"The choice will be clear. It will be McCain and cap-and-trade or Obama and cap-and-trade. The key question is this: Which one do you want negotiating with Nancy Pelosi on the content of that cap-and-trade legislation?"

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Climate, Carbon Emissions, and Energy Choices: Why States Should Act

by REP Policy Director Jim DiPeso
Speech given to Mainstream Republicans of Washington conference,
Gig Harbor, Washington, May 17, 2008

Thanks, Toby, for putting this great panel together.

I should mention that while Mr. (Chris) Horner from the Competitive Enterprise Institute and I will have different perspectives today, Republicans for Environmental Protection and CEI are on the same side fighting against the Democrats’ proposal to add wind damage to hurricane insurance coverage.

The last thing we need is for the government to encourage more construction on oceanfront property at risk of hurricane damage, especially if climate change results in stronger and/or more frequent hurricanes.

Well, it’s a gorgeous sunny day with highs forecast in the low 80s. That may be spring-like weather for warmer parts of the country, but for us here in the Northwest, that’s summer.

And I thank my lucky stars that this panel was not scheduled for a month ago when we had that unseasonable snowstorm. The last thing I ever want to do is speak on a global warming panel when it’s snowing outside.

I'll start by setting some context.

I'll tell you a story about John McCain’s energy policy adviser. That would be Jim Woolsey, former head of the CIA.

At a congressional committee hearing about climate change, Woolsey made some policy recommendations for reducing greenhouse gas emissions. Afterward, he listened to a congressman go on about the issue, that no one is sure it’s real and even if it is, it will cost too much to fix it, etc., etc.

Woolsey held up his hand and said, words to the effect, “Congressman, do you realize that seven of the nine steps that I’ve recommended with respect to climate change also make sense for enhancing our energy security.”

Oh, the congressman replied. Well, in that case, that’s different.

(Former) Governor (Daniel) Evans said much the same thing earlier this week on a panel up in North Bend with Senator McCain. Whether you think global warming is happening or not, many of the steps necessary for reducing carbon emissions are beneficial for other reasons and ought to be pursued anyway. One of the sources of CO2 emissions is oil.

So, let me show you four good reasons to reduce oil dependence. (Slide showing photographs of Mahmoud Ahmadinejad, Osama bin-Laden, Hugo Chavez, and Vladimir Putin).

What do these guys have in common? They benefit from U.S. dependence on oil. As long as we are dependent on oil, we will be sending money, directly or indirectly, to regimes that are hostile to America’s interests. Some of that money will find its way into the cash boxes of people who wish to do violence to our country, our citizens, and our allies.

Our dependence on oil is a strategic liability. Increased domestic drilling is not a permanent solution to this problem. Essentially, world demand is going up and a greater share of global oil production will be centered in the OPEC nations.

Yes, we can turn to coal-based liquids and shale. Aside from their serious carbon and water consumption issues, coal-based liquids and shale won't help all that much. Every year, the Department of Energy runs energy outlook scenarios. Even under a generous scenario of high prices and reduced fuel demand in 2030, we're still obtaining half our liquid fuels from the global oil market.

Reducing dependence on oil through greater efficiency and diversifying our fuel choices is urgently necessary, even if global warming were not an issue.

But if the scientists are right, or close to being right about climate change, prudence dictates that we reduce emissions. And don't forget, there could be money on the table for first-movers, as the CEO of Nissan knew full well when he made this provocative comment a few days ago:

(Slide showing quote from Nissan CEO Carlos Ghosn: "Nothing can stop the car being the most coveted product that comes with development, and more efficient conventional engines are not the answer. We must have zero-emission vehicles. Nothing else will prevent the world from exploding.”)

