Reason Foundation

The Year 2011 in State Government Privatization and Public-Private Partnerships

Posted on April 24, 2012, 3:53pm | Leonard Gilroy

The rollout of Reason Foundation's Annual Privatization Report 2011 begins today with the release of the State Government Privatization section, which I co-authored with Reason's Lisa Snell. This section of APR 2011 provides an overview of the latest on privatization and public-private partnerships in state government. Topics include:

• In New Jersey, the Christie administration continued to expand its portfolio of privatization initiatives in 2011, which included highway maintenance, manual toll collection, state-run horse racing facilities, vehicle fleet operation, the NJ Network TV station and more.
• Two ratings agencies upgraded Louisiana's credit rating in 2011, citing the state's strong fiscal management, strong employment levels and sustainable levels of public debt. Privatization remained a central feature of the Jindal administration's fiscal management in 2011, with progress on some of its major healthcare privatization initiatives in Medicaid delivery, public employee health care and behavioral health services.
• New Ohio Gov. John Kasich has already taken significant steps to advance privatization as a key component of his governing agenda, including privatizing the state's economic development agency, selling a state prison to a private operator, and hiring advisors to analyze the potential privatization of the Ohio Turnpike and Ohio Lottery.
• In late 2011, Washington State became the first state since the end of Prohibition in 1932 to fully privatize the sale and distribution of liquor, and several other states, including Pennsylvania and Virginia, considered similar moves. Today, 33 states have completely private wholesale and retail trade in liquor, while 17 states still retain a state-run wholesale and/or retail liquor monopoly.
• Puerto Rico continued to emerge as a leader in attracting private investment in public infrastructure, with public-private partnerships undertaken or underway in 2011 that include a modernization of 100 K-12 schools, a $1.5 billion toll road lease and an ongoing procurement for a long-term lease of San Juan's international airport.
• In 2011, both Texas and Connecticut enacted broad-ranging laws to authorize private sector financing for infrastructure assets.
• As state park systems continued to face significant fiscal pressures in 2011, policymakers in states like Arizona, Utah and California took steps to expand the use of private for-profit and nonprofit operators to take over state parks threatened with closure.
• Illinois' groundbreaking lottery privatization program got underway in 2011, an initiative designed to generate an additional $1 billion in revenues to the state over the next five years. Policymakers in California, New Jersey, and Ohio are considering similar moves.
• After years of implementation challenges that prompted a dramatic overhaul, Indiana's privatized welfare eligibility modernization program significantly improved its performance in 2011, prompting federal officials to authorize its expansion throughout the state and award the state $1.6 million in recognition of its progress at reducing its error rates for food stamp processing.
• Other topics include public-private partnerships in higher education, an update on state child welfare privatization systems and more.

» Annual Privatization Report 2011: State Government
» Complete Annual Privatization Report 2011 homepage

The Facts Behind EPA's Greenhouse Gas Regulations

Posted on April 3, 2012, 5:35pm | Adam Peshek

After the defeat of his carbon dioxide cap-and-trade legislation in 2009, President Obama told a room of reporters that there was “more than one way to skin a cat.” And in the new political era of regulation without legislation, the President’s EPA has released standards on carbon dioxide that do just that.

In perhaps its most sweeping regulatory approach to date, the EPA under Lisa Jackson recently released New Source Performance Standards (NSPS) for carbon dioxide, which aim to cut greenhouse gases emitted by the U.S.

In today’s post, I will look at the logic behind the rule and its fundamental flaws. In later posts I will look at what’s next for carbon dioxide regulations and an examination of the very idea of regulating carbon.

How EPA Skins a Cat

The NSPS requires all newly constructed power plants to meet an emissions standard of 1,000 pounds of CO2 per megawatt-hour (MWh) regardless of the type of fuel. The average coal-fired power plant puts out 2,000 pounds of CO2 per MWh and newer, more efficient models emit about 1,800 pounds per MWh. Simple math shows that the future of coal-fired electricity in the U.S. looks bleak, even for the industry’s best facilities.

Advocates for the new rules (who apparently must portray themselves as pro-coal) say that the new rules will not hurt the coal industry. That is because the rule only calls for 1,000 pounds of CO2 per MWh over a 30 year average. So in theory, a coal plant could emit 1,800lbs of CO2 for the first 10 years of operation, so long as it implemented yet-to-exist technologies to cut its emissions to 600 pounds per MWh by year 11.

If only it were that simple.

EPA’s rationale for the feasibility of the regulation is two-fold: (1) technologies will be available in the next decade that allow the capture and storage of CO2 emissions from coal and (2) the abundance of cheap natural gas that has flooded the market in the past few years.

The (Un)available Best Technology

The section of the Clean Air Act (CAA) that details the NSPS directives requires EPA to create regulations based on the “best system of emission reduction” that “has been adequately demonstrated,” taking into account costs, environmental impacts, and energy requirements.

The technology EPA points to with this regulation is called "carbon capture and sequestration" (CCS). CCS involves the capture of carbon dioxide from power plants before it is emitted and then the storage of the captured gas underground. The problem with using CCS as a “best available technology” is that it is not in use anywhere in the U.S., and is only in use in experimental, highly expensive sites in a handful of sites in Europe. It is nowhere near the point of viability technologically or financially.

EPA’s own, typically bullish analysts themselves admit that CCS viability is at least a decade away. To make this pass muster, EPA applied the 30-year average requirement. In doing so, EPA is saying “yes, the technology is not available today, therefore, apply the best technology available and in a decade apply CCS when it is viable.” Government agencies are prone to the conceit that they can predict the future, but this is a stretch even by EPA standards.

Aside from the technological and financial problems involved with CCS, there is also the problem with citing plants in places that can eventually store CO2 underground. This leads to even larger permitting headaches. How can you predict permitting requirements for a technology that is not yet in use and thus has not been subject to federal, state, or local permitting requirements? It is not merely a matter of building a new, modern plant and hoping you chose a site that is adequate for CCS.

Gas, Naturally!

The second, seemingly more logical, rationale for the rule’s approach is the abundance of cheap natural gas that is making coal less economically appealing.

It is true that in the near term, low natural gas prices are already making coal uneconomical, with utilities rushing to refurbish or build new natural gas plants to take advantage of its record low prices. As I mentioned in a post two weeks ago:

A gold rush of shale gas plus the ability to get eight-times the amount of energy from one well has caused gas supplies to skyrocket, driving down prices. With low prices, companies are fleeing the historically inexpensive and dirty coal-fired plants and maximizing natural gas plants, which emit roughly half the greenhouse gases. According to the study, the U.S. emitted nearly 9% less CO2 (the chief greenhouse gas) in 2009 than it did in 2008, mostly because gas prices dropped from $12 per million British thermal units in June 2008 to less than $4 per MMBtu in September 2009. During that time, the cost of generating electricity from natural gas plants fell an average of about 4 cents per kilowatt. With average natural gas prices at $2.30 MMBtu today, it is safe to say this trend will continue. Utilities are shutting down coal-fired plants at record pace and replacing them with new or expanded gas-fired plants.

On average, coal supplies roughly 40 percent of U.S. electricity. But according to the Energy Information Agency (EIA), coal-fired electricity dropped below the 40 percent mark last December for the first time in over 30 years. Coal consumption will likely drop another 5 percent this year according to the EIA. The agency expects natural gas to pick up the slack, with a 9 percent increase this year, or a record high of 22.7 billion cubic feet a day.

However, it’s important to note that these have all been the economics of a struggling economy with a drop in electricity demand. But, as we know, energy needs fluctuate. During last summer’s heat wave, every single unit scheduled for retirement was running to meet increased demand, including coal. Had these facilities been taken off-line there would have been sweeping brown outs across the warmest areas of the U.S.

So, according to EPA’s own analysis, natural gas’s affordability makes NSPS rule unnecessary. Economic factors – not environmental concerns – are already giving utilities more than enough incentive to switch from coal to gas. As noted in my earlier post, this leads to cheaper energy and a cleaner environment. But the Agency is following its usual path of imagining what the future will look like today. With natural gas prices and energy demands locked at 2011 levels, an emissions standard of 1,000 pounds per MWh makes sense. But they refuse to note that maybe, just maybe, market conditions will change. If natural gas prices and electricity demand rise simultaneously, this rule will be enormously costly and may have an effect on keeping the lights on in certain regions.

