Lieberman Warner criticism, Part 3

This is the third in a five-part series exploring the details of the Lieberman-Warner Climate Security Act. See also part 1 and part 2.

Let’s do a thought experiment. Imagine that tomorrow morning, you wake up, reach in your pocket, and find that you suddenly have billions of dollars of cash. Before you have a moment to celebrate, you also realize that you are lying in the middle of an interstate, and there is a big truck coming. What do you do?

(a) Issue an RFP for research, development, and deployment of technologies that will help you get off the highway;

(b) Issue an RFP for research, development, and deployment of crash-retardant pajamas;

(c) Invest in wildlife conservation measures to protect the flora and fauna on the side of the highway that are about to be covered in blood, guts, and twisted metal;

(d) Set aside money for truck driver grief counseling, or;

(e) All of the above.

If you chose (e), read no farther. You have identified yourself as a person who thinks that the Lieberman-Warner approach to greenhouse-gas reduction is perfection incarnate. If, on the other hand, you think that there was a fairly important idea not even listed amongst the options above (hint: it has to do with getting your butt off the highway and/or stopping the truck), then you understand the flaws innate to the Lieberman-Warner approach.

(And if you chose a, b, c, or d … you’re one odd duck. But at least you’ve signaled your self-interest in high-tech solutions to simple problems!)

The example is silly, but it points out deeper flaws within the Lieberman-Warner model. As I noted in part 2, L-W does impose small sticks on GHG polluters, but contains no carrots to incentivize good behavior. Worse — as pointed out metaphorically above — it bounds the universe of possible responses to climate change in an absurdly narrow fashion. Rather than creating a policy to quickly and cheaply reduce greenhouse gas emissions, it directs funds to government-picked winners and social engineering projects … and in so doing, makes it all the more likely that we will get hit by the truck of global climate change.

Here’s why:

As I’ve noted before, Lieberman-Warner creates two pots of government largesse: proceeds from GHG auctions and allowances to emit same (the latter of which may have a financial value on secondary markets). By pre-stipulating where both pots are to go, the bill names some massive winners over the next 42 years. Let’s therefore take a look at what actions will be incentivized under this bill.

Auction proceeds

To summarize my prior post:

1. A maximum of 69.5 percent of all GHG pollution will be auctioned off, but not until 2031. In all cases, more than 30 percent of the pollution is given away as a gift to polluters.
2. The proceeds received from this limited auction are distributed first to EPA, the Forest Service, and the Bureau of Land Management to cover various operating expenses. Of the remainder, 54 percent is dedicated to research, development, and deployment of technologies to reduce greenhouse-gas pollution. The remainder are distributed to a broad array of social engineering activities, from wildlife conservation to national security.

Taken together, this means that at a maximum, 54 cents of every dollar received from GHG sources goes towards GHG reduction. And since, at a maximum only 69.5 percent of GHG sources have to pay, that means that Lieberman-Warner only provides direct incentive to reduce 69.5 percent x 54 percent = 37.53 percent of our greenhouse-gas emissions. Calling this a half-assed approach to GHG reduction would be mathematically generous.

Allocation distribution

Now let’s look at the other pot. A significant part of the allocations are given to existing polluters, to slowly phase in the costs of GHG compliance. Those are complicated enough to warrant a separate discussion, which I will cover in a later post.

(Random, unrelated aside: Do you ever get the feeling that ACCCE has Charlton Heston‘s pre-recorded voice echoing through Capitol Hill shouting “Ease Our Pain,” à la Field of Dreams? I do.)

However, there are additional allocations given to a variety of programs not directly related to GHG production. Since these free permits to pollute have an inherent value, it’s worth taking a close look at how they are distributed.

1. 0.5 percent to tribal communities.
2. 1 percent to programs that expand mass transit.
3. 9 percent to electric utilities, distributed pro-rata based on their electricity sales in the prior year. (In other words, the more energy they sell, the more allowance they get.)
4. 4 percent to natural gas utilities — again, pro-rata based on gas sales.
5. 4 percent as a “bonus allowance account” to be distributed in later years to anyone who can geologically sequester CO2.
6. 5 percent to reward farmers to “adopt practices to increase CO2 [sic] storage in plants and soils,” 0.5 percent of which can go to projects that reduce nitrogen oxide or methane emissions from the agricultural sector.
7. 2.5 percent to projects that reduce tropical deforestation in other countries.
8. 34 percent in “Transition Assistance” to electric utilities, rural electric cooperatives, petroleum refiners and importers, energy-intensive manufacturers and hydrofluorocarbon producers, gradually declining to zero by 2031. (That voice again! Ease their pain … ease their pain … )
9. 1 percent to projects that reduce methane from landfills.
10. 7.5 percent to the states.

The 7.5 percent that go to the states come from three different sources:

1. 1 percent to state governments that can demonstrate that at least 90 percent of their new buildings meet codes for energy efficiency.
2. 2 percent to state governments that institute decoupling regulations. (This is complicated enough to warrant further discussion in a later post — but note that it is in direct conflict with gifts allocations No. 3 and No. 4 above.)
3. 4.5 percent to state governments based on a formula where state population accounts for one-third of the distribution, the fraction of the state’s residents receiving low-income energy support accounts for one-third of the distribution and the volume of fossil fuel extraction and processing in the state accounts for the remaining third. (This is the Zimbabwe provision, whereby we provide an incentive for state-level policies that result in more poor, fertile miners.)

The states are then directed to distribute their allowances amongst various programs that are too long to list here but include encouragement to invest in curbside recycling, promote energy efficiency, improve mass transit, and a long list of other activities. For the most part, these are rather noble social aims, but it’s worth taking a closer look at just one to see how much trouble can result from any regulation that is this big and complicated.

There are various directives for states to use their allowances to ameliorate the effect of climate change, from relocation of flooded communities to wildfire suppression. However, there is also a directive for states “to address local or regional impacts of climate change policy” (my emphasis). One can envision all sorts of nefarious programs falling under this program, from coal mining to power generation, where big industry sticks their tear-soaked hand out to get state compensation for those damned climate change policies. This may well have been well-intentioned (e.g., creating jobs for unemployed miners), but it sure does look easy to game. While just one example, this points out the inevitable implementation problems that will bedevil any bill that is this big and complicated.

Confused yet? Note that many of the picked winners and social engineering directed by Lieberman-Warner aren’t innately bad. But it sure is an inefficient way to control GHG emissions.

We need to get away from winner-picking and social engineering, and instead focus simply on doing one thing — GHG reduction — well. The truck is coming, and the stakes are simply too high to accept this level of government-mandated inefficiency in our response.