Climate 411

Six Ways President Trump’s Energy Plan Doesn’t Add Up

By EDF Blogs / Published: March 23, 2017

This blog was authored by Jeremy Proville and Jonathan Camuzeaux 

Just 60 days into Trump’s presidency, his administration has wasted no time in pursuing efforts to lift oil and gas development restrictions and dismantle a range of environmental protections to push through his “America First Energy Plan.” An agenda that he claims will allow the country to, “take advantage of the estimated $50 trillion in untapped shale, oil, and natural gas reserves, especially those on federal lands that the American people own.”

Putting aside the convenient roundness of this number, the sheer size of it makes this policy sound appealing, but buyer beware. Behind the smoke and mirrors of this $50 trillion is a report commissioned by the industry-backed Institute for Energy Research (IER) that lacks serious economic rigor. The positive projections from lifting oil and gas restrictions come straight from the IER’s advocacy arm, the American Energy Alliance. Several economists reviewed the assessment and agreed: “this is not academic research and would never see the light of day in an academic journal.”

Here is why Trump’s plan promises a future it can’t deliver:

1. No analytical back up for almost $20 trillion of the $50 trillion.

Off the bat, it’s clear that President Trump’s Plan relies on flawed math. What’s actually estimated in the report is $31.7 trillion, not $50 trillion, based on increased revenue from oil, gas and coal production over 37 years (this total includes estimated increases in GDP, wages, and tax revenue). The other roughly half of this “$50 trillion” number appears to be conjured out of thin air.

2. Inflated fuel prices

An average oil price of $100 per barrel and of $5.64 per thousand cubic feet of natural gas (Henry Hub spot price) was used to calculate overall benefits. Oil prices are volatile: in the last five years, they reached a high of $111 per barrel and a low of $29 per barrel. They were below $50 a barrel a few days ago. A $5.64 gas price is not outrageous, but gas prices have mostly been below $5 for several years. By using inflated oil and gas prices and multiplying the benefits out over 37 years, the author dismisses any volatility or price impacts from changes in supply. There’s no denying oil and gas prices could go up in the future, but they could also go down, and the modeling in the IER report is inadequate at best when it comes to tackling this issue.

3. Technically vs. economically recoverable resources

The IER report is overly optimistic when it comes to the amount of oil and gas that can be viably produced on today’s restricted federal lands. Indeed, the report assumes that recoverable reserves can be exploited to the last drop over the 37-year period based on estimates from a Congressional Budget Office report. A deeper look reveals that these estimates are actually for “technically recoverable resources,” or the amount of oil and gas that can be produced using current technology, industry practice, and geologic knowledge. While these resources are deemed accessible from a technical standpoint, they cannot always be produced profitably. This is an important distinction as it is the aspect that differentiates technically recoverable from economically recoverable resources. The latter is always a smaller subset of what is technically extractable, as illustrated by this diagram from the Energy Information Administration. The IER report ignores basic industry knowledge to present a rosier picture.

4. Lack of discounting causes overestimations

When economists evaluate the economic benefits of a policy that has impacts well into the future, it is common practice to apply a discount rate to get a sense of their value to society in today’s terms. Discounting is important to account for the simple fact that we generally value present benefits more than future benefits. The IER analysis does not include any discounting and therefore overestimates the true dollar-benefits of lifting oil and gas restrictions. For example, applying a standard 5% discount rate to the $31.7 trillion benefits would reduce the amount to $12.2 trillion.

5. Calculated benefits are not additional to the status quo

The IER report suggests that the $31.7 trillion would be completely new and additional to the current status quo. This is false. One must compare these projections against a future scenario in which the restrictions are not lifted. Currently, the plan doesn’t examine a future in which these oil and gas restrictions remain and still produce large economic benefits, while protecting the environment.

6. No consideration of environmental costs

Another significant failure of IER’s report: even if GDP growth was properly estimated, it would not account for the environmental costs associated with this uptick in oil and gas development and use. This is not something that can ignored, and any serious analysis would address it.

We know drilling activities can lead to disastrous outcomes that have real environmental and economic impacts. Oil spills like the Deepwater Horizon and Exxon Valdez have demonstrated that tragic events happen and come with a hefty social, environmental and hard dollar price tag. The same can be said for natural gas leaks, including a recent one in Aliso Canyon, California. And of course, there are significant, long-term environmental costs to increased emissions of greenhouse gases including more extreme weather, damages to human health and food scarcity to name a few.

The Bottom Line: The $50 Trillion is An Alternative Fact but the Safeguards America will Lose are Real

These factors fundamentally undercut President Trump’s promise that Americans will reap the benefits of a $50 trillion dollar future energy industry. Most importantly, the real issue is what is being sacrificed if we set down this path. That is, a clean energy future where our country can lead the way in innovation and green growth; creating new, long-term industries and high-paying jobs, without losing our bedrock environmental safeguards. If the administration plans to upend hard-fought restrictions that provide Americans with clean air and water, we expect them to provide a substantially more defensible analytical foundation.

