The final link of the Dakota Access Pipeline (DAPL) can now be built, thanks to a recent decision by the Army Corps of Engineers (although the Cheyenne River Sioux have filed a last-minute suit to stop it). In light of the disappointing but unsurprising federal approval of the pipeline, it is worth pausing to ask who and what DAPL is good for.
Who needs the pipeline? There are four main answers: three are silly and one is dangerous.
Silly answer #1 is that the ravenous ego in the White House needs a continual flow of evidence that he is always a winner and his enemies are all losers. Indian tribes and environmentalists can get in line next to Muslims and Mexicans as obstacles, which he shall overcome, to the huge success of making America some kind of great again.
Answer #2, only slightly less silly, is that Energy Transfer Partners (ETP), the company that built the pipeline, has $3.8 billion invested and won’t earn a dime on it unless the pipeline is finished. ETP is a well-connected company – at least until recently, Rick Perry was on its board of directors and Donald Trump was one of its stockholders. Surely that’s irrelevant to the recent decision.
But it is well established in economic theory that people who make bad investments should lose money on them. Milton Friedman, the forefather of conservative free-market economics, was emphatic on this point. As Friedman might have asked, why is DAPL a worthwhile investment that deserves to make money? Who actually needs this pipeline?
Answer #3 is only silly if you pay attention to the numbers. Building a pipeline creates jobs. Good, high-paying jobs making and laying pipe. In fact, building anything creates jobs. Building a bridge to nowhere or a pipeline that no one needs will create jobs – but building things that people need can create even more jobs. An in-depth study of alternatives to the proposed Keystone XL pipeline found that the host states could gain many more jobs by investing in much-needed infrastructure for clean water and natural gas distribution.
Moreover, almost all the jobs created by building DAPL have already happened, because the pipeline is almost complete. It makes no sense to count past jobs as future benefits. If construction jobs are an important benefit of the pipeline, I hope you enjoyed them; they’re all but over. Once a pipeline is completed and in operation, it needs very few workers to keep it going.
Finally, the dangerous answer is that DAPL would be useful to keep oil flowing if the price of oil was much higher than it is today. The danger involves the factors that might cause higher prices. But first, a little back story.
DAPL was planned in early 2014, at a time when the price of oil had been above $80 per barrel, often closer to $100, for the past several years. Oil production in North Dakota was booming, and there were early signs of a shortage of pipeline and rail capacity to carry the state’s oil.
Then, in the second half of 2014, the price of oil collapsed. Since the beginning of 2015, the price of oil has been below $60 per barrel, occasionally far below. Oil production in North Dakota has slumped, and the volume of oil carried out of the state by pipeline or rail transport has plunged so low that there is no hint of a capacity shortage.
North Dakota is among the most expensive on-shore locations for oil production in North America. Several oil experts have estimated that the break-even price for North Dakota oil is $60 per barrel or more. In my own study of the state’s data, I found that North Dakota oil production tends to go up when the price has averaged more than $61.50 per barrel for the last few months. The flip side is that North Dakota output tends to drop when the price of oil lingers below $61.50 – as it has done for the last two years, ever since early 2015.
So DAPL will only be needed for oil transport if the price of oil goes, and stays, much higher than it is today. Here comes the dangerous part: suppose that an out-of-control White House was inflaming conflict in the Middle East, threatening bad relations or even war with major oil producing nations. If OPEC countries cut off oil shipments to the United States, the price of oil will soar, North Dakota’s oil boom will resume, and DAPL will become key to Fortress America’s oil supplies.
Normal diplomacy would prevent that, of course. But normal diplomacy is so 2016.
The practical question in Washington today is not whether regulations will go, but whether anything will replace them
A ray of light may be piercing the cloud of gloom that settled over climate policy after the November election. It comes from an unexpected source: grand old men of the Republican Party and prominent conservative economists. In same-day op-ed pieces in the Wall Street Journal and New York Times, they unveiled a climate strategy that aims to win support on both sides of the aisle, uniting environmentalists, growth advocates, libertarians and populists around a common cause.
A conservative plan for climate action
Recalling President Ronald Reagan’s advocacy for the 1987 Montreal Protocol, the international treaty that protects the Earth’s delicate ozone layer, George Shultz and James Baker (who served in Reagan’s cabinet as Secretary of State and Secretary of the Treasury, respectively) call in the Wall Street Journal for “the Grand Old Party to once again lead the way” in rising to the greatest environmental challenge of our era.