A New Type of Regulation

From a regulatory standpoint, this is a first for EPA.

As noted above, NSPS requirements in the Clean Air Act require the Agency to create regulations based on the “best system of emission reduction” that “has been adequately demonstrated,” taking into account costs, environmental impacts, and energy requirements. The statute does not allow EPA to prescribe specific technologies, only an emissions level for the source to meet.

For 40 years, the EPA has regulated NSPS based on specific fuel types (oil, gas, coal, etc.), as laid out in statute. For this regulation, however, EPA has chosen not to distinguish between fuel types. Instead, it requires coal to meet the emissions level of natural gas, which can easily meet the requirement. In other words, it implicitly asks coal to meet the emissions levels of gas with a technology that has not been demonstrated as technically or financially viable. If you asked natural gas to reach the emission levels of nuclear, you would also effectively ban natural gas plants. This is not a game EPA has played before, and it is a dangerous precident to set without legislation to point to.

***

Unlike most EPA regulations, NSPS are binding once it is printed in the federal register. This is problematic for two reasons. First, it has effectively put a ban on the construction of new coal plants. Second, any legislative action to deal with this issue is hamstrung by the fact that the rules are not officially “final,” and thus could get around being subject to legislative review. It could easily be more than a year until EPA addresses all the comments and proposes a final rule.

Luckily for the coal industry, there is still a global market for coal. Metallurgic coal is in high demand in China where is used for steel making. Energy-dense bituminous coal is highly valued in places like India where it is burnt for power and heat. In fact, if you look at the countries across the globe who have growing economies, just about all of them are building new, state-of-the-art coal plants.

Electricity demand is flat thanks to a struggling economy, so the results may not be immediate. The question is its effects long term once the economy rebounds.

A big part of this will be whether or not EPA releases regulations on current coal facilities, as they have said they would do. Most observers believe that Obama will issue such regulations if he earns a second term in office.

My next post will look at the implications of a similar regulation on existing sources.

Americans Remain Supportive of Natural Gas

Posted on March 23, 2012, 12:21pm | Adam Peshek

Despite attempts by environmental activists like Josh Fox and his movie Gasland, American support for natural gas slightly rose in 2012, according to a new Harris poll.

Sixty-six percent of Americans think that the benefits derived from natural gas outweigh the risks, compared to only 17% thinking the risks outweigh the benefits (17% unsure). This is a slight increase from 2011, when 64% of Americans supported natural gas.

A majority of Americans from every age, regional and political group thought the advantages of natural gas outweighed risk. Support came from all political affiliations, with 74% of Republicans in support, 62% of Democrats, and 69% of independents.

Without a doubt, the newest, most-affordable, game-changing innovation in the energy field is the adaptation of hydraulic fracturing (fracking) and horizontal drilling in natural gas extraction. In the past decade we have developed technology that allows drillers to extract the same amount of natural gas from one well as they used to be able to get from eight wells. That is an eight-fold increase in efficiency, and does not even begin to discuss how the technology has allowed us to open up vast deposits that were once too difficult to reach.

Not only do these advances make energy cheaper, it cleans up the environment. As I noted in a recent blog:

A gold rush of shale gas plus the ability to get eight-times the amount of energy from one well has caused gas supplies to skyrocket, driving down prices. With low prices, companies are fleeing the historically inexpensive and dirty coal-fired plants and maximizing natural gas plants, which emit roughly half the greenhouse gases. According to the study, the U.S. emitted nearly 9% less CO2 (the chief greenhouse gas) in 2009 than it did in 2008, mostly because gas prices dropped from $12 per million British thermal units in June 2008 to less than $4 per MMBtu in September 2009. During that time, the cost of generating electricity from natural gas plants fell an average of about 4 cents per kilowatt. With avarage natural gas prices at $2.30 MMBtu today, it is safe to say this trend will continue. Utilities are shutting down coal-fired plants at record pace and replacing them with new or expanded gas-fired plants.

Politics & Garbage Privatization in Norwalk, CT

Posted on March 21, 2012, 12:18pm | Leonard Gilroy

The public works director in Norwalk, Connecticut is making a case for privatization of waste collection, estimating savings of over $1.2 million in the first two years. Per The Daily Norwalk:

The city would save $360,000 in fiscal year 2012-13 if it were to outsource garbage collection, says Hal Alvord, director of the Department of Public Works. That figure would jump to $950,000 the following year.

If the plan is not approved, the council would need to add $800,000 to its 2012-13 budget, or the price of four garbage trucks. "Our newest truck is 12 years old," Alvord said. "If the truck is broken down by the side of the road or you can't get it out of the garage, the garbage isn't going to get picked up."

The cost of pickup by city workers would be $126 per household in 2012-13, Alvord said. This compares to $30 a household for recycling pickup, which is contracted to City Carting. Rowayton, which has contracted out garbage collection for decades, will pay $76 a household.

Eight public works employees are assigned to refuse. The city's garbage truck drivers get $30.64 an hour, and the laborers get $22.86 to $29.18 an hour. Private sector drivers get $20 to $23 an hour, and laborers earn $12 to $15 an hour.

The hourly rate does not include benefit costs, according to Jim Haselkamp, the city's personnel director. Alvord said benefits are equal to about 51 percent of a city worker's salary and 30 percent of a private contractor's salary.

"You can see right there, that's the basis for a big chunk of the savings," Alvord said. "Another big part of the savings that we get in Norwalk is from workers' comp from injuries."

Sanitation workers made up 10 percent of the public works staff from 2005 to 2010, but 42 percent of the workers' comp complaints came from the sanitation department. The regular sanitation claims totaled $538,000. Catastrophic claims – from employees whose injuries prevent them from returning to work – resulted in settlements of $1,206,115 to three people. A total of 1,400 work days were lost to sanitation claims.

[…] If the plan goes through, the eight workers would be reassigned as truck drivers and would be paid less. The city has agreed to give them a one-time lump sum payment of $7,000 as compensation, the amount of money they would lose over a year.

"We took this position on outsourcing solid waste because we had a way of continuing to provide that service to residents, to do it in a manner that provides significant savings of money and protects the jobs and health of our employees because nobody would get laid off," Alvord said.

Absent any other information, one might think that at the very least this might be compelling enough for city electeds to authorize a procurement. Remember that going to procurement means nothing more than just the government testing the market to see what kind of bids it gets back. They're not obligated to actually privatize anything if the bids don't pencil out or make fiscal sense. In fact, governments should be doing way more of this sort of bid process for public services, because at the very least—even if you end up not going to contract—you've still gotten a third-party, independent validation of your budget for that particular service, a comparative benchmark of sorts.

But so far, at least based on media reports, that kind of thinking doesn't yet seem to be at play with some of the electeds in Norwalk, who seem antsy amid current union bargaining. Cutting to the chase, from today's Daily Norwalk:

Alvord said last week that many council members had not heard the numbers in the case to outsource. He presented that case in an executive session.

"Clearly they don't understand," he said. "I don't know how anybody can sit here and say, 'I don't see any cost savings.' But, you know, some of these positions were set in concrete long before this."

In other words, pro-labor pols will argue the sky is red if that's the way to avoid privatization. When policymakers get so cozy with unions that even mentioning alternative management regimes that could benefit taxpayers is verboten/scary/heresy, then it's time for taxpayers to reassess the fortitude of their leaders. The unions aren't the root problem; it's electing sycophantic politicians that offer reflexive deference to labor interests over taxpayers.

Do Cap and Trade Programs Spur Technology Innovations?

Posted on March 20, 2012, 2:31pm | Adam Peshek

A long-standing talking point used to promote environmental regulations is the notion that they create the impetus for the private sector to create technological innovations needed for sustained environmental improvement.  But according to a new study in the journal Proceedings of the National Academy of Sciences, cap and trade regulations actually create perverse incentives for the private sector to not innovate.

According to author Margaret Taylor, a researcher at Lawrence Berkeley National Laboratory, some cap and trade programs (CTPs) have succeeded in reducing pollution but they have also reduced incentives for R&D that could produce longer-lasting and more-meaningful pollution controls.

