Bush's CO₂ About-Face
by Anders Hove

Last week's decision on the part of the Bush Administration to abandon plans to regulate CO₂ emissions hit the environmental community hard. The decision came as a far greater blow to environmentalists than, for example, any of Bush's Cabinet picks, or the aspersions his transition team cast on regulations enacted by the EPA on diesel emissions at the end of the Clinton administration.

What was all the more shocking about Bush's reversal on CO₂ was the politics of it all. Bad politics. And the outcome, no CO₂ policy at all, looks like bad policy as well.

Consider first the notion of the presidential honeymoon. According to one prevailing notion of presidential politics, a president is popular early on because during the campaign and transition he manages to encourage and give hope to a wide coalition of groups with various contradictory interests. This coalition is a minority coalition: Each coalition member is associated with an issue that only attracts, interests and seriously concerns a minority of people around the country. Even most big political issues are like that. The president starts out with a broad coalition, but for practical reasons each individual decision results in the gradual alienation of various coalition members. The trick is to postpone the alienation process as long as possible.

Bush's actions on CO₂ during the first two months of his administration looked like a classic case of honeymoon preservation. The administration simply declined to participate in, and suggested postponing, a round of climate change negotiations, saying it was studying the issue. Soon after, the Intergovernmental Panel on Climate Change (IPCC) released its most recent report on global warming without input from the Bush administration — input that surely would have moderated its alarmist tone. Ducking the issue seemed to serve but one purpose: postponement.

Meanwhile, Bush officials such as Christine Todd Whitman were touting the administration's promise to act on CO₂, something that hasn't been contemplated since the 1993 fight over a Gore-proposed Btu tax, a boondoggle which later morphed into a still-controversial 4 cent gas tax. And Bush's partisans in Congress were preparing for the arrival of a "four pollutant" clean air package that included CO₂ as a "pollutant," something CO₂ was never called before. It's anyone's guess what would have happened had the four-pollutant version received Bush support, but the sponsor, Rep. Sherwood Boehlert, R-N.Y., appeared to have more backing for this approach than anyone ever claimed for the Kyoto Protocol.

Then the about-face by Bush: a seven paragraph letter scrapping the very idea of regulating power plant CO₂ emissions. No olive branches or counterproposals. It was as if Bush had held out his hand to the environmentalists and nailed them with a great big joy buzzer. Bad politics? You make the call, but it doesn't look like environmentalists are going to have anything positive to say about the Bush legacy anytime soon.

A Good Starting Place

Consider the merits of the policy calling for a cap on CO₂ emissions from electric power plants. In overturning the idea, Bush officials cited the results of a Department of Energy study conducted by the department's Energy Information Administration, a relatively-independent analytical arm which maintains the nation's official energy statistics. The study was a thorough look at the impacts of carbon taxes designed to meet various targets associated with the Kyoto Protocol. It showed that the economic effect of Kyoto would have been significant. But hold on: The policy Bush overturned wasn't a carbon tax, but rather a reduction in power plant emissions. Those are two very different things with very different impacts.

There are three fossil fuels with substantial carbon dioxide emissions: coal, oil and natural gas. Coal is the worst, followed by oil and natural gas. The largest fraction (39 percent) of America's energy comes from oil, which is mainly burned by cars in the form of gasoline. For electric power the big fuel is coal (55 percent of U.S. electricity comes from coal), but since electric power accounts for a smaller fraction of energy use than transportation, coal winds up accounting for just 21 percent of the country's total energy production.

What does it all mean for CO₂? Oil puts out roughly 68 percent as much CO₂ as today's coal plants, but because America's oil use is so high, most of its CO₂ comes from that oil. You might think, therefore, that the logical place to start when thinking about CO₂ and other types of pollution would be transportation. The main policy tool here would be tougher corporate average fuel-economy (CAFE) standards, especially for the light truck or SUV, consumer items that could be greatly improved with existing technology at relatively low cost. But tougher CAFE standards have proved impossible because they are so easily portrayed as an attack on the great American consumer, or on mobility itself, part of the American dream.

