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April 30 2012
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2012 E2 DC Advocacy Delegation
MA Senate bill would improve outlook for renewables
Unlocking Energy Innovation: Creating Impactful Technology
Thoughts from E2 Chapter Director Tony Bernhardt
Putting a Price on Carbon and Balancing the Budget
Dont Waste LA
Network, Learn, and Discuss E2's Issues with Other Members
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 2012 E2 DC Advocacy Delegation at the Darlington House 4/17/12
E2’s annual advocacy trip to Washington DC this year charted new territory, even as we confront the reality of a Congress in gridlock, where measures that previously enjoyed bipartisan support are caught in a political logjam.  

As the Administration looks for non-legislative ways to advance clean energy solutions, it has become increasingly important for E2 to meet with the agencies, learn about their energy initiatives and identify opportunities to bring the business voice into the design and implementation processes of these programs.   We therefore expanded our agenda to include the General Services Administration and the Council on Environmental Quality, in addition to the Department of Defense and EPA.

Nonetheless, it remains important for E2 to continue building relationships in Congress on both sides of the aisle.  Key issues are being pushed back to the post-election “lame duck” session. Sequestration, with over six trillion dollars in tax increases, along with one trillion dollars in budget cuts, will kick in at the end of the year, unless otherwise addressed.   Our voice will be particularly important at that time and in 2013 to encourage adoption of sensible approaches to energy and the environment, and push back against bad proposals.

Fourteen delegation members arrived in DC on April 16 for three days of meetings with members of Congress and representatives of the Administration.  Our objective was to highlight the economic growth and job generation inherent in growing a clean energy economy, and to urge Congress to support policies that will keep the U.S. competitive in a global clean energy market currently valued at $2-3 Trillion.

Our delegation, divided into three teams, met with 19 House offices, 16 Senate offices and 5 administration offices, including EPA Administrator Lisa Jackson, senior energy officials in the Pentagon, energy leaders in the Government Services Administration, and senior advisors in the White House.  Senator Ron Wyden; Katherine Hammack, Assistant Secretary of the Army; Jon Powers, Federal Environmental Executive Council on Environmental Quality; and Bob Deans, NRDC Director of Federal Communications addressed the delegation at dinner on April 17th.

The delegation delivered three key messages:

  1. Advance policies to support clean energy development;
  2. Defend EPA clean air emissions regulations; and
  3. Promote the Department of Defense’s clean energy initiatives.
(For a brief synopsis on these three issues, read our leave-behind document here)

(View a list of all our meetings here)

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 L to R: E2 Co-Founder Nicole Lederer, General John Castellaw, E2 Member John Cheney, E2 Member Erin Geegan, and E2 Member Laney Thornton
Advancing Clean Energy Policies
In a time of budget austerity and in the wake of a few high profile clean energy bankruptcies, some Congressional leaders are attempting to dismantle federal support for clean energy established by the 2007 Energy Bill and the 2009 Stimulus Bill. In the House, over 190 anti-environmental votes have been taken in the past year, many aimed at reducing or ending support for clean energy. In the Senate, two recent votes to extend critical tax incentives were unable to break filibuster. Several clean energy tax incentives expired at the end of last year and the renewable energy production tax credit, which affects the wind industry in particular, expires this year, putting 35,000 jobs, many in manufacturing states, at immediate risk. Additionally, funding is threatened for many key programs at the Department of Energy.

E2 delegates advanced the positive impact these supportive policies have in driving economic growth and job generation, as well as stronger U.S. exports of American made clean energy technologies and products.

For a compelling account of the politics surrounding clean energy policies currently in limbo despite bipartisan support, read E2 delegate and Clean Edge Senior Research Analyst Trevor Winnie’s recent blog.