In a pure cap and trade program, a cap is set (usually by the government) on the amount of a pollutant that firms may emit. “Allowances” are distributed to these firms, which represent the right to emit the specified amount of each pollutant. The only way a firm is allowed to exceed their allotted amount of allowances is if they purchase allowances from other firms who have successfully reduced their emissions below their own allowances. This is the “trade” in cap and trade. In effect, the buyer of another firm’s allowances is paying a negotiated amount to pollute more than they should, putting a price on the pollution. Firms with the ability to cheaply reduce emissions will do so and profit from the sale of higher value pollution allowances – thus achieving the cheapest route to reductions in pollution for everyone.

But this only works if allowances represent value, and Taylor’s research shows that in most cases (if not all) analysts wildly overestimate the worth of tradable allowances. The cap-and-trade programs Taylor studied showed extremely low allowance prices across the board. This is because firms adopted “low-hanging fruit” and other unforeseen approaches to reduce pollution in the lead-up to trading. A glut of allowances grew in response, which led firms to bank unused allowances to meet emissions restrictions in the future.

In a sense, the policy succeeds because firms found ways to reduce pollution in the cheapest manner. But Taylor’s research finds that rapid early gains have been followed by a period of stagnation – because lower-than-expected allowance prices give firms the incentive to neglect R&D because of how cheaply they can comply with the cap by hoarding allowances once easy emissions are cut.

"There are usually relatively cheap and easy things to do at the start of any new environmental policy program," said Taylor. "But if doing these things has the tradeoff of dampening the incentives for longer-term innovation, there can be a real problem, particularly when dramatic levels of technological change are needed, such as in the case of stabilizing the global climate."

***

The U.S. implemented CTPs in the 90’s to deal with acid rain, which is produced mostly from sulfur dioxide (SO2) and nitrogen oxides (NOx). Under this program, companies that significantly cut SO2 and NOx emissions could sell their allowances to sources that found it too difficult or expensive to do so.

Taylor started by comparing expected prices for allowances with the prices that showed up once trading began. She found that trading for SO2 and NOx wound up between 50 and 80% of predictions. As a result, most firms simply bought allowances they did not need to stash them away for future use.

As noted above, the program worked in the sense that it incentivized industries to implement the “low-hanging fruit” approaches to emission reductions, such as switching to lower-sulfur coal and other fuel switching. But the drastic decline in the value of allowances actually led to the cancellation of pollution controls like scrubbers and other technologies thanks to the glut in allowances. Industries already in the process of updating their facilities due to existing regulations were incentivized to scrap these projects once the government introduced a cheaper alternative. These low prices also gave reason for innovators working to develop technologies outside of the industry that anticipated returns on their R&D investing would be lower than expected because of the introduction of cheap allowances. Her research also find that patent applications going to technology aimed at curbing emissions reductions of both SO2 and NOx were at their peak before the implementation of the acid gas CTP and fell to lowest levels ever once the program became operational.

***

Does this mean that cap and trade programs are less desirable than the typical command-and-control style regulations? For pollutants that are genuinely harmful to humans (i.e. not greenhouse gases) and ambient in nature, cap and trade programs that truly rely on free-markets, allows flexibility, and adhere to principles of gradual change can be a much welcomed alternative to inflexible, bureaucratic, and process-oriented command-and-control regulations. However, this is another example of the imperfect nature of even the most market-based environmental regulations. Namely, that those who construct them do a terrible job predicting the future, which lead to unitended consequences that benefit no one.

California Issues RFP for Private Operation of 5 State Parks

Posted on March 20, 2012, 1:28pm | Leonard Gilroy

For years, Reason Foundation has recommended that cash-strapped states consider tapping the private sector to take over operations of state parks as a means to lower costs and rescue parks threatened with closure in a difficult budget environment. Both the U.S. Forest Service (USFS) and BC Parks (British Columbia) have long pioneered the use of public-private partnerships (PPPs) for park operations, but states have been slow to follow their lead…until now, that is.

California State Parks (CSP) has issued a new request for proposals (RFP) seeking a five-year concession contract (or contracts) to operate campground and day use recreational areas at five park units in the Central Valley (Turlock Lake SRA, McConnell SRA, George J. Hatfield SRA, Woodson Bridge SRA, and Brannan Island SRA). This is the first serious and robust parks PPP procurement of its kind at the state level. The RFP is here, and CSP's sample contract is here. Bidder responses are due on May 1.

The contract would be structured as a concession, a commercial lease through which the state would retain ownership and control over the parks while paying the private operator nothing to operate them. Instead, the private operator would be allowed to retain the user fee revenues (e.g., gate entry fees, camping fees, etc.), in return for an obligation to pay a set percentage back to the state annually as a form of rent. CSP has set a minimum annual rent level for each park that bidders must exceed in their proposals. Bidders can submit proposals for individual parks, but the procurement is designed to give maximum weight to those proposals that cover all five parks. In fact, the parks in question appear to be a mix of revenue generating and revenue losing parks (once operating costs are factored in), so bundling all of them together is likely to be an attractive option to bidders to maximize their ability to mitigate risks.

Up to now, states have only tinkered with this management approach—with more talk than action, generally speaking—so California's procurement represents a paradigm shift in state parks management, albeit a well proven one. The "whole park concession" model being pursued in California is the same PPP concession model used by the USFS for the operation of hundreds of their fee-based recreation areas across the country for more than 25 years now. I routinely visit and camp at concessionaire-operated USFS recreation areas throughout Arizona—there are dozens in that state alone—and can attest to top quality operations and service, far higher than at the state-run parks nearby. In fact, if it weren't for a different logo on camp hosts' shirts, one might never even realize that the parks were not operated by the USFS directly. California also has dozens of USFS "whole park concession" contracts today too, so park users can go see for themselves that there's nothing to fear—and everything to gain—through shifting to PPPs.

See for yourself in this October 2010 Reason.tv video we shot at privately operated USFS recreation areas in the Sedona area. The video recommends concession management as an alternative to the misguided car tax for parks (Prop 21) that failed at the polls in California in November 2010. For more details on how the parks PPP model works, see these other Reason Foundation highlights:

• Private Sector Can Rescue State Parks Headed for Closure
• Taking State Parks off the State's Books
• Taking State Parks off the State's Books, Part II
• Don't Close State Parks; Lease Them
• Balancing California’s Budget and Preserving State Parks
• California's Prop 21: Tax Cars to Pay for Parks?

And last week, the Franklin Center's Steve Greenhut penned an excellent Reason.com article on the potential for private operation of state parks in California.

But don't just take our word for it. The California Legislative Analyst's Office (LAO) released a report earlier this month that recommended PPPs for park operations:

Our research finds that the USFS, as well as many provinces in Canada, currently use private companies to operate and manage entire public parks and recreation areas. Outcomes for these different arrangements vary, but the reported benefits generally include the flexibility to easily reduce or increase staffing levels and lower operating costs from the introduction of competitive bidding. Lower costs were particularly noticeable if several parks in a geographic area were packaged as a single operation, allowing for economies of scale.

According to the provincial park system of British Columbia (BC Parks), bundling a mix of different parks (low–revenue–generating parks and high–revenue–generating parks) helps to attract potential bidders, since it is unlikely that bidders would otherwise elect to operate low–revenue–generating parks. The BC Parks also makes payments to most of their private operators to cover costs that are not recouped by park visitor fees. Even with these payments, BC Parks considers its operations model a success, because the payments, on balance, are less than the full cost of operating the parks.

Another advantage of using private companies to operate the parks is that they generally can procure new equipment and implement new projects more quickly than the state. In addition, privately operated parks also could assist DPR with its cash flow needs by assuming some of the risks associated with operational costs (including unpredictable user demand and fee revenue). Currently, if revenues from park fees are less than projected, the department must cut its operating costs during the fiscal year to make up for this loss in revenues. If private companies operated some of the parks, they could potentially take on this risk, as well as risks resulting from reduced visitor demand and unexpected maintenance costs.

