Outlook: Fighting Warming Takes Cold Cash
Monday, April 21, 2008; 12:00 PM
"How much are we willing to spend to save the planet? And just how much does saving a planet cost these days, anyway? Those will be two of the hottest questions in politics as Earth Day is marked this week. They will persist over the coming year as Congress attempts to craft legislation to slow global warming by reducing U.S. emissions of greenhouse gases. But these two big questions have also driven the environmental movement to try its most delicate balancing act: pushing for legislation that slaps a price on greenhouse gases that's high enough to change corporate and individual behavior, even while at the same time arguing that the costs of such a law wouldn't cause too much economic pain."
Washington Post energy reporter Steven Mufson was online Monday, April 21 at noon ET to discuss his Outlook article analyzing the costs and benefits of the fight against global warming.
The transcript follows.
Steven Mufson: Thanks for joining me to talk about my Sunday piece in Outlook on the debate over how much a cap-and-trade climate bill might cost the economy and whether that's excessive. One person I heard from over the weekend said that he thought the piece suggested a choice between cap-and-trade and big investment in new technologies when we could do both. And yes, we could do both -- but in the past few years, we have done neither. There has been federal investment, but nowhere near the scale that most economists and energy experts believe is necessary.
On to today's questions.
Chicago: What are costs and benefits to having a carbon tax -- which I think is even supported by former Bush economist Greg Mankiw -- versus a cap-and-trade system, which seemingly was very effective at reducing sulphur dioxide levels?
Steven Mufson: Greg Mankiw has supported a carbon tax. He believes that we should put a price on things like carbon, which have environmental costs not covered by the market. A lot of economists like the idea of a tax because you don't need a bureaucracy to implement it. I think the question is whether you can accurately predict whether a tax will get you the target reductions in greenhouse gases. Given the relatively modest response to the doubling of oil prices over the past two years, I think it's worth wondering whether you need some sort of administrative cap or other regulations to reach the target climatologists say we need to reach.
Culver City, Calif.: How much will it cost us not to make efforts to save our environment? Are there not profits and and the potential to create new jobs and markets based on the development of environmentally friendly products and industries?
Steven Mufson: That's the big question. I think there isn't any doubt that a cap-and-trade program is unwieldy and not ideal, but -- and it's a big but -- what is the cost of not doing anything? I think more and more economists are getting worried about the size of those costs.
And yes, there are new jobs that will be created from environmentally friendly or renewable energy projects. That is one thing supporters of cap-and-trade point out. Also they note, the push to find new ways of delivering energy without emitting as many greenhouse gases has helped stimulate new interest in science and technology at American universities and schools.
Boulder, Colo.: Good article, Steven. What would be the mechanism used for the government to charge for these permits? How much revenue would they bring in? Is the revenue earmarked for anything in particular? Which leads to the obvious question: Why not earmark the cap-and-trade (or carbon tax) revenues to finance the research and development for the future post-carbon energy technologies? Thanks.
Steven Mufson: Good questions. First, almost half the permits under Lieberman-Warner would be given away for free to current emitters of greenhouse gases. A lot of people have criticized this as rewarding sinners. I should point out that it is a lot better than what has happened in Europe, where about 90 percent of permits were given to emitters and German utilities ended up with big windfalls. Much of the rest of the permits under Lieberman-Warner would be auctioned. That is what most economists prefer.
The second part of your question is also extremely important. The revenues are up for grabs. It would be like a big appropriations bill with no baseline. It isn't clear who would get jurisdiction over that. Again, the most simple thing to do would probably be to give that money back to American taxpayers by cutting other taxes in a progressive way to help lower income people for whom energy makes up a bigger percentage of expenditures. But Congress will undoubtedly siphon portions of that revenue into all sorts of projects. Many of them will, however, be related to climate issues such as research and development.
Munich, Germany: Speaking of breakthrough technologies, what research and development efforts have you heard of that are investigating isolating and separating carbon from air molecules? I've read recently about carbon-carbon composites and Kevlar-carbon composites for the aeronautic industry, and hence it appears that there'd be a market for carbon-based solids in airplanes, tennis rackets, etc.
Steven Mufson: There are people doing research on separating carbon out from the air. I'm not too familiar with them, but I think that one problem is that it can be an energy intensive process. Also I believe the amount of carbon withdrawn from the air is still modest compared to goals.
Rochester, N.Y.: Realistically, is there any chance that any meaningful steps will be taken to curb global warming by the United States? The United States ceased to be -- or maybe never was -- a country that had much regard for science or evidence. What are the odds that a science-hating, creationism believing people can be persuaded to be guided by intricate scientific arguments here?
Steven Mufson: I think that those are good questions. And I think that is one thing that supporters of cap-and-trade need to be wary of if they're trying to get this thing through Congress. But ...but I think more and more Americans are concerned about climate change. Also I believe that a lot of people in corporate and financial executive suites are worried and that could be a catalyst for action. All three presidential candidates favor cap and trade. So yes, I think some sort of action is very possible over the next year or so.