Defending EPA’s Carbon and Toxic Emissions Rules
Over the course of this past year, EPA has issued several important clean air act safeguards that will reduce carbon pollution, smog, soot, and toxic air pollution from power plants. Power plants are the largest man-made source of mercury and carbon pollution in the United States. EPA standards will not only improve public health but also will promote investment in pollution control technologies. The House has repeatedly voted to block or delay mercury standards, carbon pollution standards and other toxic air pollution standards, with some legislators calling EPA regulations “job killers”.

According to EPA, these standards will create approximately 52,000 jobs; 46,000 short?]term construction jobs and 8,000 long?]term utility jobs in the sector.   In addition the standards will produce $37 billion to $90 billion in economic benefits from improved public health.  

E2 delegates communicated to members of Congress our support for EPA’s Mercury and Air Toxics Standard (MATS), the proposed Carbon Pollution Standard which limits carbon emissions from new power plants, and the Cross-State Air Pollution standards issues by EPA, which like the Mercury and Air Toxics standards, will drive the installation of pollution control technologies and level the playing field between businesses upwind and downwind.  We advanced the concern that prolonged ambiguity surrounding emissions policies is creating uncertainty for American businesses, and causing investors to look elsewhere for opportunities, thereby discouraging domestic innovation and job creation.

In a meeting with EPA Administrator Lisa Jackson, we presented E2’s action alert signed by 281 of our members in support of the recently proposed Greenhouse Gas Rules.

 Senator Richard Blumenthal: "Visiting with E2 has opened new areas of action for pursuing environmental protection combined with entrepreneurial investment.  One such opportunity is clean energy use by our military, which I will continue to advocate as a member of the Senate Armed Services Committee, with E2's valuable support.  I am grateful for E2's strong leadership and partnership as I fight to preserve our environment and grow the economy, both achievable and vital goals."

  
 (L to R) E2 Members Jon Gensler, Wanda Reindorf, Jon Foster, and Elton Sherwin
Promoting DOD clean energy initiatives
While Congress debates, the Department of Defense continues to advance its own clean energy agenda for national security.  According to DOD our fossil fuel dependence exposes the U.S. to increased vulnerability at home and abroad, and is a major liability for the armed services.  In last year’s DC trip report, we described the initiatives specific to each of the branches of the military.  Over the last twelve months E2 has continued to engage with the military to understand their objectives and to keep our members abreast of DOD’s work on bases across the country.  During our trip to DC we conducted meetings with members of the Armed Services Committees of both the House and Senate to promote DOD’s clean energy agenda from an economic perspective.  DOD-driven demand for innovation and product development in clean energy has broad appeal, as there is some form of military presence in every state of the union.  The drive to make military bases more energy and resource efficient is resulting in greater civilian employment in communities surrounding those bases, and DOD’s commitment to advancing new energy generation, storage, transmission  and alternative fuels technologies promises economic opportunity and job generation for constituents across the political and geographic spectrum.

To advance the military’s work in this arena and sustain funding for these projects, E2 is voicing our support to members of the Armed Services Committees as they begin work on the annual National Defense Authorization Act. E2 sent a letter supporting the military’s clean energy security initiatives to the House Armed Services Committee prior to action on the FY13 National Defense Authorization Act.  As the bill moves toward passage by the full House, we plan to send out an organization wide action alert before the final vote.

In addition to meetings with members of the Armed Services committees on the Hill, E2 conducted meetings in the Pentagon with the Office of the Secretary of Defense, with the Navy, and also hosted Katherine Hammack, Assistant Secretary of the Army for Installations, Energy and Environment, at dinner.

We were fortunate to have two military veterans on the E2 delegation, General John Castellaw and E2 Member Jon Gensler, each of whom provided expert testimony to the link between national security and clean energy security.

image credit: operationfree.netLt. General John Castellaw USMC (Ret), President, Crockett Policy Institute: "The E2 Hill engagement carried the message to key legislators and staffers that clean energy is a priority for our military because it is a matter of America's national security. Having businessmen and military professionals standing together sends a strong message."
Read General Castellow’s recent op-ed on the importance of clean energy to his home state of Tennessee here.