The new RFP is an extremely positive development for park enthusiasts and users in California and elsewhere. For Californians, these parks would otherwise be slated for closure, so the PPP approach offers a lifeline to not only keep them open for public enjoyment, but to do so on a sustainable basis. By shifting revenue risk to the concessionaire, the state would take these parks out of the vicious budget loop that currently has dozens of parks slated for closure. It may even offer an opportunity to start hacking away at the whopping $1.5 billion in deferred maintenance throughout the California parks system (see Figure 5 in the LAO report).

For those outside of the Golden State, CSP is closely watched by parks administrators in other states, and innovative moves by the market leader would set a strong example likely to be replicated in many other states where parks are threatened. According to a recent Huffington Post article:

"We've gotten some pushback, but people are more and more coming to the realization that our budget has serious problems," Roy Stearns, deputy director of the California Department of Parks and Recreation, told HuffPost. "There are private companies in the Parks and Rec business that do it well. People shouldn’t see private enterprise as a dirty word. Our main goal is to get though these tough times."

Fracking Cuts Greenhouse Gases

Posted on March 19, 2012, 9:49am | Adam Peshek

A decade ago, if the Environmental Protection Agency (EPA) wanted to make realistic cuts to climate-changing carbon dioxide (CO2) emissions they should have thought about pumping water, sand, and chemicals into deep, mile-wide wells to blast open supplies of oil and natural gas. The process, known as “fracking,” has had a direct impact on CO2 reductions in the U.S., according to a study in the Environmental Science & Technology Journal.

Advances in natural gas production have allowed drillers to produce eight-times the amount of gas from each well, causing prices to plummet. Low natural gas prices have incentivized electric utilities to switch from dirtier coal to cleaner-burning gas.

Prior to recent innovations, if producers wanted to extract natural gas they merely drilled down (vertically) to shallow pools of natural gas. But technological advances now allow companies to drill vertically and then horizontally to open up gas-rich shale formations over a mile wide. In other words, instead of drilling eight vertical wells, companies can now drill one well with the ability to hydraulically fracture (frack) long, horizontally drilled wells into otherwise difficult to access shale formations.

A gold rush of shale gas plus the ability to get eight-times the amount of energy from one well has caused gas supplies to skyrocket, driving down prices. With low prices, companies are fleeing the historically inexpensive and dirty coal-fired plants and maximizing natural gas plants, which emit roughly half the greenhouse gases. According to the study, the U.S. emitted nearly 9% less CO2 (the chief greenhouse gas) in 2009 than it did in 2008, mostly because gas prices dropped from $12 per million British thermal units in June 2008 to less than $4 per MMBtu in September 2009. During that time, the cost of generating electricity from natural gas plants fell an average of about 4 cents per kilowatt. With avarage natural gas prices at $2.30 MMBtu today, it is safe to say this trend will continue. Utilities are shutting down coal-fired plants at record pace and replacing them with new or expanded gas-fired plants.

If you told regulators and analysts a decade ago that the U.S. would be converting liquified natural gas (LNG) import plants into export plants by the end of the decade because of newly discovered vast supplies of natural gas they would have laughed at you. Likewise, if 100 years ago you told someone that scientists would create a substance called plutonium, figure out how to immerse it in water to create steam, and run turbines using that steam to create electricity to power our homes with essentially zero emissions you probably would have been checked into a facility. Or, if you told someone in 1970 that something called the internet would be created that would allow you to type a letter and send it across the world instantly without cutting down a tree to produce paper they most likely would have thought you were describing a Sci-Fi movie.

But this is what happens as technology improves. Why is this important? Regulators are usually concerned with environmental benefits but not that interested in cost. They are unable and unwilling to concede that good things can happen if energy markets operate unfettered. This is just another example of how government planners cannot predict how technological advancements bring about environmental benefits and make energy cheaper for everyone.

Owen McShane, R.I.P.

Posted on March 11, 2012, 4:10pm | Samuel Staley

New Zealand-based environmental policy analyst Owen McShane passed away last week, and the world will miss his insight and determined attempt to recast urban planning and natural resource management in a more market and private property rights friendly paradigm. Most recently, Owen was head of the Centre for Resource Management Studies in New Zealand although I first met him when he introduced himself and his work to me while I was establishing Reason Foundation's land use program more than a decade ago. I deeply appreciated Owen's insights as well as his practical approach to resource management and policy. Many of his studies, reports, and columns can still be found on the Centre's web site.

Wendell Cox has a more extensive memorium over at newgeography.com as does the Frontier Centre for Public Policy.

Germany's Green Energy Policies Are Shutting Down Industry

Posted on February 29, 2012, 1:45pm | Adam Peshek

President Obama often highlights the renewable energy policies of certain European countries, only to see those countries quickly abandon their policies shortly after. As I observed in my commentary last week:

Even as President Obama vowed he “would not walk away from the promise of clean energy” or “cede the wind or solar or battery industry to China or Germany because we refuse to make the same commitment here,” German officials were debating whether to cap, reduce, or scrap the country’s subsidies to solar.

German taxpayers have backed more than $130 billion in solar subsidies to date, contriburting largely to rising electricity costs for households (second highest among European countries). But German businesses may be hit even harder.

Last year, following the panic from the nuclear power plant disaster in Japan, German officials voted to phase out all of the country’s nuclear power plants – even though Germany’s vast solar energy systems produce less electricity than two of the country’s remaining nine nuclear plants (8 plants were forced to close in 2011). Siemens recently estimated that the exit from nuclear power could cost German families more than $2 trillion by 2030, roughly two-thirds of the country’s GDP. German newspaper Spiegal reports how these policies are impacting the country’s industries:

Energy prices are rising and the risk of power outages is growing. But the urgently needed expansion of the grid, as well as the development of replacement power plants and renewable energy sources is progressing very slowly. A growing number of economic experts, business executives and union leaders are putting the blame squarely on the shoulders of Merkel’s coalition, which pairs her conservatives with the business-friendly Free Democrats (FDP). The government, they say, has expedited de-industrialization.

The energy supply is now “the top risk for Germany as a location for business,” says Hans Heinrich Driftmann, president of the Association of German Chambers of Industry and Commerce (DIHK). “One has to be concerned in Germany about the cost of electricity,” warns European Energy Commissioner Günther Oettinger. And Bernd Kalwa, a member of the general works council at ThyssenKrupp, says heatedly: “Some 5,000 jobs are in jeopardy within our company alone, because an irresponsible energy policy is being pursued in Düsseldorf and Berlin.”

As President Obama continues to espouse the investments of European countries into renewable energy, his administration would be wise to look at the effect these subsidies have had on businesses and households.

To read more about President Obama's European energy envy, read my commentary "Should We Double Down on Clean Energy?"

EPA's Fuzzy Math

Posted on February 17, 2012, 12:42pm | Adam Peshek

In my opinion piece yesterday I argued that the Environmental Protection Agency (EPA) is using fuzzy math to justify massive regulations:

MATS claims to target one pollutant but draws all of its benefits from another pollutant that is already below EPA-approved safe levels. The air is cleaner than it's ever been, but at $10 billion a year, MATS will be the most expensive EPA air regulation ever. Last week, the closure of nine power plants in four states was announced directly because of the regulation, and more are looming. Affordable energy is key to a recovering economy and when the costs and benefits are weighed, it's clear that this regulation's costs are enormous and the benefits to society are minimal at best.

MATS is supposed to target reductions of mercury and other toxic emissions. But by EPA's own calculations, benefits from reductions in mercury will result in between $500,000 and $6 million in benefts. As I noted, EPA is able to justify a regulation costing $10 billion a year by inflating the benefits that come from reductions in a pollutant that is already below levels that the EPA considers safe.

The Economist has more commentary on this today:

The minutiae of how regulators calculate benefits may seem arcane, but matters a lot. When businesses complain that Mr Obama has burdened them with costly new rules, his advisers respond that those costs are more than justified by even higher benefits. His Office of Information and Regulatory Affairs (OIRA), which vets the red tape spewing out of the federal apparatus, reckons the “net benefit” of the rules passed in 2009-10 is greater than in the first two years of the administrations of either George Bush junior or Bill Clinton.

