Energy-Environment Newsletter

Energy and Environment Newsletter #1 (March Edition)

Fracking regulations, costs of wind power, renewable portfolio standards, and more

In this issue:

  • New Federal Fracking Rules v State Regulations: Is One Size Good for All?
  • Department of Energy Report Overstates Wind Power’s Potential, Understates Costs and Limitations
  • State Renewable Portfolio Standards: More Costs Than Benefits
  • The Hidden Costs of Wind Energy Revealed (in Idaho)
  • Bird Conservation Group Warns That Wind Farms Will Kill Millions of Birds
  • West Virginia Legislature Repeals Renewable Portfolio Standard
  • Some in Congress Want to Stop Mandates That Turn Food Into Fuel
  • And More

New Federal Fracking Rules v State Regulations: Is One Size Good for All?

On Friday, the Department of the Interior released its final rule for regulating the use of “hydraulic fracturing” – a method for extracting oil and gas from shale deposits. The rule, which applies only to federal lands, is additional to, not in place of existing federal permitting requirements. The result will be an increase in the average cost per well of around $11,000, according to Interior. Although less than one percent of the typical well cost (of $1 million to $15 million), it is nonetheless likely to reduce the already small proportion of wells drilled on federal land. Given the scale of federal land ownership, that represents a lost opportunity. More worrying, however, is the possibility that these new rules might form the basis for new EPA regulation of fracking on state and private land.

Shale deposits exist in a wide variety of circumstances, ranging from wilderness to urban areas. So why, then, impose uniform rules? Why not allow states to continue to develop and implement their own regulations that can better reflect this variety? The fracking revolution has been responsible for making the U.S. the world’s largest producer of oil and gas, as President Obama noted in his State of the Union address in January. Yet, most of this development has come on state and private land – due in part to the onerous restrictions on drilling on federal land.

There are millions of acres of federally owned land that could be utilized more sustainably and oil and gas production represents a huge opportunity that is in many cases being foreclosed unnecessarily. By further limiting the use of this innovative technology, the administration is undermining economic opportunities in states with significant shale deposits on federal land. That is no small matter given the high proportion of land controlled by the federal government (over 70% in some Western states).

More worrying is the prospect that these regulations will become the basis for federal regulation of fracking on state and private land, where the current regulatory burden is in most cases far lower. If that were to happen, the amount of fracking in the U.S. might fall dramatically, with adverse consequences for the price of oil and gas and for America’s competitiveness.

Department of Energy Report Overstates Wind Power’s Potential, Understates Costs and Limitations

The U.S. Department of Energy just released a report in which it claims that consumers and the environment would benefit from increasing the proportion of electricity derived from wind power. But as I point out in this article at RealClearMarkets, the DOE’s estimate is based on hope – hope that some as-yet unimagined future technology will change the economics of wind power, making it more cost effective than fossil fuel-based generation. That’s not impossible – but it is very unlikely. And hope without change can be both costly and unpleasant.

State Renewable Portfolio Standards: More Costs Than Benefits

More than half the states have in place “renewable portfolio standards,” which require a rising proportion of electricity to come from specified “renewable” sources. While wind, solar and other forms of renewable power generation clearly have a role to play, a new analysis from Reason Foundation questions the claim that mandating minimum amounts of such generation provides benefits that exceed their costs. From the summary:

Some renewable energy technology installations conserve resources and some don’t; some are efficient and some are not. Renewable portfolio standards (further exacerbated by various federal tax treatments and local subsidies) fail to recognize this distinction and foster the development of inefficient installations, thereby discouraging the use of more efficient and environmentally effective facilities. For example, most of the compliance with state-level RPSs has come in the form of wind energy. Wind energy is unpredictable and volatile, leading to lower value and imposing significant costs on others.

The Hidden Costs of Wind Energy Revealed (in Idaho)

Intermittent “renewable” energy sources such as wind and solar are growing in use largely because of government regulations, favorable tax treatment and mandates. In addition to their generally higher cost, they also impose hidden “integration” costs on the electrical grid – due to their intermittent nature, as we showed in a 2012 Reason study. In some states, such as California, these costs are borne by utility companies and ultimately their consumers.

However, in Idaho, regulators recently adopted new rates to be charged wind generators who sell to Idaho Power Company to account for the utility’s expense of integrating wind power. They also approved a new method for calculating the wind integration charge under which wind developers will pay a rate that increases as the utility’s overall wind penetration level increases. That effectively reduces the price paid for wind-derived electricity sold to the grid, which should reduce consumers’ electric bills.

Bird Conservation Group Warns That Wind Farms Will Kill Millions of Birds

The American Bird Conservancy estimates that wind farms will result in between 1.4 and 2 million bird deaths when projects planned and in development are completed. It is petitioning the U.S. Fish and Wildlife Service to provide tighter regulations in order to prevent some of those deaths.