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 E2 Member Erin Geegan (center) is named a Champion of Change by the White House.
Meeting with White House and GSA
The entire E2 delegation participated in a round table discussion on clean energy policy with White House officials from the Council on Environmental Quality, the Office of Public Engagement, the White House Business Council and the White House Domestic Policy Council.   As part of its ongoing commitment to clean energy innovators, the White House honored E2 member and delegate Erin Geegan on April 19 for her work developing solar carports at Zam Energy.

Another highlight of the DC trip was E2’s first meeting with the General Services Administration (GSA).  GSA is the central agency for acquiring products, services, and workspace for the Federal government.  It provides office space for over one million Federal employees in 9,600 buildings, and offers 12 million products and services to other Federal agencies.  GSA is pursuing aggressive sustainability goals including a 27% reducing in GHG emissions by 2020, and is spending $4.5 billion for green building modernization and some distributed renewable energy generation.  The E2 team heard details of how GSA is pursuing its goals and what hurdles the agency must overcome to achieve them. As with the renewable energy and energy efficiency efforts at the Department of Defense, the efforts at GSA could turn out to be very  beneficial for companies operating in those sectors.  We believe the meeting will be the beginning of a good working relationship between E2 and GSA.

 E2 Member Erin Geegan: "It was an honor and a humbling experience to be a Champion of Change for Renewable Energy... I am grateful to Nicole for nominating me, as with this recognition it is my hope that some of the progress we are making here at Environmental Entrepreneurs can capture the imagination of America... stories like mine can be used to convey the vital progress of clean tech innovation ... designed to promote a safer, healthier environment .. (and) proven to have economically sustainable business models."

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 (L to R) E2 Members Michael Rucker, Trevor Winnie, Joel Serface, Cynthia Perthuis;E2 Executive Director Judith Albert; Scott Slesigner.
Press
Our final meeting was with reporters from Bloomberg, Marketplace Radio (American Public Media/NPR), Dow Jones/Wall Street Journal, EE News/Greenwire, and Platts Energy.  Of these, at least one, Jim Snyder of Bloomberg, followed up w/ an E2 member and included him in his story: " Clean-Energy Requirements Targeted by ALEC, Norquist". E2 discussed the release of our recent Q1 clean energy jobs report. Since Sept 2011, we’ve seen 300 projects in 47 states with the promise of 90,000 new jobs. The release of the report resulted in significant media coverage.

Summary

E2 has found numerous opportunities to advance a clean energy agenda in Washington, DC. EPA emission regulations, GSA purchasing policies and DOD’s clean energy initiatives are creating significant market signals to innovators and investors in this space, and the White House is providing significant support – but business leaders must step up to defend these policies. The economics are on our side, with every region of the country seeing opportunities for expansion in the clean energy sector. All E2 members can support this trend by contacting U.S. Senators and Representatives in the states in which you live or do business, including those where you have significant supply chain relationships. Regardless of what business you’re in, your voice in support of clean energy is enormously important right now.  If you would like assistance in contacting any legislator on these issues, please email E2 Federal Advocate Marc Boom at mboom@nrdc.org.

 Bonus:The Space Shuttle Discovery circles Washington, DC, April 17, 2012, as photographed by Joel Serface!
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 L to R: E2 Directors Dave Miller,& Berl Hartman; Senator Ben Downing, Chair, Joint Committee on Telecommunications, Utilities and Energy; E2 Directors Dianne Callan, Jay Baldwin and Don Reed
On April 5, the Massachusetts State Senate passed S2214, An Act relative to competitively priced electricity in the Commonwealth that revises the state’s landmark energy law, the Green Communities Act. The Senate bill contains some major improvements, including provisions that will:

-Preserve a framework that has made Massachusetts #1 in the nation for energy efficiency policy

-Expand net metering opportunities, providing energy users with an incentive to install renewable generation and the ability to save on their energy costs

-Open net metering to anaerobic digestion, a renewable technology that reduces waste going to landfills, provides local economic development and reduces greenhouse gases;

-Extend and expand long term contracting for renewable energy, reducing financing costs to developers and thereby reducing costs to energy customers;

-Resolve property tax issues for wind and solar projects, facilitating residential, commercial and industrial deployment of a technology whose costs are coming down.