But those calculations have been criticised for resting on assumptions that yield higher benefits and lower costs. One of these assumptions is the generous use of ancillary benefits, or “co-benefits”, such as reductions in fine particles as a result of a rule targeting mercury.

For more information on EPA's latest $10 billion regulation, see my commentary here.

What Happens When You Diss Your Biggest Energy Importer?

Posted on February 14, 2012, 2:57pm | Adam Peshek

They send their product to China instead.

Last November, Canadian Prime Minster Stephen Harper called approval of the Keystone pipeline a "no brainer." Much to his chagrin, President Obama chose to deny the application for Keystone, a $7 billion project that would transport Canadian crude oil between Alberta, Canada and Port Arthur, Texas via a 1,700-mile pipeline. Canada is not only our largest trading partner; it has the third largest proven reserves of oil in the world, only surpassed by Saudi Arabia and Venezuela.

But PM Harper has made it clear that Canada isn't going to sit around waiting for American politicians to get their act together. Recently in a speech to Chinese businessmen Harper noted: "Currently, 99% of Canada's energy exports go to one country -- the United States. And it is increasingly clear that Canada's commercial interests are best served through diversification of our energy markets." In other words, Canada better find more stable trading channels.

Harper's speech is part of a four-day tour of China where he hopes show Canada's commitment as a potential trade partner. Canada doesn't have a viable way to transport oil sands crude to Asia, but with the current state of Keystone in the U.S., that option may prove to be more economically viable. Plans have been crafted to carry the crude from Alberta across the Canadian Rocky Mountains and to the coast. 

Meanwhile, lawmakers in Congress continue to squabble over how to deal with Keystone -- some want to kill the project entirely, some want to take the permiting power away from the President, some want to put up protectionist measures that ban exporting of oil from Keystone crude, some want to tax the hell out of any revenues that come from the project.

Back in China, PM Harper noted Canada would "uphold our responsibility to put the interests of Canadians ahead of foreign money and influence that seek to obstruct development in Canada in favor of energy imported from other, less stable parts of the world."  

Sound familiar?

Can Environmental Advocacy Organizations be Good Stewards of the Environment?

Posted on February 5, 2012, 6:28pm | Samuel Staley

An interesting drama is playing out in the Mojave Desert where major national environmental organizations, including the Sierra Club, the Wilderness Society, the Natural Resources Defense Council among others, are on board with a plan to effectively destroy six-square miles of public lands. The project is a national energy pet project-a solar energy production facility. According to the Los Angeles Times (Feb 5, 2012),

"Even if only a few of the proposed projects are built, hundreds of square miles of wild land will be scraped clear. Several thousand miles of power transmission corridors will be created.

The desert will be scarred well beyond a human life span, and no amount of mitigation will repair it, according to scores of federal and state environmental reviews.

"The scale of impacts that we are facing, collectively across the desert, is phenomenal," said Dennis Schramm, former superintendent at neighboring Mojave National Preserve. "The reality of the Ivanpah project is that what it will look like on the ground is worse than any of the analyses predicted."

The organizations are justifying their action because they care more about climate change than the environment.  But the effectiveness of this project in making a meaningful dent in US greenhouse gas emissions is far from certain. The plant will provide peak power for just 140,000 users. Taxpayers are subsidizing up to 80 percent of the costs for the $2 billion project, according to the LA Times, and energy bills are still going to go up 50 percent if they use it.

The willingness of the national organizations to bargain away real-world, earth-bound enviornmental stewardship for abstract policy objectives such as climate change should be worrying. How much of the environment are they willing to trade off for climate change, particularly since virtually no meaingful metrics exist for judging the effectiveness of this plant in meeting climate change goals which are global in scale? And the vast majority of greenhouse gases that will be released into the atmosphere over the next 50 years will come from rapidly industrializing countries such as China and India, regardless of what the US can accomplish?

Some of these organizations, the Sierra Club in particular, have squelched local chapters interested in challenging the project. Again according to the Los Angeles Times:

"Mainstream environmental groups, including the Sierra Club, the Wilderness Society, Defenders of Wildlife and the Natural Resources Defense Council, have been largely mute, having traded the picket line for a seat at the table when development plans were drawn.

"The Center for Biological Diversity, one of the nation's most aggressively litigious environmental groups, has not challenged the Ivanpah project. It signed a confidential agreement not to oppose the project in exchange for concessions for the desert tortoise — mandating that BrightSource buy land elsewhere for conservation.

"Some 24 environmental groups signed statements largely supporting the aims of solar developers. National environmental groups joined BrightSource and other solar companies in a letter sent Dec. 14 to the White House, asking the president to continue a federal renewable-energy subsidy.

The national office of the Sierra Club has had to quash local chapters' opposition to some solar projects, sending out a 42-page directive making it clear that the club's national policy goals superseded the objections of a local group. Animosity bubbled over after a local Southern California chapter was told to refrain from opposing solar projects."

So, with the major groups at the bargaining table with the government, whose watching out for the environment in our own backyards?

Ethanol Mandates and Energy Security

Posted on January 31, 2012, 3:58pm | Adam Peshek

In my op-ed yesterday at the Daily Caller, I discussed the misguided policy of cellulosic ethanol mandates, writing:

The question is: Why is the government pouring billions of dollars into the production of nonexistent fuels for “energy independence and security” when the private sector --- through projects like the Keystone XL pipeline --- has the ability to make America energy secure without government handouts?

This is an example of lawmakers who think they can outsmart the private market and overzealous regulators put in charge of enforcing unrealistic laws. The Energy Indepence and Security Act (EISA) set a goal of 250 and 500 million gallons of cellulose to be produced by 2011 and 2012, respectively. So far, no company has been able to produce the fuel commercially. As a result, the EPA decided to reduce the quotas to 6.6 and 8.65 million gallons. Though certainly an improvement (less than 2 percent of the original 2012 quota) oil companies were still fined $6.8 million for not meeting their 2011 target. The fines will increase this year if companies don’t mix the unavailable fuel.

Lawmakers in Congress attempted to give a private company the ability to do this when they passed a measure requiring President Obama to make a decision on the Keystone pipeline. Instead, the President chose to deny the application of the $7 billion project that would transport Canadian crude oil between Alberta, Canada and Port Arthur, Texas via a 1,700-mile, privately constructed pipeline. When it comes to energy security, Canadian Prime Minister Stephen Harper called this project between close trade partners and allies a “no-brainer.”

President Obama called for an “all-of-the-above strategy that develops every available source of American energy” in his State of the Union address last week. His Administration would be wise to allow the development of available, shovel-ready energy projects instead of enforcing sources of American energy that don’t exist.

Global Warming...Cooling...Or Just Climate Change?

Posted on January 29, 2012, 8:24pm | Samuel Staley

Dr Nicola Scafetta, of Duke University in North Carolina, is the author of several papers that argue the Met Office climate models show there should have been ‘steady warming from 2000 until now’.

‘If temperatures continue to stay flat or start to cool again, the divergence between the models and recorded data will eventually become so great that the whole scientific community will question the current theories,’ he said.

He believes that as the Met Office model attaches much greater significance to CO2 than to the sun, it was bound to conclude that there would not be cooling. ‘The real issue is whether the model itself is accurate,’ Dr Scafetta said. Meanwhile, one of America’s most eminent climate experts, Professor Judith Curry of the  Georgia Institute of Technology, said she found the Met Office’s confident prediction of a ‘negligible’ impact difficult to understand."

So, if the Earth is not warming, and it might be cooling, but we really don't know, what's going on? Apparently, the only thing we really do know is that the Earth is changing. The policy implications are actually pretty straightforward in a climate change world, rather than a warming or cooling world: focus on mitigation and adaptation.

For more on Reason Foundation's work on climate change, check out our studies on transportation, innovation, and other related topics at our climate change page on reason.org.

What's Ahead for Keystone

Posted on January 24, 2012, 2:17pm | Adam Peshek

President Obama denied the Keystone pipeline’s permitting last week. As promised, the fun has just begun.

On Sunday, House Speaker John Boehner said “all options” are on the table when it comes to a fast-track solution to Keystone permitting. This suggests that the two most popular options – a payroll tax rider and stripping the president of his permitting authority – are both viable options in the coming weeks.