How much would it cost to reduce greenhouse gas emissions? The Department of Energy released an analysis of the Warner-Lieberman cap-and-trade bill likely to come up for a vote in the Senate next month. Without going into exhaustive detail, it's safe to say it offered grist for mills on both sides of the debate. It all depends on the assumptions that you make about the availability of carbon abatement technologies, the speed with which they can be scaled up, and the cost and availability of real, verifiable carbon offsets on a global scale.

In my mind, a lot will depend on how smart and aggressive we are about adopting the energy efficiency options lying on the table. A study released by the McKinsey Global Institute estimates that adopting energy productivity measures with an internal rate of return of at least 10 percent could lower global energy demand 25 percent by 2020 without diminishing the quality of energy services that we enjoy. That would bring a corresponding reduction of 27 percent in greenhouse gas emissions, because many of the efficiency opportunities lie in energy-intensive industrial applications and in power generation.

Basically, we can get a lot more bang for our energy bucks.

Another important point is that our choice of futures is not growth vs. destitution, as some imply. Abating greenhouse gas emissions will have costs, but it's important to put those costs into perspective. Again, depending on the assumptions, the Department of Energy analysis estimates that the Warner-Lieberman bill will shave GDP between 0.1 and 0.8 percent below the business-as-usual projection by 2030. Is that a fair cost for the benefits of greater energy security and cleaner air, as well as a stable climate? That's a value judgment that I leave to you to think about.

You can assess the economic impacts of GHG reductions in the comfort of your own home. You don't have to be an economist. You don't even have to pass the math WASL.

Yale University has put up a web site called See For Yourself where you can mix and match assumptions from a menu derived from 27 macroeconomic models and 1,400 model runs. You can be as optimistic or as pessimistic as you want.

Let's say you want to cut emissions 40 percent by 2030. What would happen to the economy? First, let's do the sunshine-and-lollipops scenario. Everything goes swimmingly. America becomes much more energy-efficient, technological innovation takes off, renewables are cost-competitive, and offsets are available globally. Here's the resulting GDP in 2030, compared to business-as-usual GDP. As you can see, they're almost identical. For perspective, here's today's GDP. All of these numbers are in 2005 dollars, so we're comparing apples to apples.

Now, let's do the doom and destitution scenario. Nothing goes right. America leaves energy efficiency opportunities on the table, inventors stop inventing, engineers think of nothing new, and entrepreneurs stop innovating. Here's the result, again with today's GDP for comparison, and again in constant dollars.

As you can see, there is some reduction in GDP, but we’ll still a lot richer in 2030 than we will be in 2010.

Now, what my Minnesota in-laws would call the fair to middlin' scenario. Some things go right, some don't. Like real life. Here are the results. Again, only a small reduction in GDP compared to business-as-usual.

The next thing we need to keep in mind is that regardless of who’s elected president this year, No. 44 will be on record in favor of a cap-and-trade plan for reducing greenhouse gas emissions. Both the major candidates, and I'm assuming that Hillary is now running mainly for exercise, accept the science of global warming, as elaborated by the IPCC, the National Academy of Sciences, the University of Washington Climate Impacts Group, and other distinguished bodies. Assuming that the Warner-Lieberman bill does not pass Congress this year, probably a somewhat similar bill will be introduced next year, but with a new president.

The choice will be clear. It will be McCain and cap-and-trade or Obama and cap-and-trade. The key question is this: Which one do you want negotiating with Nancy Pelosi on the content of that cap-and-trade legislation?

Bottom line is that we will have a national climate policy in this country. It's a matter of when and how, not if.

What should states, including Washington, do while the federal government lumbers into action?

One of the philosophical questions that often comes up is, why should a medium-sized state like Washington worry about this? This is a national and global scale issue. We have only 2 percent of the nation's population, less than 3 percent of the GNP. Shouldn't we wait for China to act? Shouldn't the Legislature stick to its knitting -- like improving schools and fixing traffic congestion?

Number one, I don't buy the notion that we should defer to China on anything, least of all leadership on an important issue.

Number two, in a sense, the horse is already out of the barn. We're in the climate policy business already.