Photos by lovnpeace and KarinKarin

This post originally appeared on EDF’s Market Forces blog.

Posted in Economics, Energy, Greenhouse Gas Emissions / Comments are closed

New Truck Efficiency Standards Are Great News for American Innovation

By Jason Mathers / Published: January 31, 2014

We’ve partnered with businesses, builders, and local communities to reduce the energy we consume. When we rescued our automakers, for example, we worked with them to set higher fuel efficiency standards for our cars. In the coming months, I’ll build on that success by setting new standards for our trucks, so we can keep driving down oil imports and what we pay at the pump.

– 2014 State of the Union Address

First, here’s the bad news:

Climate pollution from America’s heavy trucks is projected to increase by more than 130 million tons between now and 2040. That’s expected to be the largest increase in emissions from any single source.

The average new heavy-duty diesel truck sold last year got slightly less than six miles per gallon.

Most of these trucks travel upwards of 120,000 miles and burn more than $80,000 worth of fuel per year.

This inefficiency has real costs for our economy. We import millions of barrels of oil to fuel heavy-duty trucks. Businesses, both small and large, spend billions on the fuel needed to move freight. You and I pay for this too, when we buy those products.

Now here’s the good news:

It doesn’t have to be this way. We have the tools today that we need to change this.

We have the technology to decrease freight truck emissions. We can cut 20 percent off our current trajectories by 2030, and go much further by 2040.

In fact, a recent analysis by the American Council for an Energy-Efficient Economy found that it’s realistic to expect new trucks to achieve something approaching a 40 percent fuel consumption reduction, compared to 2010 trucks, within the next decade,

Well-designed federal standards can foster the innovation necessary to bring more efficient and lower emitting trucks to market. Manufacturers need to be confident in market demand in order to develop and launch efficiency improvements. Scaled production can drive down costs, further enhancing the payback truck fleets will experience through lower fuel bills.

EDF has set out a blueprint for rigorous greenhouse gas and fuel efficiency standards. Through smart, well designed policies and American innovation, we can cut climate pollution and save fuel costs while strengthening our security and winning the race to deploy clean energy technologies in the global marketplace.

Many companies already have developed — and are bringing to market — the tools we need to meet a strong standard.

Examples include:

Eaton, a manufacturer of truck transmissions — they’ve launched a powertrain package that can improve fuel efficiency by up to six percent.

Cummins, Inc. and Peterbilt Motors Co., which build truck engines and manufacture trucks, respectively – they partnered last year to build a truck that uses 50 percent less fuel than typical long-haul tractors, according to an article in the Indianapolis Star. It averaged 9.9 miles a gallon in road tests. They did this through a suite of improvements; including capturing otherwise wasted thermal energy.

Smart Truck Systems, a supplier of aerodynamic products to the trucking industry – they have a product that can cut fuel consumption from tractor-trailer combination trucks by over 10 percent through advanced aerodynamics.

Also available to us:

To understand the positive economic potential of adopting strong truck fuel efficiency standards, we only need to look back to the start of this month.

On January 1st, our nation’s biggest trucks became subject – for the first time ever – to fuel efficiency standards. These standards cover trucks from large pick-ups to tractor-trailers. They will cut climate pollution by almost 300 million tons while saving truck operators $50 billion.

For combination tractor-trailer trucks, these standards will cut annual fuel costs by more than $18,000 at today’s prices. The fuel savings will pay back the increase in upfront costs in less than five months.

Companies that rely on trucking to move goods stand to benefit significantly too. These companies will see a decrease of around eleven cents in the total cost-per-mile to move freight. Across their supply chain, large freight shippers will save millions of dollars each year because of this rule.

These are real savings that businesses, big and small, are starting to see in their bottom line today.

These first generation standards were created with the broad support of the trucking industry and many other key stakeholders. Among the diverse groups that supported the standards were the American Trucking Association, Engine Manufacturers Association and the Truck Manufacturers Association, the United Auto Workers — and of course EDF.

But this is just the beginning.

With the right political and commercial will, we can build on the partnership created during the development of the current standards to find common ground on the next phase of truck efficiency rules.

We can do this in a way that enables American businesses to thrive, cuts the need for imported oil by hundreds of millions of barrels a year, and slashes climate pollution by more than 100 million tons a year.

That’s why it was great to hear President Obama’s call to action in the State of the Union Address about the next phase of truck standards. We already knew that we could do it – now it looks like we will.

(Click here to read more about this issue, including EDF’s blueprint for rigorous greenhouse gas and fuel efficiency standards)

Posted in Cars and Pollution, Economics, Greenhouse Gas Emissions, Policy / Comments are closed

The Silver Bullet Of Climate Change Policy

By Gernot Wagner / Published: January 24, 2014

(This post originally appeared on Forbes)

By Bob Litterman and Gernot Wagner

Whenever the conversation turns to climate change, someone is sure to opine that there’s no silver bullet. The issue is simply too complex to have one solution. When you focus on all the changes that need to occur to reduce greenhouse gas emissions globally it seems like a multifaceted approach is the only way forward.