Tomorrow morning, the House Energy and Commerce Committee will hold a hearing on the ‘North American Energy Access Act’ by Rep. Lee Terry. The act will strip President Obama’s permitting authority for the pipeline and give it to the Federal Energy Regulatory Commission (FERC), the semi-independent agency with jurisdiction over various parts of energy pricing, sale, and permitting.

Some even question if Congress cannot approve the pipeline themselves. The Congressional Research Service (CRS) notes that Congress probably has the Constitutional authority to do just that. As reported by The Hill:

The Jan. 20 CRS legal analysis notes that while the executive branch has historically handled the approval of border-crossing facilities, it doesn’t have to be that way. “[I]f Congress chose to assert its authority in the area of border crossing facilities, this would likely be considered within its Constitutionally enumerated authority to regulate foreign commerce,” the analysis states.

We will wait and see if President Obama addresses his decision in his State of the Union address tonight.

EPA Doesn't Want You to Know What They're Doing

Posted on January 23, 2012, 11:05am | Adam Peshek

On Wednesday December 21, the Environmental Protection Agency (EPA) unveiled its final plans to regulate emissions from American power plants. As I implied that day, EPA’s timing may have been questionable, since they announced this significant regulation at 2pm with less than two days before the long Christmas break, when many people were either on vacation or actively vacationing in their mind.

Turns out this was not by change. A paper from Resources for the Future analyzed over 21,000 Agency press releases between 1994 and 2009 and found that a disproportionate amount of announcements by the EPA come on Fridays and before holidays – when the press, politicians, industry, and the public are less likely to notice.

[W]e analyze whether the press release policy of the EPA maximizes the effects of public disclosure on firms and the visibility of regulatory changes. Taking full advantage of such a strategy would imply releasing news about violations, settlements, and regulatory changes early in the week, when the public is most attentive, rather than on Friday, when there is likely less public and media scrutiny.

We find that press releases about enforcement actions, which include descriptions of environmental violations and resulting punishments, are more often issued on Fridays and on days before holidays. Press releases mentioning environmental awards are less likely to be issued on Fridays and on days before holidays. These findings are inconsistent with the EPA trying to maximize the impact of the disclosure of enforcement actions. The EPA also frequently issues press releases about regulatory changes. Maximizing publicity for these changes could increase awareness of new regulations and advertise the EPA’s activities. Consistent with the general objective of press releases—to increase awareness of regulatory change—we expect these press releases to appear early in the week. A disproportionate number of press releases mentioning regulatory changes occur on Friday, however.

In other words, announcements about “feel good” stories are released when reporters are more likely to see them. Announcements of new regulations and instances where EPA sues or fines companies are more likely to be released when reporters are either unable or unlikely to follow up.

This is just a simple, but telling, example of the political nature of EPA. The paper’s authors note that this practice is inconsistent with the Agency’s desire to maximize awareness by using these press releases to “increase awareness of new regulations and advertise the EPA’s activities.” This implies that EPA wants to shine a light on what they are doing in the first place. Any rational organization (like EPA) knows that if you want something to get done, you don’t give the details two days before a holiday break. The results of this study clearly show they want to keep what they’re doing as quiet as possible.

Keystone Pipeline Likely to be Rejected

Posted on January 18, 2012, 12:59pm | Adam Peshek

As I mentioned last week, the Keystone Pipeline System was the biggest environmental battle of 2011 and will continue to be in 2012. Reuters reports that the Obama Administration will likely reject the pipeline proposal this week, more than a month before a decision needs to be made.

The Obama administration was poised on Wednesday to reject the Keystone crude oil pipeline, according to sources, a decision that would be welcomed by environmental groups but inflame the domestic energy industry.

The administration could make its announcement on TransCanada's Keystone XL pipeline late on Wednesday or on Thursday, a source familiar with the matter told Reuters. TransCanada Corp. shares slid more than 3 percent after the news.

The proposed $13 billion system would transport Canadian crude oil between Alberta, Canada and Port Arthur, Texas via a 1,600 mile pipeline.

Last November, President Obama, facing a multi-day environmental protest outside of the White House, decided to delay making a decision on the proposal “until at least 2013, pending further environmental review.” One month later, the Republican-controlled U.S. House inserted language into an important payroll tax deduction bill requiring the President to make a decision on Keystone by late February.

This decision will be cheered by environmentalists, but will be met with opposition from labor unions, another important constituent for Obama's reelection. Labor unions have strongly supported the proposed pipeline, citing the thousands of construction, maintenance, and operations jobs associated with its construction.

In delaying the decision Obama will most likely blame House Republicans for forcing him to take a position before a robust environmental review could be conducted. This is a red herring. This project has been under scrutiny for more than three years and two comprehensive environmental reviews have concluded that this project will not adversely affect the environment. The only question the President has to determine is if this project is in the national interest. With low employment and as Iran threatens to close the Strait of Hormuz - a major route for more than one-sixth of global oil supplies - getting energy from our ally to the north seems like a no-brainer.

Despite this looming decision, don't expect the issue to be settled. Keystone will be a major issue throughout 2012, including the Republican primaries and the general election in the fall.

Keystone XL in 2012

Posted on January 11, 2012, 12:51pm | Adam Peshek

The Keystone Pipeline System was, perhaps, the biggest environmental battle of 2011. The proposed $13 billion system would transport Canadian crude oil between Alberta, Canada and Port Arthur, Texas via a 1,600 mile pipeline.

Environmental protesting of the pipeline began in early 2011, but Keystone XL began making headlines in November when several thousand protesters held a multi-day protest at the White House demanding that the President order the State Department to deny the federal permitting required to finish the project. On the other side of the argument were labor unions, which pressed Obama to approve the permit in order to create thousands of construction, maintenance, and operations jobs associated with its construction.

Four days into the White House protests, the President announced that he would delay the decision “until at least 2013, pending further environmental review.” It appeared that Obama had dodged a political bullet, giving environmentalists a short reprieve without fully disappointing labor unions whose support he needs for reelection.

This maneuver was squashed in December when the Republican-controlled U.S. House inserted language into an important payroll tax deduction bill requiring the President to make a decision on keystone within 60 days. After several days of heated political exchange, the measure was eventually cleared by both chambers and Obama will be forced to decide Keystone’s fate in February.

Environmentalists and industry are both spinning the abbreviated decision in their favor. Industry is betting on the guaranteed jobs and economic boost to force Obama’s hand in approving the permits. Environmentalists see a forced decision as a way for Obama to back out of the deal, saying 60 days was not long enough for the State Department to conduct a conclusive environmental survey.

In either case, expect Keystone XL to be a major issue in February and in the elections of 2012.

EPA's Utility MACT - More Policy-Driven Science

Posted on December 21, 2011, 10:51am | Adam Peshek

Today at 2pm, EPA Administrator Lisa Jackson will visit a children’s hospital in Washington, D.C. and unveil the Agency’s new Utility MACT rules. She will stand at a podium, most likely surrounded by doctors and sick children, and proudly announce that starting today, children and pregnant women will no longer have to worry about the main menace being targeted with these rules – mercury. Unfortunately, these rules will have negligible impact on mercury and, as President Obama promised while campaigning, the regulation is really targeted at putting an end to the coal industry in the U.S.

...

Mercury is a neurotoxin that can harm fetal development and reduce I.Q. in children. It can find its way into bodies of water and accumulate in fish, which has lead health officials, in the name of “better safe than sorry”, to caution women about eating types of seafood when pregnant.

EPA estimates that it will cut mercury emissions by nearly 90% by pressing forward with these rules, which impose $11 billion in annual compliance costs for utilities. It is widely accepted that, at the very least, these compliance costs will pose difficult problems in ensuring that the lights stay on for many Americans.

But EPA says it’s worth it. They proclaim that the rules will eliminate 11,000 heart attacks, 17,000 premature deaths, 120,000 cases of asthma, and an overall reduction of 850,000 sick days per year. Risk analysts nation-wide will cheer at such impressively accurate estimates.