West Virginia Legislature Repeals Renewable Portfolio Standard

West Virginia’s Republican-led Senate recently passed a bill to repeal the state’s renewable and alternative energy standard and on February 3, Governor Tomblin signed Bill 2001 into law, thereby relieving West Virginians of the economic burden of this government mandate.

Some in Congress Want to Stop Mandates That Turn Food Into Fuel

Reason has repeatedly pointed out the economic and environmental harm done by the federal renewable fuel standard – which mandates the production of specific amounts of ethanol and diesel from biological sources (also called making fuel from food). Now, finally, it looks like the issue may be gaining traction in Washington.

U.S. Senators Dianne Feinstein (D-Calif.) and Pat Toomey (R-Pa.) offered an amendment to the Keystone pipeline bill that would have repealed the corn ethanol mandate of the renewable fuel standard, which they describe accurately as a “law that drives up the cost of everything from gasoline to groceries.” Meanwhile, a group of House members (Reps. Bob Goodlatte (R-Va.), Peter Welch (D-Vt.), Steve Womack (R-Ariz.), Jim Costa (D-Calif.)) has re-introduced a bill aimed at doing the same.

Reason Foundation Comments on EPA’s Clean Power Plan

The EPA’s proposed “Clean Power Plan” requires states to reduce emissions of carbon dioxide from power plants. In comments filed with the EPA, Reason Foundation questions the merits of the regulation, arguing that it is likely to increase substantially the amount Americans pay for electricity, negatively and significantly impact the reliability of the electrical service they receive, provide less benefit than estimated by the EPA, and disproportionately harm disadvantaged communities. As such, we question whether the Clean Power Plan is the best means of achieving the stated goal of reducing carbon emissions.

In response to numerous comments from the public, EPA has announced that it will make changes to the Clean Power Plan. It is unclear whether these will be marginal changes to the timing of requirements or more substantial.

Subsidies, Carbon Abatement Policies Impede Success of Carbon Capture and Storage

One of the reasons many economists are concerned about the impact of imposing restrictions on emissions of carbon dioxide is that such emissions are a natural byproduct of so many productive activities. Some proponents of carbon dioxide controls have sought to allay these concerns by asserting that technologies, such as “carbon capture and storage,” will be developed in response to the emissions controls and will keep the costs down. At the same time, proponents of carbon capture and storage (CCS) argue that in the near term, development of CCS will require additional financial support from taxpayers.

These two strands of reasoning are neatly captured in this assertion by the International Energy Agency: “There is general agreement among public and private actors alike that in the long term CCS will only need the incentive of a carbon price, but that in the meantime targeted sector-specific industrial strategies are needed to convey CCS from the pilot project phase to the demonstration and then deployment phases.”

But a recent study looking at the high failure rate of CCS projects found that the “presence of a carbon policy and non-commercial storage of CO2 are negatively linked to project success.” So much for government planning of the great low-carbon revolution.

EPA’s Ozone Rule Might Make Asthma Worse

In December, the EPA issued a proposed rule that would limit ambient levels of ozone from the current 75 parts per billion (ppb) to between 65 and 70 ppb. The main justification is that ozone contributes to asthma and other respiratory diseases – and that by lowering the limit, the incidence of these respiratory diseases will fall. But a new study by researchers at Johns Hopkins University found that the previously observed higher incidence of asthma in inner-city neighborhoods is explained largely by race, ethnicity and socio-economic status, with African American and Puerto Rican children in poorer households being more likely to suffer from asthma than others.

Of course this is only one study, albeit a large one (over 23,000 participants), but if its results are replicated, the consequences could be significant. First, since ozone levels are higher in inner-city areas than in other areas, it is likely that some or all of the difference in rates of asthma previously ascribed to ozone were actually a result of differences in race, ethnicity and socioeconomic status. (Many earlier studies, such as this one, failed to account for these other possible causes of asthma.)

Second, the new EPA rule is likely to impose significant costs. The National Association of Manufacturers has estimated that it would reduce GDP by $270 billion per year, costing the average household $1570 per year. Job losses are also highly likely. Even if these costs are widely distributed, they will adversely affect the poor, which, if the Johns Hopkins Study is correct, might lead to an increase in asthma. For now, it would appear that more information – in particular more studies that adequately account explicitly for the race, ethnicity and socio-economic conditions of those suffering from respiratory ailments – are needed before imposing a new rule that might have the very opposite effect to that intended.

Huntington Beach City Council Repeals Plastic Bag Ban

In a comprehensive study published last year, Reason Foundation showed that plastic bag bans are likely bad for the environment and harmful economically. In an article in the Orange County Register, Julian Morris notes that Huntington Beach City Council recently repealed its prohibition on plastic bags. Meanwhile, after ban opponents gathered more than the required 510,000 valid signatures, California’s statewide ban is on hold until the 2016 election, when it will be subject to a referendum.