Most of the world’s vexing problems share that feature. Mideast peace, nuclear non-proliferation, Eurozone stability, and plenty of other national security problems have no single right plan of attack. Some past plans might have brought us tantalizingly close to a seeming solution, but then reality started interfering once again, reconfirming the complexity of it all.

Climate change must surely be in that category. No single country, no single technology, no single approach can seemingly solve this one for us once and for all. Picking a single technology will almost inevitably end in some form of disappointment. Bureaucrats, the saying goes, ought not to try to pick winners. Leave that to venture capitalists for whom failure is a way of life. For every Apple and Facebook, there are dozens who never make it out of the garage. And clean technology doesn’t yet even have a single Apple and Facebook as the standout approach revolutionizing the field.

Source: NYU

It turns out, though, that how you frame the issue is crucial. If you think like an engineer there are dozens of challenges. If you think like an economist, there is one. It’s guiding the ‘invisible hand’. How can you create the appropriate incentive to decrease the pollution that’s causing climate change? For that, the government need not be in the business of picking winners at all. What it should—and can—do is identify the loser that’s been clear for decades: greenhouse gas pollution. And the solution is equally clear: create incentives to reduce emissions by pricing it. If we make this one change, most other actions that are needed will follow.

That’s what the European Union has done by capping carbon emissions from its energy sector, including large industrials, covering almost half of total carbon emissions. That’s what California is doing with over 80 percent of its total global warming emissions. It’s what China is experimenting with in seven city and regional trials, including in Beijing and Shanghai. All these systems put a price on greenhouse gas pollution.

On the other side of the ledger, there are still much larger incentives to consume fossil fuels in many other countries. The International Energy Agency estimates that global subsidies are well over $500 billion. These subsidies, which incentivize emissions, sadly dwarf the paltry incentives to reduce them. Free marketeers, small government advocates, and others who dislike distorting government subsidies should be appalled at the tax money poured into fossil fuels.

There’s one simple principle that’s been around in economics for so long that no economist worth his or her degree would question the conclusion: increase the price, watch the quantity demanded go down. It’s such a universal truism that economists call it the “Law of Demand.” Generations of graduate students have estimated the effects of price on demand for anything from the generic widget to demand for car miles driven. People may be irrational at times, but one thing that we know for sure is that they respond to incentives.

Everything we know from decades of the study of human behavior would lead us to believe that carbon pollution will go down as the price on emissions increases. The only interesting question is by how much.

The prescription then for anyone seriously concerned about climate change is simple: price carbon to the point where its now unpriced damages are incorporated into the price, and get out of the way. It’s simple. It works. It’s conservative to the core.

It’s also a silver bullet solution if there ever was one.

Bob Litterman is a Partner at Kepos Capital, LP. Gernot Wagner is a senior economist at the Environmental Defense Fund.

Posted in Economics, Greenhouse Gas Emissions, Policy / Read 1 Response

Climate Legislation Link Round-Up

By Tony Kreindler / Published: May 19, 2009

With climate legislation moving to a vote this week in Chairman Henry Waxman’s Energy and Commerce Committee, it’s encouraging to see thoughtful and honest arguments and posts covering the various angles of this historic step forward. 

Paul Krugman’s The Perfect, the Good, the Planet posits that while imperfect, Waxman-Markey is our best chance at addressing climate change.  Joe Romm sets the record straight on Europe’s carbon trading efforts in his recent post, and Daniel Weiss provides a succinct update on where the legislation currently stands.

Did we leave anything out?  If so, post your links in the comments!

Posted in Climate Change Legislation, News / Read 2 Responses

Reactions to Gore’s Speech on Energy

By Sheryl Canter / Published: July 18, 2008

Sheryl CanterThis post is by Sheryl Canter, an online writer and editorial manager at Environmental Defense Fund.

Yesterday, Former Vice President Al Gore gave a speech in Washington, D.C. that called for the U.S. to produce all electricity from carbon-free sources by 2018.

[kml_flashembed movie="http://youtube.com/v/dt9wZloG97U" width="425" height="350" wmode="transparent" /]

You can read the full transcript on WeCanSolveIt.org.

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Posted in Energy / Comments are closed

Legal Action to Compel EPA Compliance with Supreme Court

By Vickie Patton / Published: April 2, 2008

Vickie PattonThis post is by Vickie Patton, Deputy General Counsel at Environmental Defense Fund, and a former attorney in EPA’s General Counsel’s office.

One year ago, the Supreme Court rejected the Environmental Protection Agency (EPA) claim that it lacked legal authority to regulate global warming pollution (for example, from vehicle tailpipes). EPA administrator Stephen Johnson promised a firm and prompt response to the high Court’s decision, but a year passed with no action.

Then on March 27, Johnson recanted his commitment.

So today, a broad coalition of 18 states, 3 cities, and 11 non-profit organizations (see full list*) took legal action to compel EPA to comply. The parties are led by the Commonwealth of Massachusetts, and include Environmental Defense Fund.

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Posted in Cars and Pollution, Greenhouse Gas Emissions / Read 13 Responses