Further, EPA’s cost-benefit analysis, or Regulatory Impact Analysis (RIA), estimates between $53 and $140 billion in annual health benefits thanks to this rule going forward. The only problem is that these benefits have absolutely nothing to do with reductions in air toxics emissions – the entire purpose of the rule. In fact, EPA’s own estimates show benefits of only $500,000 to $6 million per year – less than .01% of the estimated benefits. This is due to the reduction of just one of the toxic air pollutants, mercury. 

So where are the benefits coming from? Entirely from particulate matter (PM). PM is targeted by other regulations, but for the past couple of years, EPA has been using it as a way to push through industry-specific regulations that it could never pass on a basic cost-benefit analysis. It’s able to do this by calculating coincidental “co-benefits” of PM for rules that are not targeting PM.

EPA currently considers PM emissions above an average of 15 micrograms per cubic meter (μg/m3) to be harmful to human health. However, EPA has been calculating PM risks as low as 4 and 5μg/m3 – three times below what EPA defines as safe. A key and very dubious assumption being made with this method is that risks to PM are linear to zero. In other words, EPA is assuming that changes in air quality at safe and nearly unobservable levels have the same effect as changes at high levels where legitimate health associations have been determined. David Kreutzer at the Heritage Foundation describes it well:

Suppose a study examined accidents in which four people each fell a distance of 50 feet. If two of the four died, the prediction of what is called a linear-dose response is that for every 200 feet that a population falls, two people will die. This would be averaged out among the population and the distance of falling. For instance, this linear-dose response would predict that for every 400 people who step off a six-inch curb, two will die from the impact. A cost-benefit calculation using this assumption would show that even a small city would save thousands of lives per day by cutting down all curbs. Though stepping out into street may be dangerous for other reasons, dropping down six inches is not the cause of any fatalities. Nor would eliminating curbs reduce any of the other dangers of stepping into the street.

Likewise, the EPA’s analysis of the Utility MACT rule using a linear-dose response is way off base, because existing mercury and particulate levels are more analogous to stepping off a six-inch curb than a 50-foot cliff.

EPA says it will reduce mercury by 90% with these rules. But clearly, based on EPA’s own analysis, this will be 90% from an already negligible amount.

This is just another example in EPA’s long and dubious use of cost-benefit analyses to drive industry specific regulations to eliminate coal. Don’t believe me? Here is then candidate Obama discussing his policies regarding coal:

Climated Gate(s) and the Ethics of Global Warming Science

Posted on December 14, 2011, 3:31pm | Samuel Staley

NCPA environmental policy analyst Sterling Burnett has an interesting and useful blog post over at the National Association of Scholars web site discussing recent attempts by mainstream global warming scholars to intentionally muddy the public debate and even hide data to prevent independent verification. It's worth a read for those (like me) who don't have time to follow the intricacies of the debate and need a quick update and thumbnail summary of the implications.

In addition, Sterling makes this interesting observation about the crucial role skepticism plays in scientific inquiry and how prominent global warming scholars have intentionally politicized science in fundamental ways:

The term skeptic has historically been a badge of honor proudly worn by scientists as indicating their commitment to the idea that in the pursuit of truth, nothing is beyond question, every bit of knowledge is open to improvement and/or refutation as new evidence or better theories emerge. However, in the topsy-turvy field of climate science, “skeptic” is a term of opprobrium and to be labeled a skeptic is akin to being a heretic in the Middle Ages – you may not be literally burned at the stake, but your reputation will be put to flames.

States Struggling with Toxic Waste Should Follow NJ, MA Approach

Posted on December 6, 2011, 8:44pm | Harris Kenny

Jim Malewitz, staff writer at Stateline (a project of The Pew Center on the States), reports:

States across the country are trying to bear the burden left by what many people – from environmental health advocates to chemical manufacturers – have described as a gaping hole in federal law. The uneven nature of state regulation leaves virtually no one satisfied.

Advocates of change now hope the increased awareness in state legislatures will translate into a sense of urgency in Congress, as it considers the latest attempt to overhaul the 35-year-old and never-updated Toxic Chemicals Safety Act.

This burden can be separated into three separate issues: First, cleaning up sites already polluted with toxic waste; second, disciplining individuals, businesses, and government bodies responsible for pollution; and third, reforming existing regulation to prevent further pollution of government-owned property.

Fortunately state policymakers don’t have to wait for Congressional action to address the first issue of cleaning up sites already polluted with toxic waste. Over the last few years New Jersey and Massachusetts implemented innovative programs that essentially privatized cleanup of toxic waste sites.

As Reason Foundation reported in Annual Privatization Report 2009, in May 2009 New Jersey lawmakers enacted a bill with overwhelming bipartisan support that privatized the cleanup of nearly 20,000 contaminated properties in the state. The move overhauled the state’s Department of Environmental Protection’s (DEP) site remediation program, which failed to put a dent in cleaning up nearly 20,000 contaminated sites.

The law authorized polluters to hire licensed private consultants to clean up the contaminated properties and certify their safety. The law also set mandatory time frames for cleanups and subjects environmental consultants to high standards and strict oversight. In a related move, former Governor Jon Corzine signed an executive order requiring the DEP to increase its oversight at certain sensitive sites, including schools, daycare facilities, and playgrounds. These measures were modeled after similar programs enacted previously in Massachusetts.

As for disciplining individuals, businesses, and government bodies responsible for pollution and reforming existing regulation to prevent further pollution of government-owned property… State policymakers shouldn’t hold their breath waiting for the federal government. The collective government failure to protect the environment from toxic waste strengthens the argument that voluntary private conservation is the silver bullet to tragedy of the commons dilemmas like this.

For additional related work, visit Reason Foundation’s Environment Research and Commentary Archive.

Baltimore Continues Pursuit of Private Partnerships for City Rec Centers

Posted on December 5, 2011, 6:25pm | Harris Kenny

This summer Baltimore, Maryland Mayor Stephanie Rawlings-Blake’s Recreation Center Task Force focused on saving the city’s 55-facility recreation (rec) center network by identifying $300,000-$400,000 in annual cost savings through public-private partnerships (PPPs). If implemented, the Recreation Center Task Force Report published August 19, 2011, would have ensured:

• All City recreation centers would have remained open with current operating hours through summer/fall 2011. No recreation centers are planned to close this year;
• There would have been no layoffs of existing recreation center staff;
• Recreation center staffing and hours would have been increased at most City centers;
• Baltimore City Recreation and Parks would have appropriateed over $14 million within the next two years to build new community centers and extensively renovated certain existing centers; and
• The Department would have implemented charter center, collaboration, and partnership programs at up to 25 existing centers.

The full Recreation Center Task Force Report is available online here.

Mayor Rawlings-Blake applied the Task Force’s recommendations and issued a Request for Proposals (RFP) (posted online here) for three-year contracts to “stabilize recreation facilities and move them towards safer, more encompassing community centers with expanded services available through partnership based on financial reality.” Only five bids were accepted as meeting minimum city requirements; however even if they were all accepted, 18 rec centers would still have to be closed.

Mark Reutter of The Baltimore Brew reported today that a second RFP was issued Friday December 2 identifying 18 specific rec centers for private operation. This second RFP represents a modest scaling back of Rawlings-Blake’s pursuit of PPPs for city rec centers. According to The Baltimore Brew, the most concentrated number of parks identified in the second RFP are located in northeast Baltimore. Further, two previously closed parks (the ex-Police Athletic League Center in West Baltimore and the Bocek Rec Center in far East Baltimore) could be reopened through PPPs.

If a PPP agreement can’t be reached, the city will only have enough funding for 25 recreation centers on January 1, 2012 when funding would be reduced by a final total of nearly $520,000.

Baltimore is not alone in exploring this innovative approach. Local government policymakers across the country have implemented PPPs to keep parks open during economic downturns. For several PPP success stories, including New York City’s famous Central Park and Bryant Park, see my previous posts here and here.

Returning to Regulatory Basics

Posted on November 22, 2011, 10:56am | Adam Peshek

For decades, executive branch agencies have been required to do identify significant problems they are trying to address before going through with a regulation. And for decades, they have been ignoring this mandate.

Jerry Ellig and James Broughel at the Mercatus Center at George Mason University have released a new policy brief, "Regulation: What's the Problem", looking into this fundamental problem that has spread to most federal agencies.