-Mandates for several important studies that could lead to future legislation such as:
 
-A thermal REC program similar to the RPS

-A Clean Energy Performance Standard and

-A study of using centralized procurement for renewables and transmission if the state fails to meet its RPS targets.
 
Broad-Based GCA Coalition is Working to Improve the Bill
Despite the fact that by virtually all measures, the Green Communities Act has been a tremendous success, strong forces were aligned to change some of its most basic elements.  CEOs of the state’s largest employers plus the Attorney General felt that the bill was costing ratepayers too much and proposed changes that would have effectively gutted major parts of the bill and changed some of its most important provisions.

The threat to the GCA brought together an unprecedented group of 20+ diverse organizations and companies to form the GCA coalition, which includes E2, the New England Clean Energy Council, and a host of other groups representing business, labor, healthcare, low-income housing, and environmental groups.  

E2 played an active role in helping to bring the message to key legislators that the Green Communities Act was working. Our message was “first do no harm” while still pushing for targeted improvements. Through numerous meetings, testifying at hearings, an e2 alert, emails and a meeting with the Governor himself, E2 and others made the case for improving the Green Communities Act.

What could have been a disaster has been turned into a victory – for the time being.  But this is just Act 1. We will continue to work to move these positive provisions forward in the House and finally to the Governor’s desk.
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 Richard Lester, Berl Hartman, and Dave Miller
The US has always been at the forefront of innovation—from Thomas Edison to Steve Jobs. But today’s energy and environmental challenges far exceed any we’ve faced. E2 New England and the New England Clean Energy Council presented a joint program on April 17, 2012 to consider how America can accelerate innovation to fundamentally transform our energy production, delivery and use on a global scale.

Dan Goldman, E2 Director, President and CFO of GreatPoint Energy and co-founder and Managing Partner of Clean Energy Venture Group, organized and facilitated the panel discussion, challenging the participants and the audience to focus on energy transformation through affordable, high impact, market driven innovation.

The first speaker on the panel was Dr. Richard Lester, Japan Steel Industry Professor and Head of the Department of Nuclear Science and Engineering (NSE) at the Massachusetts Institute of Technology. His research focuses on innovation management and policy, with an emphasis on the energy and manufacturing sectors. Dr. Lester has published many books on creativity and innovation, including Unlocking Energy Innovation: How America Can Build A Low-Cost, Low-Carbon Energy System, co-authored with David Hart; and Innovation – The Missing Dimension, jointly authored with Michael J. Piore.  Dr. Lester explained that while climate change remains of primary concern, in developing energy innovation (“EI”), we must look at shorter-term imperatives. EI is a long and tough slog. There will be “winners and losers” but innovation does not require consensus at every stage. Stages of Innovation
Dr. Lester believes that future EI will come in three waves: early improvements in energy efficiency, followed (but not before mid century) by deployment of low carbon systems at scale and development of revolutionary technologies (e.g. light weight materials and air capture of CO2).

Each energy innovation happens in 4 phases: discovery of the new technology, demonstration of viability, cost reductions in early adoption and continued refinements after roll out. Any innovation program must accelerate all phases, not focusing exclusively on the front end.

Finally, Dr. Lester highlighted the importance of developing innovations at the regional level. Energy innovations won’t arise from Washington DC for several reasons: deficit and tax reform issues will consume the attention of the federal government for years to come; regional proximity to talent and resources will enable different innovations and the regional diversity can be a source of strength.