First, remember Governor Evans' insight that even if you think the jury is still out on global warming, there are other good reasons for adopting, for other reasons, policies that also happen to reduce greenhouse gas emissions.

(Gubernatorial candidate) Dino Rossi's transportation plan, for example, includes incentives for buying hybrid, electric, and alternative fuel vehicles, and switching the state fleets to those vehicles. Those steps are in the public interest regardless, because they will help achieve cleaner air, lower fuel costs, and stimulate the market for alternative fuel production technologies.

The state is already doing other things that touch on climate, often for other reasons.

In 2006, the voters adopted Initiative 937, which sets certain standards for utilities to acquire renewable energy. The state has adopted standards for tailpipe emissions, appliances, and public buildings.

Second, HR 2815, which explicitly sets greenhouse gas emissions reduction standards, was passed this year and signed into law.

In an ideal world, the states would leave this to Congress and Congress would have acted on this matter already. There's much to be said for a national program that creates a national emissions reduction market, lowers transactions costs, and reduces opportunities for gaming the system.

But Congress hasn't acted. The states, including Washington, lost patience and stepped into the breach. You have the Regional Greenhouse Gas Initiative, or RGGI, in the Northeast, which applies emissions limits to power plants through a regional cap-and-trade system. That goes into effect next year.

In the West, we have the Western Climate Initiative, which includes Washington, six other Western states, and three Canadian provinces, which is planning a multi-sector cap-and-trade market. The Midwest is planning its own regional market.

Since the Western states are going to develop a regional policy, Washington had better be at the table to make sure that Washington's interests are protected. As the CEO of Duke Energy likes to say, if you're not at the table, you're on the menu.

For example, as (Commissioner of Public Lands) Doug Sutherland has mentioned, shouldn't Washington get credit for carbon sequestered as a result of its forestry management and conservation policies, the nation's strongest? Where do you set the clock running for counting that sequestered carbon? This year? Last year? The year those policies were adopted? Important questions. We need to be there.

Also, Washington is far more dependent on carbon-free hydroelectric power than the other participating Western states. How should emissions allowances be divvied up to ensure that Washington is not punished for its long history of relying on renewable energy? I.e., if allowances are distributed based on historic emissions, hydro-dependent utilities wouldn't get any. Should Tacoma Power be forced to buy allowances to serve load growth from a coal-dependent utility that has surplus allowances?

There are other reasons for states to have their own climate policies.

States can be a real-world proving ground for various approaches to reducing emissions that the federal government, in its infinite wisdom, may deign to learn from. For example, Washington could be the place to test sequestration approaches in our forestry and ag sectors, including the generation of carbon credits for sale.

It is not wise to assume that implementation of a national program should be left entirely to the federal government, with uniform rules and centralized administration by DC bureaucrats who know next to nothing about our state and think that geoducks are cute birds that you feed at city parks.

Cutting emissions in many diverse economic sectors will be a complex, difficult undertaking. Conditions will vary from state to state. Local knowledge will be invaluable. A better approach to top-down administration would be a state-federal partnership that employs local knowledge.

There is adaptation to consider. A degree of global warming is already "in the pipeline," as it were, even if carbon emissions ended today. The state and local governments would be wise to plan ahead for meeting water demand in a world with thinner snowpack, protecting coastal property from rising sea level impacts, gearing up for longer and nastier forest fire seasons, and preparing public health systems. We can't rely on the federales to do that for us, nor would we ever want them to.

To wrap up, the climate issue is here and it's going to stay here. There are important reasons for using energy more efficiently and diversifying our energy choices, even if you don't believe the climate scientists.

And climate will be the largest, most difficult public policy undertaking that our country has ever experienced. No one entity, least of all the federal government, is smart enough to figure this out on its own. States should play a strong role in designing policy, testing different ideas, and serving as the laboratories of democracy. Thank you very much.