Save Energy at Work

by David Roberts

Over the weekend, Sens. John Kerry (D-Mass.), Lindsey Graham (R-S.C.), and Joe Lieberman (I-Conn.) released some details about their upcoming “tripartisan” energy/climate bill. (I wrote about it here.) This has prompted a flurry of press coverage, as various senators and interest groups react to the proposal.

The result? A torrent of confusion, nonsense, and outright falsehoods. Hooray for the Senate!

First, to get clear on the KGL proposal: they would keep a cap-and-trade (or possibly cap-and-dividend) system for utilities, while oil producers and users would be subject instead to a simple carbon tax. Heavy industry would be exempt from the cap to begin with and would be moved in over time. In other words, the econony-wide cap-and-trade system has been broken in two. Now there’s a mini-C&T system and a carbon tax. But carbon is still being priced; the cost of fossil fuels will still go up.

Do senators get that? It would appear not. Indeed, it’s become pretty clear that most conservative and “centrist” senators don’t have even a rudimentary understanding of carbon pricing. They think the KGL plan is better, but at no point does any of them offer any coherent policy rationale for that preference. And as far as I can tell, journalists don’t even ask the question. This is political Kabuki without even a thin veneer of serious policy considerate. (Usually they have a veneer!)

Start with this characteristically weightless Politico story.

“Any movement away from an economywide cap-and-trade system is a movement in the right direction,” said GOP Conference Chairman Sen. Lamar Alexander, who said the new direction “makes a lot more sense.”

Why is anything other than economy-wide cap-and-trade better? Why is the sectoral approach better? No clue. He doesn’t say. Or this:

“I’m very open to that,” Louisiana Sen. Mary Landrieu said of the new proposal. “I’m completely opposed to economywide cap and trade. A compromise that Lieberman, Kerry and Graham were working on might have more potential.”

Why is she opposed to economy-wide cap-and-trade? Why does KGL have “more potential”? She isn’t asked, and doesn’t say. Moving on:

“I’ll be certainly listening to it,” New Hampshire Republican Sen. Judd Gregg said of the proposal. “It’s got a lot of evolution in it right now.”

Too bad Waxman and Markey didn’t think to put some evolution in ACES. Or something.

“You can’t use cap and trade anymore because it is like manure on the trough,” said Voinovich. “It’s defined, and people are opposed to it.”

Ah ha! At last a reason to oppose cap-and-trade! Except, uh, it’s completely wrong. Every poll in the last five years, almost without exception, has shown that the public favors regulating carbon pollution and they like ACES, the cap-and-trade bill that does it. From a poll out just last month:

When asked whether they “support or oppose regulatiing carbon dioxide ... as a pollutant,” 73 percent said yes, with only 27 percent opposed, including 61 percent of Republicans. This was more than the 67 percent who supported “expanded offshore drilling” or the 49 who wanted to “build more nuclear power plants.”

Throw in a rebate to cover higher electricity prices (a provision included in ACES), and 66% specifically support a cap-and-trade system, which is pretty extraordinary for a fairly technical policy. So when Voinovich says “people are opposed to it,” he’s either abjectly ignorant or the “people” he’s talking about are his fellow senators. Ah, life inside the snow globe.

Then there’s Graham himself:

“I think a lot of people are intrigued in business,” he said. “The key to Republican support is business.”

Hm, let’s see where business stands on ACES, the economy-wide cap-and-trade bill:

American Businesses for Clean Energy (ABCE), a group of large and small businesses that want Congress to reduce greenhouse gas emissions; it already has over 2,400 companies—all of whom joined ABCE in less than four months. More than 80 groups signed onto the recent USCAP ad in the Wall Street Journal. We Can Lead, a group of more than 150 companies, continues to gain ground advocating for policies that will generate an estimates 1.7 million good, American jobs.

Looks like “business” is on board—unless Graham just means Big Oil business. Surely not!

Now let’s jump over to this story from Darren Samuelsohn of ClimateWire. It gets into more specifics about the KGL proposal and has much gibberish to choose from. To begin with:

“It gets you a solution to the carbon problem that doesn’t destroy that part [i.e., Big Oil] of the economy,” Sen. Lindsey Graham (R-S.C.), a lead co-author of the Senate legislation, said yesterday.