The New England Clean Energy Council (NECEC) addresses energy innovation through its 200 cleantech members, a wide array of cluster development programs and regional and federal governmental policy initiatives. Peter Rothstein, President of NECEC, highlighted the differences between innovation in biotech and life sciences versus the energy sector, noting that development and demonstrations of viability in the life sciences takes place in hospitals, encouraged by the medical profession.  A critical problem in energy innovations is the lack of such partners. Peter explained that NECEC is working to develop New England’s strengths and resources with a goal of developing and prototyping regional energy innovations in other locations, but more funding is critical.  

The final panelist, Dr. Riccardo Signorelli, CEO of FastCAP Systems, described the challenges of taking energy innovation out of the lab into the market. FastCAP is internationally recognized for its groundbreaking work in developing its innovative ultracapacitor technology, enabling high-power, high-energy and low-cost energy storage for the automotive and grid storage markets. After raising nearly $8 million in federal funding and private investment in 2009, Signorelli and the FastCAP team are working to commercialize the technology, based on six years of research and development by Signorelli at MIT.  Dr. Signorelli noted the challenges of shifting from the initial “start-up” culture to marketing and revenue growth while retaining the organizations innovative mentality.

E2 and NECEC would like to thank our hosts the law firm Brown Rudnick LLP for the use of its conference facilities and the luncheon fare.
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 E2 Chapter Director Tony Bernhardt
At the Ecosalon of March 28 Ray Kopp of Resources for the Future told us that a tax of $25 per ton of CO2 would raise about $125 billion in annual revenues and that, if spent wisely, these revenues would benefit the economy far more than the cost of higher energy prices.

The purpose of this article is to illustrate the impact that a CO2 tax of $25 per ton would have on primary energy prices that we all experience - natural gas, electricity and gasoline - without reference to economic benefits that might accrue from the revenue it generates. 

The point that I hope to make is that this price, in and of itself, has only a small impact on the economy compared to the changes that we have seen in energy prices in the recent past.  This will be illustrated graphically for each energy source in the charts that follow.

$25 per ton of CO2 is in line with price expectations of world markets.  Point Carbon has surveyed expectations for carbon prices in 2020.  That is a good year to consider because markets are just starting up now in Europe and California and by 2020 they will have come into equilibrium (e.g. almost all allowances will be auctioned rather than given away). The Point Carbon 2011 survey indicates a price expectation in California of $17-50/ton in 2020.  Their survey shows a 'global reference price' expectation of $35-40/ton in 2020.

Effect on natural gas prices: A CO2 tax of $25 per ton corresponds to an increase of $1.37 per thousand cubic feet ($1.37/tcf) of natural gas[1]. As the chart below shows, wholesale natural gas prices have fallen in the last year from $4/tcf to $2/tcf, due to shale gas production.  Futures contracts for natural gas indicate that by this summer prices will be back to $3/tcf, where they are expected to level out.  The chart also shows that natural gas prices were around $6/tcf for most of the period from 2003 to 2009 with two spikes to much higher prices. At $3/tcf, natural gas still costs half of what it was during that period and even with our tax the price would be 27% less than it was from 2003 to 2009. 

In the last decade we have had an overall price range of almost nine times the value of the suggested tax.  Just in the last year we had a drop in price of 150% of the tax and in the next few months we will have a rise of 73% of the tax.  A carbon tax of this magnitude will affect our economy much less than market swings.

Importantly, the US holds a large competitive advantage over other industrialized countries in terms of the cost of natural gas.  Unlike oil, natural gas is not transported around the world in sufficient quantities to establish a world price.  For decades there has been talk of establishing a fleet of liquified natural gas (LNG) ships and terminals to take natural gas from low cost sources to high cost markets and this may yet happen but for now the US is the low cost market. Europe pays in excess of $11/tcf and Japan and Korea pay more than $15/tcf.  In India, natural gas costs about $14/tcf.  In two provinces in China where the government is allowing market pricing to replace state-controlled pricing, natural gas costs about $12.50/tcf. Thus a $1.37/tcf tax in the US does not significantly reduce the US advantage in its cost of natural gas.