In the New York Times, Harvard economists Martin Feldstein and Gregory Mankiw (who chaired the Council of Economic Advisers under presidents Reagan and George W. Bush, respectively) and Ted Halstead, founder of the Climate Leadership Council, write that rather than simply repealing climate regulations left by the Obama administration, Republicans should embrace a “repeal and replace” strategy that protects the climate in a way that’s “pro-growth, pro-competitiveness, and pro-working class.”
The centerpiece of their strategy is carbon dividends: recycling revenues from a carbon tax back to the American people as equal quarterly dividend checks. For a family of four, dividends from a $40/ton carbon tax would amount to about $2,000/year.
To protect the competitiveness of American producers, they call for border price adjustments: fees on the carbon content of imports from countries that do not have comparable carbon pricing, and rebates on carbon taxes paid by exporters to such countries.
Obama-era regulations made unnecessary by the carbon tax would be eliminated, including the Clean Power Plan, which the Trump administration already has vowed to repeal.
Echoing an argument long made by climate policy advocates, the proponents maintain that the strategy would promote robust economic growth by encouraging innovation and investment in new energy sources.
Early reactions to the proposal have been mixed. Predictably, Breitbart News was having none of it. Ronald Reagan “is reaching for the celestial sickbag over this absurd proposal,” a commentator jeered within hours of the op-eds, urging the Trump administration to tell the Republican elder statesmen, “in the nicest possible way, exactly where they can shove their carbon tax.”
Former Republican presidential candidate Mitt Romney lauded it on Twitter as a “thought-provoking plan from highly respected conservatives to both strengthen the economy & confront climate risks.”
The Nature Conservancy immediately released a statement applauding the plan. The president of the Natural Resources Defense Council was less positive, telling the Washington Post that while a carbon price could be important in a comprehensive climate policy, it should not replace existing regulations.
Pricing v. regulation?
In principle, carbon pricing and regulation can co-exist. California’s cap-and-trade program, for example, complements state regulations rather than substituting for them. The cap-and-trade program for sulfur-dioxide emissions from power plants, created by the 1990 Clean Air Act amendments under President George H.W. Bush, likewise supplemented regulatory standards rather than replacing them.
Yet, many existing carbon regulations were introduced by the Obama administration as a fallback alternative in response to the failure by Congress to pass legislation that would have put a price on carbon.
There may be good reasons to maintain some existing regulations or even craft new ones. For example, fuel economy standards for automobiles that mandate a 54.5 miles/gallon average for the 2025 model year may inspire manufacturers to accelerate investments in innovations, including electrified vehicles, that yield high payoffs in years ahead.
Regulations can also be important in preventing “hot spots” where hazardous co-pollutants that are emitted along with carbon impose unacceptable risks on local populations. A one-size-fits-all carbon price does not take into account how public health benefits vary across pollution sources.
But it would require a considerable leap of faith to imagine that no regulations would be rendered superfluous by carbon pricing. For example, the Clean Power Plan’s carbon emission standards for power plants could become redundant once a serious carbon price is in place.
Moreover, all signs emanating from Washington are that the power plan will be scrapped by the new administration. If so, the practical question is not whether regulations will go, but whether anything will replace them.
The idea of carbon dividends originated more than a decade ago with the entrepreneur Peter Barnes, whose visionary book Who Owns the Sky? made the case for carbon dividends on the grounds that the atmosphere’s limited ability to absorb carbon emissions belongs to the people, and that everyone should share in payments for use of this scarce resource.
Over the years this idea gained modest political traction, notably in the cap-and-dividend bills proposed by Senators Maria Cantwell (D-Wa) and Susan Collins (R-Me) and by then Congressman (now Senator) Chris Van Hollen (D-Md).
However, bipartisan support for climate policy instead coalesced around cap-and-trade plans that would have awarded free carbon permits to polluters (rather than auctioning the permits as in cap-and-dividend). In this case, the revenue from the carbon price paid by consumers would have gone to corporations that got free permits, a windfall that proponents of the policy thought would neutralize opposition by the fossil fuel industry.