Now, why would cap-and-trade—a price on carbon—destroy Big Oil while a carbon tax—a price on carbon—wouldn’t? No explanation is forthcoming. But Graham is a model of clarity compared to this:

“The issue about equalizing the costs of people who put emissions in the air is what the game plan should be,” said Sen. Mark Begich (D-Alaska).

[rubs eyes] Uh. If Begich is trying to say that all people who emit should pay the same price for their emissions, well, have I got a policy for him! It’s called economy-wide cap-and-trade.

And I defy you to make sense of this:

[Jack Gerard, president of the American Petroleum Institute,] said that the carbon fee approach would yield net environmental benefits, while giving consumers the most transparent signal they can get about what the costs are from the program. Unlike the House bill’s cap-and-trade system, oil companies would pass through the costs with signs at the gas pump letting people know they’re paying more because of U.S. efforts to deal with climate change.

“The effect is you alter consumer behavior,” Gerard said. “If consumers know they have choices between buying a more efficient car, riding a bike or buying an SUV, now they’re making an informed choice.”

Jesus. WHAT? Look, a price on carbon is a price on carbon. Oil companies are going to pass the costs on to consumers. If they want to, they can put signs on gas pumps—the kind of carbon price they pay is utterly irrelevant to that. Similarly, a carbon price will yield slightly higher gas prices, whether the price is from a cap or a tax. Why would one alter consumer behavior but the other wouldn’t? I literally have no idea WTF Gerard is talking about here.

For the record, the EPA found that ACES would raise gas prices by $0.13 by 2015 and $0.25 by 2025. By comparison, gas prices shot up $0.40 last year in May alone. So whatever price signal a carbon price is going to send is likely to get lost in the natural variability of gas prices. But anyway.

Here we get a little closer to the realm of non-gobbledy-gook:

Denny Ellerman, a retired energy economist who worked at the Massachusetts Institute of Technology, said the oil industry’s general interest in the carbon fee stems in large part from their distaste with buying and selling emission allocations. “Just make it a tax, and we’ll pay the tax,” Ellerman said. “They know it gets passed on. They know demand is inelastic. They just don’t like the sound of having the allowances.”

Now we’re getting somewhere. Oil companies want a tax instead of cap-and-trade because they don’t want to trade allowances. But ... why? They “don’t like the sound” of it? The thing about tradable allowances is that a particular company could increase its efficiency, sell its allowances, and make money from the system. The difference is that in the dynamism of a carbon market, oil companies would be pressured to innovate. A carbon tax, like a gas tax, is administered by the government; oil companies just pass it on to consumers. Business as usual: that’s what oil companies are trying to secure with this deal. National policy is being shaped around making them comfortable. Awesome.

Suffice to say, I could go on pulling dumb quotes like this for many more pages. It’s just profoundly depressing that world-historically consequential policy is being shaped by people who don’t understand how it works and are primarily motivated by marching orders from corporate polluters.

But, you know ... welcome to the U.S. Senate.

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by Gar Lipow

Mainstream environmentalists tackling the climate crisis prioritize pricing greenhouse gas emissions over alternative policies to cool our fevered planet. The ACES climate bill that passed the House would weaken renewable rules, add massive offsets, and kill much existing EPA authority to fight climate change. The “simple” Cantwell-Collins cap-and-dividend bill focuses on an auctioned permit system that returns revenues to the public, with a practically undefined CERT fund the only supplement to this price mechanism. As most supporters will freely admit, neither mainstream bill aims at emission reductions anywhere near as large as science tells us we need. The theory is that if we can pass something politically practical, then we can fix problems later. Since these bills claim to be shaped by political practicality, and focus on an emissions price, emissions pricing must be incredibly popular compared to alternative policies. Right?   Wrong. Surveys show that the public support rules and public investments far more strongly and far more consistently than it supports either cap-and-trade or a carbon tax. In the U.S., 70 to 80 percent of the population support renewable standards, building efficiency standards, auto efficiency standards, and business efficiency standards. Over 60 percent still support them even when told that auto, consumer product, and energy costs will rise if they are implemented[1]. That is a critical point. When a large majority of the public supports a policy if it personally costs them money, this is strong, solid support.