Effect on electricity prices:  A tax on carbon will raise the cost of electricity in the US.   Approximately half the electricity in the US is generated from coal and a carbon tax will add almost twice as much to the price of coal-generated power as it does to natural gas generated power.  Of course, hydro, geothermal and renewable power sources are affected by a carbon tax only in the cost of materials for construction of new facilities (e.g. cement and steel).

A carbon tax will increase the already strong incentive of electricity producers to switch from coal to natural gas as the lowest cost generation option.  45% of coal power plants are more than 40 years old.  Natural gas is cheaper than coal as a fuel even without a tax on carbon.  Thus, for many utilities, it is more cost effective to build a new natural gas plant than to perform the maintenance and modifications required to meet recent EPA regulations governing the emission of SO2, NOx, particulates, mercury and coal ash.  Indeed the low cost of natural gas power will also inhibit the construction of nuclear power plants.

The effect of a $25/ton tax on CO2 is shown below is the map of the U.S. that Ray Kopp discussed on March 28th.  The numbers on the map show the price in cents per kilowatt hour (kWh) of electricity in each area outlined.  The color of each area indicates the increase of the price of electricity due to the tax.  In areas where coal is the major fuel source the price increases 2-3 cents/kWh. In areas where little coal is used the cost is less than 1 cent/kWh.  For example, in Washington state, where 66% of electricity comes from hydro and only 8% from coal, the price of electricity only goes up by 0.35 cents/kWh.  In California, where 52% of power is generated from natural gas but most of the rest is from hydro, nuclear, geothermal, wind and solar, the price goes up by 0.81 cents/kWh.  In Illinois where 47% of power comes from coal the price increases by 1.1 cents/kWh and in Kansas where 68% of power comes from coal and 20% from natural gas, the price increases by 1.9 cents/kWh.  Of course, the price of electricity from coal-intensive utilities will come down when they switch to natural gas. 



In the last decade wholesale prices in electricity markets across the country moved in a range of about 3 cents/kWh to 9 cents/kWh.  The chart below shows the daily price data from the Northeast, the Pennsylvania-New Jersey-Maryland (PJM) and California (Palo Verde West) markets. Prices from mid 2001 to mid 2008 generally followed an upward trend from about 3 cents/kWh to about 8 cents/kWh.  Then the recession hit and prices fell back to about 4 cents/kWh where they have remained. Disregarding the 2000-2001 electricity crisis in California and spikes of less than a month in duration, there have been four periods of around six months duration in which prices rose or fell by about 4 cents/ kWh.

A carbon tax will have a more noticeable effect on electricity prices than on natural gas prices.  For regions where most electricity is produced from coal the tax is as much as half the medium term market price fluctuations and the longer-term price trends.  For most other regions the effect is less than a quarter of such market swings.  For Kansas, the effect of the tax can be reduced by taking advantage of that state's prodigious wind resources and shifting to natural gas as coal plants reach the end of their useful lives.



Effect on gasoline prices:  $25 per ton of CO2 translates to an increase in gasoline prices of 28 cents per gallon.  The graph below shows the price of regular unleaded gasoline since 2000.  The price has risen from $1.50 per gallon to over $4.10 per gallon in mid 2008, back down to $1.60 per gallon at the end of 2008, back up to just under $4.00 per gallon in mid 2011, back down to $3.40 in December and looks to be heading back to $4.00 per gallon next summer.  As in the case of natural gas, price changes since 2008 are 9 times the magnitude of the tax. 


Summary:
A price of $25 per ton of CO2 is in the range of what markets expect for the year 2020.

• The main effect of pricing carbon is in the electricity sector where it will accelerate the process of fuel switching from coal to natural gas. 