That hope proved unfounded. Successive cap-and-trade bills — McCain-Lieberman (2003), Lieberman-Warner (2007), and finally Waxman-Markey (2009) — all failed to survive the legislative gauntlet on Capitol Hill. Part of the opposition came from fossil fuel lobbyists whose preferred option turned out to be no policy at all, and from industry-funded climate change denialists.
But opposition also came from centrist Republican politicians who did not want to back a tax that would spark voter resentment. “By imposing a tax on every American who drives a car or flips on a light switch,” declared House Speaker John Boehner in opposing the Waxman-Markey bill, “this plan will drive up the prices for food, gasoline and electricity.” Democrats contested this argument, memorably claiming that the cost to the average American would be “about the price of a postage stamp per day.” But, in fact, Boehner was right. The postage stamp number came from a Congressional Budget Office study that estimated the cost of clean energy and efficiency investments to reduce emissions. Boehner was talking about the price that consumers would pay for emissions that are not reduced, much of which would have wound up as those windfall profits for energy companies.
Carbon dividends do not clear the political hurdle posed by the vested interests of corporations who do not want their fossil fuel reserves turned into stranded assets. But dividends do surmount the hurdle raised by Boehner, by turning the tax (a regressive one at that) into a net financial gain for the majority of Americans, benefiting low-income households and protecting real incomes of the middle class.
Carbon dividends could even dent opposition from those who doubt that climate change is real since, as its proponents note, the plan’s economic benefits “accrue regardless of one’s views on climate science.” Indeed James Baker says he’s still uncertain as to whether humans are responsible for climate change. But in the face of uncertainty, he and George Shultz write in their op-ed that “the responsible and conservative response should be to take out an insurance plan.” For most Americans, whose dividends would exceed what they pay in higher fuel prices, this insurance policy would not only be free, it would pay them.
Setting the carbon price
A key feature of any carbon pricing policy is whether the price is high enough to drive the necessary reductions in fossil fuel consumption within the necessary time frame. A price of $40/ton would be a good start, but it would need to rise over time. The question is how.
This is one reason why some carbon dividend backers (myself included) have favored a carbon cap over a carbon tax. Under a cap with auctioned permits, as in the Regional Greenhouse Gas Initiative of the northeastern states, the number of permits is fixed by the cap and their price can vary. Under a tax, the price is fixed and the quantity can vary. Apart from this, the two are equivalent. Because the precise relationship between price and quantity cannot be known in advance — no one can say exactly what price will reduce emissions by a specified amount, especially over the medium and long run — a cap that “gets quantities right” is the better way to hit the target.
Carbon tax proponents worry, however, that fluctuations in permit prices would impede long-range planning by investors. They also worry that cap-and-permit systems could be opened to permit trading and market speculation, or weakened by “offsets” that offer polluters alternatives to buying permits.
One way to address the concerns on both sides of this debate is to combine a cap and a tax in a hybrid policy. For example, changes over time in the tax could be calibrated to the quantity of emissions, rising automatically whenever reductions fall short of the targets. This strategy was implemented in Switzerland’s carbon levy on power plants.
The case for carbon dividends
In the past, support for carbon dividends has been limited by competing preferences of carbon pricing advocates. Among conservatives, the go-to option has been to use carbon revenue to cut other taxes, especially corporate income taxes, in the belief that this would spur economic growth. This belief is grounded in the orthodox doctrine that income taxes necessarily impose an “excess burden” on the economy, lowering total output by reducing supplies of labor and capital. This supply-side theory is taught as gospel in most graduate economics programs, despite the widespread phenomena of unemployed labor and idle capital – in other words, excess supply of both factors of production – in the real world.
Among liberals, the go-to option typically is to earmark the carbon revenue for worthy public purposes, especially clean energy investments. At first blush this may seem like a way to speed the transition from fossil fuels, but as long as the policy includes quantitative limits on emissions it could affect only how the emission targets are met, not total emissions. For example, if the money is used to subsidize more efficient electrical appliances, this frees more space for emissions from other sources like transportation fuels.