For more than three decades, the president has required executive branch agencies to identify the systemic problems they wish to solve when issuing major regulatory actions. In fact, the very first principle in Executive Order 12866, which governs executive branch regulatory review, is that an agency shall “identify the problem that it intends to address (including, where applicable, the failures of private markets or public institutions that warrant new agency action) as well as assess the significance of that problem.”

This principle reflects the common sense notion that before making a decision, decision makers should understand the root cause of the problem the regulation is supposed to solve. Unfortunately, in practice regulatory agencies often decide what they want to do, write up the proposed regulations, and only then hand the proposals to their economists. Only at this late stage in the process do agencies identify the problems they are trying to solve.

Executive agencies should spend more time (1) looking for real problems that are affecting the population; (2) conducting honest, outside, and unbiased analyses to see if the benefits of addressing the issue truly outweigh the cost; and (3) taking a deliberate, inclusive approach that works with all affected parties to solve the problem in the simplest way.

Perhaps the agency that ignores this process the most is the Environmental Protection Agency (EPA).  Similar to a legislator running for office, most EPA administrators enter their position with a full list of issues they want to tackle, before having the benefit of robust evidence that it is worth tackling. The perfect example of this is Lisa Jackson who came into her position promising to propose lower ozone standards to fight smog. Despite the fact that this was completely discretionary and EPA would be doing a routine review of the standard in 2013, Jackson pushed ahead with a regulation that even the EPA estimated would cost $90 billion a year to comply with. Like all EPA air regulations, the cost-benefit analysis was conducted by an EPA economist after the regulation was proposed. Thankfully, President Obama scrapped the regulation before it took effect.

So how do we get back to regulatory basics? Ellig and Broughel suggest:

Congress should begin the regulatory reform process by requiring agencies to analyze the problems and alternative solutions before they decide to write regulations. This would put assessment of the problems where they belong: before decisions get made about the solutions.

Sound advice. They go an extra step, identifying the questions that agencies should be answering, as well as the best and worst methods of addressing them. You can find these best practices and their entire study here.

EPA Ignores Improved Air Quality to Advance Regulation

Posted on November 16, 2011, 8:33pm | Adam Peshek

A new report finds that many of the air quality goals of the Cross State Air Pollution Rule (CSAPR) have already been achieved. Thus, these controversial and costly rules are largely unneeded.

CSAPR is often referred to as the “good neighbor rule.” Its intent is to curb emissions from states that “contribute significantly” with the maintenance of healthy air quality in neighboring states.  Specifically, the rule addresses emissions of sulfur dioxide (SO2) and nitrogen oxides (NOx), which are the main precursors to fine particulate matter (PM2.5) and ozone. Compliance costs for this rule, according to EPA, are $2.4 billion annually. Several states – including those not affected by the rule – have filed a lawsuit suing the EPA to delay implementation of CSAPR, which becomes effective January 1, 2012.

But according to a recent report conducted by Alpine Geophysics for the Midwest Ozone Group, these contentious rules are largely unnecessary with improvements already occurring in the affected areas.

To support this rule, EPA took emission data from 2003-2007 to determine which states were significantly contributing to poor downwind air quality. The Agency then applied computer modeling to predict which states would likely be “bad neighbors” in 2012 and 2014 – essentially contributing more than 1% of the level of nonattainment of ozone and PM2.5.

However, EPA has released more recent data from 2007-2010 that shows things have significantly improved, accomplishing regulatory outcomes in areas that will be forced to comply – without spending billions of dollars in questionable permitting schemes. For example, EPA data from 2003-2007 shows that 16 areas don’t meet air quality standards for ozone and an additional 16 areas don’t meet standards for PM2.5. According to the newer data, these numbers have been reduced to 6 and 2 areas respectively. This data was available to EPA during the crafting of the rule and its omission is puzzling.

Over the past few decades, ozone and particulate matter emissions have declined nearly 30 percent and they continue to decline. Precursor emissions of SO2 and nitrogen oxide NOx have fallen nearly twice as fast. It’s not clear – environmentally or financially – what is to be gained from this rule. States have proven that they are more than equipped to curb emissions without Washington’s expensive, burdensome, and rushed regulatory agenda.

Read the full report here. Read my past blog on faults with EPA’s implementation of CSAPR here.

Smart Growth and Military Planners

Posted on November 11, 2011, 3:36pm | Samuel Staley

Those holding out hope that Smart Growth--the political effort to reduce sprawl by promoting higher density, mixed use, transit-oriented development--might be accomplished through voluntary, market mechanisms didn't get much support in a report on the Green transformation of Oberlin, Ohio recently appearing in the Chronicle of Higher Education (Nov 6, 2011). The Oberlin Project itself is quite interesting, and even inspiring, as a case of experimentation with Green technology and approaches to redevelopment. The scary part comes when the military planners come into the picture.

First, a little background. Oberlin, a small, isolated colleg town in northeast Ohio, is undergoing what appears to be a genuine Green transformation of its downtown based on a plan and design developed by Oberlin College environmental studies and politics professor David Orr. Orr is motivated by a sincere belief that American society is consuming too much and is not transitioning away from fossil-fuels fast enough. So, he's leading an effort to transform Oberlin to a more "sustainable" economy, including the construction of Green buildings in the downtown, encouraging locally produced goods and services, and a greenbelt for agriculture to grow local food for the town. This sounds a lot like the utopian socialist ideas about cities and new towns that almost inevitably failed. Nevertheless, as long as these efforts are voluntary, few can object. Let success or failure be decided by residents and their willingness to move in (or, more often than not, move out).

Unfortunately, that's not where the story ends. A number of military strategists are also concerned about our reliance on fossil fuels and doubt our economic and social resilience as a result. They favor moving toward locally grown food and moving most everyone off oil to make society less vulnerable to distruptions in food or fuel supplies. (We'll leave aside the economically naive and patently false notion that dependence on locally produced or manufactured goods and services is somehow more resilient than a market economy where trading occurs across borders, nations and oceans; isolated, "self sufficient" local economies are not resilient.)

These localist military strategists are much more upfront and aggressive about their willingness to embrace top-down planning to move society and economy off fossil fuels. The military folks, it seems, are also concerned about "peak oil," although I suspect they are more concerned about the scarcity of oil for military uses than non-military ones. Here's the report from the Chronicle story:

"Patrick C. Doherty, a national-security expert at the New America Foundation, doesn't consider himself a "doomer," a label applied to Mr. [Richard] Heinberg and some of his colleagues. But he does think the nation needs a new way of organizing itself—one in which colleges would have a vital role. He is working with Mr. Orr and Colonel Mykleby on a "national sustainable communities coalition" that will attempt to replicate the Oberlin Project in other parts of the country—possibly around military bases that are striving for sustainability.

"In the 20th century, says Mr. Doherty, the United States coordinated its political and economic power to meet great global challenges, in what was called "grand strategy." We did it in World War II in orienting the nation's industrial base to ramp up and outperform the Axis powers. And we did it again in economically and politically outperforming and outlasting the Soviets in the cold war.

"Mr. Doherty and his colleagues believe that the nation needs grand strategy once again to meet a new global challenge. "We think that the core global challenge is global unsustainability," he says—a convergence of major problems, including a persistent middle-class recession, ecological systems in decline, a vast population of the world's poorest people cut out of the global economy, and a core infrastructure susceptible to shock and disruption.

"Part of the nation's grand strategy in the cold war was to build suburbia, to satisfy a major housing demand and stoke the economic engine. But those suburban communities are now both unsustainable and undesirable, Mr. Doherty says. Research shows that the majority of both retiring baby boomers and up-and-coming millennials want to live in walkable, affordable communities, rich with amenities and connected to mass transit.

"In short, it's called "smart growth"—and it's the way many college towns are already designed and oriented. In fact, Mr. Doherty points out, college towns (including, even recently, Oberlin) have been the sites of new retirement communities, because that older generation wants to live close to institutions of higher education and the cultures they foster.

"Top-down policy can drive this new grand strategy, he says, but given the political climate and the doubts people have about the effectiveness of government, it may have to start with small efforts like the Oberlin Project. Either way, he says, higher-education institutions would be "essential" to pulling it off."