So if SUVs are off limits, what's next on the hit list? Not air conditioners and not tighter houses: There aren't many tons of CO₂ to be squeezed from the residential and commercial sectors. Far more can be accomplished by generating power more efficiently, and that's good politics too because it doesn't force a lifestyle change on the part of the consumer. But Bush's decision takes this option off the table.

Another failing of the recent Bush decision and its justification involves its timing with respect to the energy crisis now gripping the nation. Unlike previous energy crises, the current problem is not mainly one of supply shortage, as was the case in the 1970s and early 1980s after the Arab oil embargo and subsequent OPEC production cuts. Today's Western power crisis — with respect to electric power — is mainly due to the design of the market, which has led to shortages in generation and transmission that should never have occurred.

Yet the Bush administration has portrayed the electricity crisis as a justification for a bouquet of policies unrelated to the original problem. For example, oil drilling in the Arctic cannot help the power crisis because oil is used for only a tiny fraction of the nation's electric power. Gas pipelines from the arctic cannot help because they would take a decade to build, by which time the crisis will have passed. And less stringent pollution controls cannot help because utility plants in the West already meet stringent pollution standards or are operating on waivers and special agreements in exchange for agreeing to install emissions control technology in the future. As regards CO₂ emissions, such rules would be phased in over a transition period of several years. Again, the power crisis will have passed by that time.

Bush officials have also argued that CO₂ caps would push the country into an unhealthy reliance on natural gas. This too misses the mark. Given the steep price of natural gas today, some power producers are opting to build new large, highly-efficient coal power plants. Such plants emit less CO₂ simply because they burn less coal per unit of electricity produced. Coal will be a part of America's energy picture in the coming decade whether environmentalists like it or not, and more efficient coal plants are part of the Bush administration's program as they were under Clinton's. Cleaning up coal also makes sense because it has to be done anyway: Meeting clean air regulations still being phased in from Bush I will push coal in that direction, and the excessive age (typically over 25 years) and the manifest inefficiency of existing coal plants suggest ample room for improvement. The virtue of an emissions cap is that it allows the market to determine which technologies are adopted to meet the cap. New coal plants can be part of the mix.

In some respects, however, the Western states' power crisis and the CO₂ problem are related, much as energy crises in the past have led to reexamination of national priorities. This time around, though, the crisis has coincided with the rise to power nationally of individuals intimately affiliated with the supply side of energy. A functioning free market, which the West currently lacks, involves both a demand side and a supply side. California ignored this premise when it deregulated wholesale power but fixed retail rates, resulting in the bankrupcy of its utilities when supply costs rose but demand failed to respond sufficiently.

Predictably, the Bush administration has focused all of its rhetoric on chastising California for limiting new generation — a problem, to be sure — while ignoring the problems with the West's market. But the power crisis requires a balanced approach that combines three elements: new generation, new transmission and functioning markets which enable demand to respond to supply. The new generation is already being supplied by the markets, and it would have been supplied earlier and at less cost had the market been designed differently. Policies to promote new transmission are being worked on with less success. The new markets, however, are stalled while state governments tinker with band-aids designed to get the West through the summer. Ultimately the effect on CO₂ policy is negative. Unstable power markets appear to mean the suspension of efforts to address longer-term risks.

Of all the dilemmas facing environmentalists, this last point seems to be the most disheartening. The oil crisis of the 1970s led to enormous (and in many cases wasteful) expenditures on cleaner technologies and conservation. When global warming was first hypothesized over two decades ago, the effect was to bolster the conservation movement and alternative energy industry. By the Gulf War, however, many public officials had begun lumping those policies together and rejecting them as utopian boondoggles. As Bush pointed out during the 2000 campaign, the United States now lacks a long-term energy strategy. And if the Bush administration's actions on CO₂ and the Western power crisis are any guide, this lack will continue.

E-mail Anders Hove at hove at rand dot org.