Anonymous: How much does it cost to save the planet? This is a silly question -- how much is your health and life worth? I think nothing will be done until things get worse. How much worse do you think things will have to get, Steven?
Steven Mufson: As I just said in previous post, I think that there has been a major shift in the urgency and priority of this issue in the two years I've been covering energy for the Post. The fact that the phrase "carbon footprint" has become commonplace and I don't need to explain it in every article is astonishing.
You comment about how much my/your/our health and life are worth is important. One criticism of the Stern report was that he did not discount future costs correctly and made future costs sound bigger. But another person I talked to noted that a similar debate took place when people tried to price the harm done by tobacco. Future lives and health can be discounted to low numbers. But do we really put a value on our children's health at such a low level? Or is it more valuable than anything we have? Or is it something in between. Pricing climate change is a tricky business, but it is definitely something that carries a substantial price.
Arlington, Va.: Your article is silent on nuclear power. Obviously the nuclear option presents the issue of waste disposal, but this has the advantage of being a local problem, whereas carbon-driven global warming is a global danger. Also, nuclear waste disposal is just as potentially open to a technological solution as carbon sequestration. At what point does the environmental movement put the nuclear option back on the table?
Steven Mufson: Like every form of energy, nuclear power would be affected by a cap-and-trade law. It would benefit because it does not emit carbon dioxide or other greenhouse gases. Some members of Congress want to insert further advantages and I think that is one battle we'll see as the Lieberman-Warner bill moves forward.
Many environmentalists have given nuclear power another look. But for now I think most environmentalists are pushing for other alternatives and arguing that the problem with nuclear power is also a question of cost: It is very, very expensive to build a new nuclear power plant, even without including waste disposal costs.
Annandale, Va.: What about the idea of paying Brazil and Indonesia to not log? I had read in New Yorker that this could reduce amount of carbon dioxide emissions by nearly 10 percent at a cost of $5 billion a year.
Steven Mufson: Deforestation is one of the biggest causes of the net addition of greenhouse gases to the atmosphere. Those trees would have taken carbon dioxide from the atmosphere and stored it. Stopping it could be very low cost. In the past, some climate negotiators have not wanted to reward countries for avoiding destructive actions. I think they thought it almost seemed like extortion (my word, not theirs): pay me before I do something bad. But I think opinion has changed and people are now trying to figure out how to get money moving to projects to stop deforestation, reward people who stop cutting down rainforests, and monitor the forests (by satellite, on the ground) to make sure people fulfill their promises about this.
Annandale, Va.: Great piece on Sunday! The complexity of the many layers of this onion is tough to understand, and your piece did a nice job of summarizing many of the elements. I would argue that there is at least another element -- the increasing demand for electricity and the lack of infrastructure to not only meet that demand but to also transport the electricity across the country.
As you said in your article, how do we as U.S. citizens pay for not only the cost of acting to cool the planet, but also fixing/upgrading the creaky electrical infrastructure to meet our increasing demand as we buy more and more plasma TVs, add more air conditioning zones to our homes and buy bigger and bigger houses requiring more electricity to cool?
Steven Mufson: Thanks for the note. Yes, infrastructure for electricity is very important. One benefit of people reducing energy use would be to ease some of the stress on the electricity grid. On the other hand, hooking up renewable resources to replace existing fossil fuel power plants will require some new power lines. Also we could use more household infrastructure -- meters that help people manage their own electricity usage, for example, or that let utilities manage usage long distance.
New York: One of the big problems with a carbon tax is it is not forceful enough to internalize the benefits of nuclear power, whereas caps would do this. Isn't it true that you simply can't have an informative debate about global warming without laying your cards on the table in terms of nuclear power?
Steven Mufson: Thanks for your note. Again, nuclear power contributes a substantial portion of our current electricity needs. Some of those plants are getting old. Keeping the same portion of the electricity grid hooked up to nuclear plants will take new investment. But as I said earlier, it isn't clear that these plants make financial sense and that's one reason why utilities are looking for federal subsidies and/or loan guarantees.
Durango, Colo.: Good morning, Regarding home solar electric generation, please address what you see on the horizon in three years, in five years, and 10 years. What will nanotechnologies do to increase efficiencies? Are we on the verge of standard coatings, i.e. paint, that will serve to generate power?
Steven Mufson: Solar technology is moving ahead. It can compete with some peak power generation -- that is gas or oil plants that are only turned on for a limited number of days a year to meet electricity needs during hot summer air conditioning days. It still requires big subsidies for other use. But a lot of people in the industry believe that costs are coming down at a good pace and that new innovations and economies of scale will bring it down to a point where it will be competitive with other energy sources in the not too distant future. Not quite there yet.