Surveys comparing carbon taxes to cap-and-trade as a means of putting a price on emissions give mixed results, with both cap-and-trade and carbon tax supporters able to point to favorable results. This discrepancy can be resolved. Both poll poorly, once people realize that either will raise direct and indirect energy prices[2].

I’m sure that cap-and-dividend and tax-and-dividend supporters will argue that if their particular viewpoint is just properly explained they can win just as solid and just as strong public support. And that may be true. But educating the public is a long process, made harder by the fact that a large part of the economy is devoted to un-educating the public. If the public already supports a policy so strongly that it is willing to pay to see it implemented, that is a distinctly non-trivial advantage.

In short, if you want to gain popular support for a climate bill, rather than rely on the back room deal making that has failed so miserably, there is a strong political argument for focusing on public investment, like trains and subsidies for weather sealing and insulation, and on regulations like the CAFE rules. It is not that these have been ignored, but they have been neither  the main political nor main policy focus.

My next post will explain why an emphasis on public investment and rule-based (as opposed to price-based) regulation is better policy than the reverse. This will be a matter of emphasis, and not opposition to an emissions price.  But that emphasis is important. Both the ACES and Cantwell bill prioritized pricing over other types of policy. That is not the most popular approach, and we will see in the future why it is not the most effective approach.

Endnotes:

[1] One of many surveys showing around 80 percent support for renewable energy standards: Barry Rabe and Christopher Borric, Climate Change and American Public Opinion: The National and State Perspective [PDF], (Charlottesville, Va.: Miller Center of Public Affairs of the University of Virginia, 10-Dec-2008): p14 - Table 19, (accessed 29-Jan-2010). In the same study, p17 Table 23 shows 77 percent support for auto efficiency standards. Toward the end of the 2008 Presidential election, surveys showed that over 60 percent of both Obama and McCain supporters favored renewable energy and business efficiency standards even if they raised the prices of energy prices and consumer products. Knowledge Networks of Menlo Park California, McCain and Obama Supporters Largely Agree on Approaches to Energy, Climate Change [PDF]. WorldPublicOpinion.Org. 23/Sep 2008, (DC: International Policy Attitudes at the University of Maryland, 23-Sep-2008): 4-5,(accessed 29-Jan-2010). 71 percent of the U.S. population supports tighter efficiency rules for automobiles, even if that costs them money: The World Bank and The Program on International Policy Attitudes (PIPA) at the University of Maryland, “4.3 Willingness to Support National Steps with Economic Costs,“in World Development Report 2010: Public Attitudes Toward Climate Change: Findings from a Multi-Country Poll, (D.C.: International Policy Attitudes at the University of Maryland, 3-Dec-2009):16,(accessed 30-Jan-2010). Public support for public investment is harder to measure because polls on the subject are conducted less often. However, there have been some polls on rail. Back in 2006 a Harris poll showed that about 70 percent of the U.S. would like to see rail get the larges share of transportation growth compared to car and airplanes, and the 70 percent of the population also thought this should be funded by local, state and the federal government rather than private enterprise: Harris Interactive, Americans Would Like to See a Larger Share of Passengers and Freight Going By Rail in Future, (Harris Interactive Inc.,8-Feb-2006), (accessed 30-Jan-2010). In November 2008, rail won a very important poll—actually voter initiatives and bond issues. 70 percent of transit initiatives on the ballot won, for a total of 75 billion in spending: Christopher Conkey and Paul Glader, “Mass-Transit Projects Fared Well at Polls,” Wall Street Journal, 12-Nov-2008, A6.