• States that make heavy use of coal in their electricity generation will be most affected by the tax. Nevertheless, electricity price swings are more than twice the tax in such states. 

• The effect of the tax on natural gas will be to raise its price to 27% less than it was in the period from 2003 to 2009.

• Natural gas and gasoline consumers are far more affected by market price swings than they will be by this tax.  People who have been driving for 5 years have experienced prices of $4 per gallon and $2 per gallon, and everything in between several times.  Would a tax of 28 cents per gallon have very much impact by comparison?



[1] The price of natural gas is also quoted in $ per million Btu ($/mmBtu).  Fortunately a million Btu of energy corresponds to within 10% to the energy in a volume of 1000 cubic feet of natural gas, so $2/tcf  equals $2/mmBtu

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 3/28 E2 Ecosalon in San Francisco
On March 28, E2 and Resources for the Future co-sponsored an Ecosalon at PG&E in San Francisco to delve into the prospects for a carbon tax in the context of budget reform.  Bob Epstein led off the presentations with a discussion of public attitudes on pricing carbon.  His in-depth analysis appears in a separate article in this issue of the E2 Newsletter.

Phil Sharp, President of Resources for the Future, presented his assessment of the political landscape going into the elections.  He began by reviewing recent Congressional actions on energy: phase-out of incandescent light bulbs, expiration of ethanol tax credit and the failure, so far, to extend the production tax credit for wind. 

He also briefly discussed regulatory actions on energy:  EPA regulations on existing power plant emissions (mercury but not yet CO2), new power plant CO2 emissions, and fuel efficiency standards for medium and heavy-duty trucks.  One of the dangers for the environmental community is that Congressional factions and some business groups are trying to eliminate EPA's power to regulate CO2.  A future carbon tax, they can argue, will take care of the problem.

The biggest recent development in energy, according to Phil, is the dramatic fall in natural gas prices as a result of shale gas development over large parts of the U.S.  This is driving electric power generators to switch from coal to natural gas to fuel power plants.  If a carbon tax is adopted it will accelerate that trend. 

Phil sees a carbon tax coming up in the context of budget and tax reform. For the environmental community, pricing carbon is an excellent way to recognize the economic and societal cost of climate change, but as a revenue source it can also have significant economic benefits if the revenues are spent wisely. Phil's view is that now is the time for analysis and discussion away from the limelight so that when the subject comes up in the political arena the options will be clearer.

Regarding the legislative process to come, Phil observed that that budget and tax reforms, and a carbon tax, will not be enacted as a grand package.  Instead, it will be a multiyear step-by-step process.  The carbon tax process will probably be just as messy as the Waxman-Markey cap and trade bill was in the House. The advantage of present budget circumstances is that special interest pleadings that reduce revenues will be more difficult.

Ray Kopp of Resources for the Future told us that a likely value for a carbon tax would be $25 per ton of CO2, which would raise about $125 billion in annual revenues. To understand what such a tax would mean for primary energy prices - natural gas, electricity and gasoline - see the article by Tony Bernhardt elsewhere in the issue. This sum is not enough to eliminate the deficit[1] but it would provide enough revenue to promote economic growth and offset the harmful effects of higher energy prices, provided it is spent in one or more of the following ways:

1. reduce tax rates on business and/or personal taxes

2. fund spending of infrastructure or R&D

3. reduce the Federal budget deficit (thereby reducing the need for other taxes or reductions in public spending)

Ray elaborated on the first point because its effect is enhanced if distortionary tax breaks are eliminated in favor of tax reductions on desirable activity.  For many in the audience tax breaks on oil, gas and coal came to mind for elimination, but Ray also mentioned that subsidizing renewables is also be an ineffective way to promote economic growth.  An example of a popular candidate for more favorable treatment is the payroll tax - hiring should be encouraged not discouraged.