Liberals also often contend that any payments to shield consumers should be means-tested, with eligibility restricted to the needy. While this would mitigate the regressive impact of carbon pricing, it would raise administrative cost. Dwarfing this concern, however, may be the political cost of excluding the middle class. Much as the universality of Social Security and Medicare has safeguarded these programs from rollback attempts over the decades, universal dividends could safeguard climate policy over the decades needed to complete the clean energy transition.
For many conservatives and liberals, dividends may remain second to their favorite alternatives. But given that neither side has the political muscle to prevail on its own, dividends may define the scope for a political compromise that brings an effective carbon price. To their credit some prominent conservatives have figured this out. It remains to be seen whether they can enlist significant support from their fellow Republicans, and whether their liberal counterparts will figure it out, too.
Roughly one-third of Oregon’s greenhouse gases come from the transportation sector. In 2009 the state legislature passed House Bill 2186 authorizing the Oregon Environmental Quality Commission to adopt rules to reduce the average carbon intensity of Oregon’s transportation fuels to 10 percent below the 2010 emissions. However, the oil industry fought against regulation from the get-go, and lobbied heavily to allow the bill to sunset in 2016, which would have re-established the industry’s monopoly over fuel choice in Oregon. A broad coalition of environmental organizations, led by Oregon Climate Solutions, lobbied successfully in 2015 for the passage of Senate Bill 324. This allowed the Department of Environmental Quality to fully implement the Clean Fuels Program in 2016.
The Clean Fuels Program aims to lower carbon emissions in the transportation sector in Oregon by 10 percent over 10 years – from 2010-2020. It requires oil companies to blend low-carbon biofuels, or to purchase credits that support electric vehicles, natural gas, and other cleaner fuel alternatives to reduce emissions. And since Oregon has abundant clean fuels available from farms, forests, and waste disposal facilities, the program creates market demand for local fuel alternatives.
The oil industry is the most powerful opponent — with the deepest pockets and well placed political assets – which environmentalists face in our battle to de-carbonize before it is too late. Because the clean fuels program is aimed directly at big oil, it challenges the organizational and political skills of environmental organizations in Oregon as never before. The real story lies in the educational campaign waged to inform the general public and rebut false claims from industry spokespersons and the strategy used to form the broadest possible coalition of organizations in support of SB 324. Various coalition partners pressured and worked with State Representatives, State Senators, the Democratic Party leadership, and the Governor’s office to defeat endless attempts to water down and derail the bill, which did not cease even after it was passed and signed into law!
Marc Lee is a Senior Economist with the British Columbia office of the Canadian Centre for Policy Alternatives and researcher with E3 Network’s Future Economy Initiative. Marc joined the CCPA in 1998, and is one of Canada’s leading progressive commentators on economic and social policy issues. Since 2008, Marc has been the Co-Director of the Climate Justice Project (CJP), a research partnership with the University of British Columbia, funded by the Social Sciences and Humanities Research Council.
The narrative on climate change this fall is a familiar one: global greenhouse gas emissions hit another record high last year; extreme weather events are causing record damages; and yet we face an impasse in global negotiations for a new climate treaty, and a relentless push for ever more fossil fuel extraction – seemingly because there is no alternative. On the other hand, demands for action at events like the Peoples’ Climate March, and the growing calls for divestment from fossil fuels, there is a growing movement joining the climate scientists in their call for humanity to change course. But this movement needs more good news stories to counter-balance the gloom, and to start reimagining a sustainable and equitable future.
Around the world cities have asserted a leadership role in wrestling with climate action. Where I live, in Vancouver, British Columbia, my federal and provincial governments are deep in denial, enamoured by fossil fuel riches, but my city aspires to be the greenest of them all. Cities ostensibly have a more limited policy toolbox than senior governments, yet decisions on land use planning, buildings and urban infrastructure can have a powerful long-term impact on their carbon footprint.
My case study looks at Vancouver BC’s Neighbourhood Energy Utility, and its repurposing of district energy as a key ingredient in urban planning and greenhouse gas mitigation. At its core, district energy is primarily the use of centralized boilers to provide heat and hot water to multiple buildings. It’s comparatively technocratic and boring, with appeal among engineers and energy economists. And it’s old, with examples of steam systems (powered by fossil fuels) in downtowns across North America going back more than a century. Continue reading…
What’s rent got to do with climate change? More than you might think.