[2] An example of a poll that found a carbon tax favored over a cap-and-trade system: Ben Geman, “Is a Carbon Tax Dead?” The Hill, E2Wire - The Hill’s Energy and Environment Blog, (Dow Jones, 1-Dec-2009), (accessed 30-Jan-2010). An example of a poll that found a cap-and-trade system is favored over a carbon tax: Paul Steinhauser, CNN Poll: 6 in 10 Back ‘Cap and Trade.’, PoliticalTicker, Cable News Network (CNN), (CNN, 27-Oct-2009), (accessed 30-Jan-2010). The truth is: the public knows very little about either cap-and-trade or a carbon tax. When both are explained, the U.S. public supports neither: Barry Rabe and Christopher Borric, “The Climate of Belief: American Public Opinion on Climate Change: Market Based Policy Options: Public Attitudes Toward Cap-and-Trade v. Carbon Taxes” [PDF], Issues in Governance Studies, no. 31 (The Brookings Institution, Jan-2010):12,(accessed 30-Jan-2010).

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by Tom Konrad

A new bill being considered in the Colorado legislature would create “Solar Gardens.” Solar Gardens allow people to participate financially in owning part of a solar array even if they do not have a suitable site on their own property. My reading of the proposed legislation is that subscriptions in a Solar Garden would be financial securities, and fall under securities laws. That’s probably a good thing.Solar for EveryoneSolar panels are elitist: They cost a lot of money, and only homeowners with good solar access can usefully install them. This means that renters and people who can’t come up with at least $5,000 to $10,000 worth of cash or credit can’t own them. That’s the problem Colorado House Bill 10-1342 (HB1342): Community Solar Gardens aims to correct.HB1342 defines a Community Solar Garden(CSG) as “A solar electric generation facility with a nameplate rating of two megawatts or less… where the beneficial use of the electricity generated by the facility belongs to the subscribers to the community solar garden.” A subscriber is a “retail customer of a qualifying retail utility who owns a subscription and who has identified one or more physical locations to which to which the subscription shall be attributed” withing the same county or municipality as the CSG. The bill allows subscribers to change the premises to which a subscription is attributed, and also to sell them to other qualifying subscribers, something which is necessary in case a subscriber were to move out of the county or the utility’s territory.It’s a worthy idea, although local solar installers are concerned that the superior economics of large installations will eat into their market share, by easing the requirements in House Bill 10-1001 for customer-sited generation. People who own perfectly good sites for rooftop solar may instead choose to buy a CSG subscription because of the convenience and potentially lower price. I think fears that residential customers who are good candidates for rooftop solar might instead subscribe to CSGs are overblown. Although the economics may be better, buying solar in Colorado is not yet a great investment because of the cost an return involved. Instead, I believe people are investing in solar because it gives them satisfaction to think that they are using green energy, and because they want to show off their environmental bling to their neighbors. I know that some people are more interested in the bling aspects of solar panels than the economic aspects, because otherwise there would not be a market for fake panels in Japan, although I don’t know of anyone who knowingly bought fake solar panels in the US.Energy SprawlMy greatest concern with the bill is not that it will cause a move towards large installations, but that it will lead to more ground-mounted installations taking up open space, contributing to Energy Sprawl. No matter what you think about the economics of photvoltaics, one advantage that they have over almost every other type of electricity generation (both fossil and renewable) is that they can be placed on otherwise unused rooftops and other structures, giving a use to otherwise wasted space. Only energy efficiency and conservation have less physical impact on the environment than rooftop solar. Some people have told me that their air conditioner ran less after they put solar on their roof.Any law which makes solar more likely to be ground-mounted than rooftop is a step in the wrong direction. I think the bill should be amended to prohibit CSGs from being ground-mounted, effectively limiting them to large rooftops and other structures such as awnings for parking lots. This would also have the effect of doing something to limit the practical size of CSGs to available rooftops, which would probably make the solar installers a bit happier.The Secondary Market for Community Solar Garden SubscriptionsProvisions for a secondary market for CSG subscriptions are included in the bill, since a subscriber moving out of the county in which their CSG is located will not be able to benefit from their subscription. The secondary market and and other security-like characteristics of subscriptions may make them a useful financial tool for small investors. Most importantly, a CSG subscription is (as intended) an excellent hedge against rising electricity prices.The only real reason to hold a CSG subscription for the long term is as a hedge against rising electricity prices because, like all utility-subsidized solar installations in Colorado, the utility ends up owning the Renewable Energy