Kristin Eberhard of NRDC ended the presentations of the evening in a philosophical vein.  She acknowledged that $25 per ton of CO2 is not enough to cause reductions of greenhouse gas emissions to levels required by 2030, let alone those required by 2050.  It is, however, a good start to a social process required to rebuild Americans’ confidence and trust in one other and in their common government.  She alluded to the Tragedy of the Commons in which individuals are incentivized to exploit a common resource until it is used up, even though those individuals would benefit from sustaining the resource over time.  E2, NRDC, coastal states and the Federal government have all dealt with this problem in efforts to sustain healthy fisheries in US coastal waters.  Kristin regards a healthy atmosphere as a common good that is currently being exploited, but that could be sustained through joint agreement and management. 

Right now American society is particularly divided, in terms of education, attitudes and incomes, and it is now pessimistic about the future.  This state of affairs is a departure from our history. In a striking chart Kristin showed the ratio of CEO pay to the pay of the average worker.  In the US in the 1950s the average CEO made 50 times what the average worker made. In the 1990s the ratio was about 100.  And in 2009 the ratio exceeded 450.  Another chart divided family incomes into quintiles, from the lowest 20% of family income to the highest 20%.  From 1947 to 1973 the increase in family income in all quintiles increased by about the same amount, around 100%, with the lowest quintile increasing by 117% and the highest by 89%.  From 1979 to 2009 incomes from the lowest 20% to the highest increased by -7.4%, 3.7%, 11.2%, 22.7% and 49%, respectively.  This trend toward extreme disparity is neither 'fair' nor is it good for the economy.

Fairness is a value shared by conservatives and liberals with only slightly different interpretations.  Equal opportunity and reward according to contribution/achievement/ability are fairness concepts.  Taxation brings concepts of fairness (taxation in proportion to income) in direct conflict with self-interest ("don't tax you, don't tax me, tax the guy behind the tree"), recalling the Tragedy of the Commons.

The solution to the Tragedy of the Commons is to create rules and norms to manage common resources.  These rules will be respected if people feel that the rules are fair.  Kristin believes that a discussion of a carbon tax in the context of fiscal reform will establish that it is fair to require payment for polluting our common atmosphere.


[1] The deficit drops to about $200B by 2015 if the Bush tax cuts are not renewed and the automatic spending cuts associated with the failure of the Super Committee are triggered at the end of this year.  Otherwise the CBO estimates that the deficit will likely hit about $800B by 2015 and increase from there.  See http://www.cbo.gov/doc.cfm?index=12699

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 LA sends 3 million tons of waste to landfills annually.
E2 Southern California, in alliance with the Los Angeles Leadership Council, is working to help Los Angeles become a zero waste city by 2030. Specifically, NRDC is part of the Don’t Waste LA coalition, a group of organizations working to establish standards in the commercial and multi-family waste and recycling industry.  The City of Los Angeles sends approximately 3 million tons of trash per year to landfills.  LA’s commercial and multi-family sectors are responsible for approximately 70% of the waste we send to landfills, thus these sectors are currently underperforming in terms of recycling.  For example, the commercial sector only sends 19% of its waste to diversion facilities.  Currently, the City has an open permit system with few standards for participants to meet. The Don’t Waste LA coalition is currently advocating for an exclusive franchise system.  Under the current proposal endorsed by the Los Angeles Board of Public Works, the City would be divided into 11 wastesheds, and each wasteshed would have one hauler serve all commercial and multifamily properties.  As part of that business, the hauler would be expected to meet rigorous standards, including achieving high rates of diversion of waste from landfills. An exclusive franchise system also allows for reducing unnecessary truck trips on streets, which then reduces traffic, noise, congestion, and pavement damage.

Members of both groups  recently met with Councilmember Eric Garcetti to discuss the issue and heard from him that this will really come down to economics. In the next coming weeks, members will participate in a tour of a local landfill, meetings at City Hall with City Council members and testify for an exclusive franchise system.

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