Steven Mufson: Here's a comment I received by e-mail that with permission of the writer I will post for general consumption. The note is from Paul Bledsoe of the National Commission on Energy Policy:
"In recent weeks, a number of experts concerned about climate change have called into question the political focus on a federal cap and trade system, saying that the emphasis should instead on clean energy technology development. I am afraid these comments reveals a deep misunderstanding of the climate legislation pending in Congress and an ignorance of the market-based and government funding philosophies which the bills embody. The major climate bills-Lieberman-Warner and Bingaman-Specter in particular-explicitly call for putting a price on greenhouse gas emissions to incentivize private sector clean technology development and deployment. But the bills also generate tens of billions of dollars per year specifically for government spending on R&D on new technology, and on other policy mechanisms-grants, tax credits, and so-to create clean technology and deploy it. Indeed, the cap and trade systems create an "off-budget" revenue stream for government investment in these critical areas which would like otherwise be hard to find funding for. In short, a cap and trade approach will create a revenue stream to fund government technology investment-just as was called for in the National Commission on Energy Policy reports in 2004 and 2007. The larger question may be not will we invest enough in clean energy development and deployment-but will we be able to spend this money wisely and efficiently. The recent demise of FutureGen and the Syn-Fuels episode of the 1970s suggest this is easier said than done."
Woodbridge, Va.:"It is very, very expensive to build a new nuclear power plant, even without including waste disposal costs." How much would it cost if you also limited malicious law suits designed to delay or halt construction?
Steven Mufson: I don't believe that that is the major issue at this point. Most of the new plants under consideration would be built at existing nuclear sites alongside other plants. That limits permit problems and also makes economic sense.
Falls Church, Va.: I think the criticism of the Stern Report was not so much that he was taking into account the health of our children, but that he was assigning almost equal weight to the well-being of our children's children's children's children's children's children's children's children's children's children. That far into the future, it's almost impossible to predict how society will be organized or how wealthy people will be, and so Stern's conclusion that we should be willing to impoverish ourselves significantly on behalf of those far-future generations has been criticized as improper tunnel-vision.
Steven Mufson: Thanks for this note. I'm not a climatologist, but as I understand it you won't need to go out too many generations at this point before we see some real impact of climate change. Climatologists are pointing to things that might affect our lives and our children's.
Mollusk, Va.: In all of the accounting of number of jobs lost -- in the coal industry for example -- is there a sense of how many jobs will be created in green industries? In rural Virginia the satellite TV industry has created well-paying jobs and connected us with the rest of the country. If I were to have solar panels installed, the cost of the installation would be returned to the local economy, where a dearth of jobs exist. The problem no one is addressing is how to make this happen per unit, and how the government will assist in the effort.
Steven Mufson: There are definitely jobs being created as a result of the push into renewable energy. And many of them are good jobs requiring skills at various levels, from manufacturing to installation (carpentry-like skills) to servicing. There will, of course, be winners and losers on the job front.
Arlington, Va.: While the estimates vary on what the cost of legislative action to electric consumers, it's clear that legislation would hit lower-income consumers harder, as they spend a greater proportion of their income on energy. Do you think legislators have been forthright with constituents on how these bills will affect them?
Steven Mufson: This is a good point. I have a couple of thoughts about it. One, it is likely that any legislation will try to use auction revenues to provide relief to low-income households hurt most by rising prices. Two, I think that reducing U.S. energy consumption will help stabilize prices that have been very volatile and mostly rising. It's hard to measure that effect, though. Three, we have just seen enormous increases in energy costs across the board. The increases people are talking about in cap-and-trade mostly take place over a number of years and would therefore probably be substantially more moderate that the increases we've seen over the past couple of years.
Arlington, Va.: Steven, I liked your article but I think you're focusing too much on supply-side solutions, and that makes the picture look gloomier than it really is (and more expensive). If we focus on the demand side as well -- making our use of energy more efficient -- we actually can save quite a bit of money while also reducing emissions. Some of the most effective ways of reducing energy use are also the cheapest -- like adding insulation to houses, etc. Not glamorous, but effective.
The McKinsey Global Institute has some very good reports on "energy productivity" -- and one of their studies even found that even if the U.S. only focused on existing technologies with an internal rate of return of 10 percent or more, we could cap our energy demand at today's levels. That 10 percent IRR could be used to pay for some of the more costly new technologies that also will be needed to reduce emissions.
Steven Mufson: This is an extremely important point. It's also worth noting that the demand response to high prices usually takes some time. I suspect that we will see more and more evidence of a response to the recent high energy prices as people replace their cars, air conditioners, etc. How much of a response will be an important thing to watch.
Washington: It's not a choice between cap-and-trade and investment in new technologies. One decision is a general approach: market-based (cap-and-trade or tax) or government directed? The second issue is what concrete actions should be taken: what mix of investments in new technology, application of current technology, conservation, etc.? The first decision will affect the second.
Steven Mufson: Thanks for this comment. The government could decide to use both approaches and Lieberman-Warner does contain provisions that would channel some revenues to research and development.
Steven Mufson: I'm afraid our time is up. Thank you very much for the good questions and my apologies to those I didn't have time to answer. I'd like to mention one more thing before logging off. The Environmental Defense Fund has done a very interesting survey of economic models of the impact of cap-and-trade. It has many good observations about numbers and the way costs can be made to appear bigger or smaller. It's worth looking at for those interested in reading more about the economic issues on cap-and-trade.
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