Credits (RECs), which are defined as all the “environmental attributes of the electricity.” Although most people with solar panels don’t understand this, the fact that they cannot legally claim the RECs means that they are using electricity that is just as dirty as any other Coloradan, with the exception of direct purchasers of RECs or Carbon Offsets, such as Windsource or Colorado Carbon Fund subscribers.Although the secondary market for CSG subscriptions is likely to be very illiquid, it will probably become a good direct indicator of local expectations for utility rates. CSGs will not be much use to speculators, however, because there are restrictions in the bill which limit the investment to only 120% of estimated electricity usage at the designated physical location of the subscription. Nevertheless, experienced local market professionals with an understanding of market psychology may be able to make small profits trading subscriptions, since the illiquid and unprofessional nature of the market will likely make prices extremely volatile and subject to strong behavioral biases. When electricity rates are rising, subscription prices will likely overshoot their true value as potential subscribers overestimate future increases, and prices will likely undershoot if falling natural gas prices lead to falling interest in CSG subscriptions.Allowing investors into the subscription market would probably create a more liquid and stable market for subscriptions, but such an outcome is unlikely because of the general public distaste for speculators. It’s also impractical because of the fact that payments to subscribers are at the retail electricity rate, which is considerably higher than the owners of commercial solar farms are allowed, and hence are effectively subsidized by all utility customers, over and above the direct subsidies given to encourage solar in Colorado.CSG subscriptions have other aspects that will be familiar to investors. The law allows for the CSG to finance the purchase of a subscription (buying on margin.) It also allows the payments for electricity production to either go to offset the subscriber’s electricity bill, or to go to the CSG sponsor. In the latter case, I could see a small subscriber buying a small subscription, and enrolling in the equivalent of a Dividend Reinvestment Plan (DRIP): rather than cash payments, the electricity generation would be used to increase the size of the CSG subscription over time, until the subscriber decided to start taking cash payments. A CSG with a large number of subscribers enrolled in DRIP-like plans might add a new solar module to the farm every month, in order to keep up with the growing subscriber base.CSG subscriptions could become a valuable financial planning tool for retirees and others on fixed incomes. Because a CSG subscription rises in value with utility rates, an owner would be better able to budget for the utility bill, no matter how wildly electricity prices gyrate. As subscription prices fall with the falling cost of photovoltaics, I can see the purchase of a CSG subscription becoming standard financial advice for retirees.CSG Subscriptions as SecuritiesAlthough professional investors and speculators will have at most a limited role in the trading of subscriptions, CSG subscriptions may legally be securities. The legal definition of a “Security” is an investment in an enterprise with the expectation of profit from the efforts of other people. If I’m right and the draft law is not changed, CSG subscriptions will fall under Colorado securities regulations. (Because CSG subscriptions cannot be sold outside the state, they are clearly matter for Colorado security regulators.)For small CSGs set up by community organizations, this is unlikely to have a tremendous impact, because securities laws include a number of exemptions for sales to a small number of related individuals. (Note that this is not intended as legal advice! I am not qualified to give legal advice, and even a small CSG should need to consult with someone familiar with the relevant laws.) For large CSGs with many subscribers, securities law may actually require the delivery of a prospectus and fall under a variety of other rules about communications that apply to the CSG developer and its representatives. In general, this is probably a good thing, since it provides a strong legal framework under which regulators will be able to sanction unscrupulous CSR developers who might be tempted to cold-call unsophisticated utility customers and over-promise the benefits of a small subscription in a Solar Garden.ConclusionThe intent of Community Solar Gardens is a good one, because it allows many more people the opportunity to hedge their electricity price risk. The people in most need of such a price hedge, those living on small fixed incomes, generally do not have both the home ownership and credit that installing a solar system requires. So I’m glad to see Colorado pioneering this concept, and it will be very interesting to see how CSGs and the market for their subscriptions evolve when the final bill passes. With luck, and a few people emailing Claire Levy, the bill’s sponsor, that final bill will have been amended to exclude ground-mounted Community Solar Gardens, and help preserve Colorado open space.I also hope that some among the majority of my readers who are not in Colorado will suggest your own legislators consider local variations of this idea.Tom Konrad PhD CFA

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