Rent isn’t just the monthly check that tenants write to landlords. Economists use the term “rent seeking” to mean “using political and economic power to get a larger share of the national pie, rather than to grow the national pie,” in the words of Nobel laureate Joseph Stiglitz, who maintains that such dysfunctional activity has metastasized in the United States alongside deepening inequality.
When rent inspires investment in useful things like housing, it’s productive. The economic pie grows, and the people who pay rent get something in return. When rent leads to investment in unproductive activities, like lobbying to capture wealth without creating it, it’s parasitic. Those who pay get nothing in return. Continue reading…
On November third James Hansen signed an open letter addressed to environmental organizations urging them to demonstrate “real concern about risks from climate damage by calling for the development and deployment of advanced nuclear energy.”
Like Hansen and some notable long-time environmentalists who have recently come out in support of nukes, I am desperate. I am desperate because, like them, I know we we have very little time left to pull off the greatest technological “re-boot” in human history, turning global fossil-fuel-istan into global renew-conserve-istan before it is too late. That is why I recently sent my own open letter to those in the climate justice movement who argue that green capitalism is an oxymoron and climate change can only be solved by economic system change. In my view those who argue that greener capitalism is a false hope and not worth pursuing have no sense of time. They have no sense of how fast irreversible climate change is coming compared to how fast we can marshal support for economic system change. However, I find it sad that people like Hansen are caving on nukes when we do not need dangerous or new technologies to solve the problem. Continue reading…
In the coming months, President Obama will decide whether to approve the permit for the Keystone XL pipeline, which would transport crude tar-sands oil from Alberta to the Gulf of Mexico. We know that the pipeline would greatly aggravate climate change, allowing massive amounts of the world’s dirtiest oil to be extracted and later burned.
The payoff, say supporters such as the U.S. Chamber of Commerce, is a job boom in construction industries, which are currently suffering from high unemployment. Earlier this month, Chamber of Commerce CEO Tom Donohue called on the president “to put American jobs before special interest politics.”
If you believe headline-grabbing challenges such as Donohue’s, the president is painted into a corner on the KXL pipeline — trapped by a stagnant economy and an ailing environment.
New research shows that replacing failing infrastructure in Keystone XL states creates more and better jobs than the proposed pipeline
Replacing aging wastewater, drinking water, and gas distribution pipes in Montana, South Dakota, Nebraska, Oklahoma, and Texas can create more jobs and better jobs in the pipeline and construction industries than the proposed Keystone XL pipeline, according to a new report released today by E3 Network and Labor Network for Sustainability.
The Keystone XL pipeline has been touted as a means to address America’s job crisis. This new report, The Keystone Pipeline Debate: An Alternative Job Creation Strategy, shows that we can create five times more jobs than Keystone XL by investing in much needed water, sewer, and gas infrastructure projects in the five states along the proposed pipeline route. The study finds that meeting water and gas infrastructure needs in the five states can create more than 300,000 total jobs. Every dollar spent on gas, water, and sewer infrastructure in those states generates 156% more employment than the proposed Keystone XL pipeline. Continue reading…
In diverse communities across the US, new economic practices and models are emerging to challenge business-as-usual. These bold experiments in the new economy vary widely and exist across multiple scales, from neighborhood collaborative consumption initiatives, to cooperative financing models, to new social enterprise structures, to regional economic development processes, and more. At their core, these approaches are motivated by and responses to rising social inequality, environmental degradation, and persistent economic decline.
These innovations may forge the foundation for a more resilient and equitable future economy, yet evidence regarding their impact has been mostly anecdotal. E3 Network is launching our Future Economy Initiative to catalyze research by economists on new economy models and innovations. The Initiative’s goal is to create an analytical framework for evaluating the social, economic, and environmental impacts of new economy models and for documenting the variables contributing to their emergence, success, and limitations.
Later this year, E3 Network will announce a competitive request for proposals from economists to apply the new framework to US-based case studies of the new economy. Right now, we invite input from economists interested in helping us to frame the analytical approach and/or identify promising examples of new economy models appropriate for case study analysis. To encourage wider discussion around new economy research, we encourage you to share your input in the form of a blog post (800 words or less) that we will post here on the E3 blog. Please comment below and send your blog entry or other suggestions via email to firstname.lastname@example.org. You can also find us on twitter at @e3network – let the conversation begin!