announced the intent of two new carbon prices: a cap-and-trade system in Washington and, likely, a carbon tax in Oregon.
Prices on carbon in these states would add to pre-existing ones in California and British Columbia—in effect pricing carbon emissions between Alaska and the Mexican border. But these carbon prices will not necessarily mean that a Pacific Coast carbon market will emerge, despite the pact stating that “where possible” the four jurisdictions “will link programs for consistency and predictability and to expand opportunities to grow the region’s low-carbon economy.” We believe the governors used the word “link” to mean the incremental alignment of program elements (a process we have named “linking by degrees”). This does not refer to the trade of allowances and tax credits between California, Oregon, Washington and British Columbia—what we call a “formal link.”
Two weeks ago, the Supreme Court announced it would review a small part of the Environmental Protection Agency’s (EPA) agenda for regulating greenhouse gases under the Clean Air Act. Yesterday, two members of Congress (Rep. Ed Whitfield, R-KY, and Sen. Joe Manchin, D-WV) floated a bill that would substantially limit EPA’s authority to regulate GHGs under the Act, opening up a new avenue of attack on the agency’s agenda.
This move is mostly about politics and appears extremely unlikely to become law – even if it made it through the Congress’s backlogged calendar and received enough votes to pass, the President would surely veto it. It’s also not a new move – other bills with the same general objective have been floated in both the House and Senate over the last few years, without success. But the new bill is worth a look since it shows what parts of EPA’s agenda are the highest-priority targets for its coal-state opponents. Read More
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:
US EPA Releases Greenhouse Gas Emissions Data from Large Facilities
Today, the U.S. Environmental Protection Agency (EPA) released its third year of greenhouse gas data detailing carbon pollution emissions and trends broken down by industrial sector, greenhouse gas, geographic region, and individual facility. The data, required to be collected annually by Congress, highlight a decrease in greenhouse gas emissions as more utilities switch to cleaner burning natural gas… — via U.S. Environmental Protection Agency
Biotic and Human Vulnerability to Projected Changes in Ocean Biogeochemistry over the 21st Century
Climate change caused by human activity could damage biological and social systems. Here we gathered climate, biological, and socioeconomic data to describe some of the events by which ocean biogeochemical changes triggered by ongoing greenhouse gas emissions could cascade through marine habitats and organisms, eventually influencing humans. — via PLOs Biology
Traces of Nitrogen Fertilizer Remain in Soil for Decades: PNAS Study
Traces of nitrate fertilizers can stay in the ground for decades after their first application, researchers say. The findings…raise new questions about the efficacy of environmental efforts underway in the Midwest and mid-Atlantic regions that aim to reduce agricultural runoff by setting limits on how much of the chemicals can enter streams and rivers… — via Proceedings of the National Academy of Sciences
Robust Increases in Severe Thunderstorm Environments in Response to Greenhouse Forcing
Although severe thunderstorms are one of the primary causes of catastrophic loss in the United States, their response to elevated greenhouse forcing has remained a prominent source of uncertainty for climate change impacts assessment. We find that the Coupled Model Intercomparison Project, Phase 5, global climate model ensemble indicates robust increases in the occurrence of severe thunderstorm environments… — via Proceedings of the National Academy of Sciences
The Geography of Poverty, Disasters and Climate Extremes in 2030
Extreme weather events driven by climate change will exacerbate poverty in regions where people are already among the world’s poorest, according to a study by the U.K.’s Overseas Development Institute. Where disasters such as drought are common, those events are the leading cause of poverty… — via Oversees Development Institute
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