Restrictions on Pesticide Use Might Harm Conservation

A long-running effort to restrict the use of pesticides due to their alleged effects on endangered and “at-risk” species continues with two more lawsuits filed; one dealing with species in the Midwest, the other with species in the San Francisco Bay area. Yet, such regulations may be counterproductive. Pesticides enable more intensive agricultural production, thereby reducing the amount of land needed to produce food. So, restrictions on the use of pesticides would result in more marginal land being converted to agriculture, with negative effects for species living on that land.

ESA Listing May Not Be Appropriate for Monarch Butterfly

The population of monarch butterflies has fallen dramatically (some estimates suggest by over 90%) in the past few decades. But listing the monarch as endangered may not be the most effective way to conserve this iconic species. Writing in The Washington Post, Daniel Rubinoff, professor of entomology at the University of Hawaii, points out that efforts to list the monarch butterfly under the Endangered Species Act are diverting funds and attention from other insects that are truly critically endangered.

The Oregon Chub Recovered. But Was It Endangered?

The Oregon chub, a species of minnow, became the first fish declared “recovered” under the Endangered Species Act. Yet a significant part of the “recovery” was due to erroneous data: Surveys undertaken after the chub’s listing found the fish to be far more numerous and widespread than originally believed, as documented in this op-ed by the director of Reason Foundation’s endangered species program, Brian Seasholes.

Wolves Back on Endangered List Despite Being Recovered

Under court order, the U.S. Fish and Wildlife Service re-listed wolves in Wyoming and the Great Lakes region. These wolf populations are healthy and have far exceeded their recovery goals, according to the Service, but environmental groups successfully convinced a federal court to re-list them. In response, two bills were introduced in Congress to rescind the court order. The “moving of the goalposts” at the expense of working-class ranchers has generated a great deal of backlash and left states and their Congressional representatives feeling their only option is federal legislation mandating delisting.

Listing of Bat Species May Not Be Justified, Would Have Undesirable Consequences

The U.S. Fish and Wildlife Service is expected to list the northern long-eared bat under the Endangered Species Act by the April 2 deadline. There is evidence that a naturally occurring disease is the overwhelming cause of the bat’s decline. The main effect of the bat listing may be to drive up the costs of various beneficial economic activities, such as the proposed Sandpiper oil pipeline in Minnesota (its route might have to be altered), construction projects in Kansas, and a bridge planned in Michigan, which has already been delayed because of preemptive restrictions on tree cutting. Given that a listing under the ESA creates incentives to destroy the listed species and its habitat, as Reason Foundation’s Brian Seasholes points out, it might be more productive to list the bat disease than the bat itself.

What Is the Best Way to Conserve the Gunnison Sage Grouse?

In November, the U.S. Fish and Wildlife Service listed the Gunnison sage grouse under the Endangered Species Act. Now, states and municipalities are in the process of filing lawsuits to rescind the grouse’s listing. That’s good news because, as Reason’s Brian Seasholes points out, the listing is more likely to harm the bird than save it. The listing punishes private landowners who own much of the species’ habitat and creates barriers for Colorado, Utah and counties in the bird’s range, which have led conservation efforts over the past two decades, to continue conserving the grouse.

Colorado filed a lawsuit against the Interior Department over the listing of the Gunnison sage grouse and Utah has filed a notice of intent to sue. John Swartout, senior advisor to Colorado Gov. John Hickenlooper, has said, “We’re protecting our approach to those issues, which has been partnerships. We’re defending an approach. Without partnerships between the state, local governments and landowners, the situation would be adversarial, and that would not help any species.”

In a highly unusual move, and a sign of how unpopular the listing of the Gunnison sage grouse is, three Colorado counties are also contemplating legal action: Gunnison County, where the vast majority of the species lives, Mesa County and Montrose County. Counties do not typically sue the Interior Department over the Endangered Species Act because of the difficulty and expense of so doing.

Listing of Polar Bears May Have Undermined Conservation Efforts

Polar bears, like their close genetic cousins, grizzlies, inspire awe both for their beauty and for the threat they pose to humans and other animals. For people who live in close proximity to such bears, the willingness to put up with the threat they pose is highly dependent on the ability to benefit from their beauty. After polar bears were listed under the Endangered Species Act in 2008, hunters were no longer permitted to import pelts and other trophies into the U.S. A new paper describes the perverse effect:

“In Nunavut, where most of Canada’s polar bears are harvested, the resulting trade ban did not decrease total harvest [of polar bears] after the ESA listing but reduced US hunter participation and the proportion of quotas taken by sport hunters from specific populations. Consequently, the import ban impacted livelihoods of Arctic indigenous communities with negative conservation – reduced tolerance for dangerous fauna and affected local participation in shared management initiatives.”

In other words, the listing has had the effect of impoverishing the Nunavut people, thereby providing them with less incentive to conserve the beauty that lies behind the threat.

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Contact the editor, Julian Morris, at:

Julian Morris
Vice President of Research, Reason Foundation
julian.morris@reason.org
(347) 746-6403