Sept. 3, 2007 – Page 2520
Coal-burning power plants and gas-guzzling automobiles get most of the attention in the climate-change debate. But to understand the breadth and complexity of the issues that Congress faces this fall, when it plans to begin debating ways to slow global warming, it helps to consider the prosaic white mineral called lime.
Yes, homeowners scatter lime on their lawns to sweeten the soil, but more importantly it is an essential ingredient in the manufacturing of cement and the processing of steel. Municipalities use it to purify their drinking water and treat their wastewater; power companies use it in smokestacks to remove the toxins that cause acid rain. Any climate-change law that increases the price of lime would increase the cost of these and myriad other products.
That could well happen, because lime is made by heating carbon-rich limestone, a process that releases great quantities of carbon dioxide, or CO2 — the ubiquitous “greenhouse” gas that scientists say is mainly responsible for heating the atmosphere. In fact, lime and cement production are major sources of CO2 emissions.
Restricting these emissions, either by government fiat or by mandating a commercial market in the trading of pollution credits, could send ripples of price increases through the economy. “It’s hard to pinpoint the exact effect, because we don’t know what the price of carbon will be,” said Arline Seeger, head of the National Lime Association. “But the municipalities will not be pleased. The drinking water folks will be buying more expensive lime, and that will raise costs. If the price of lime is increased to the steel industry, then those prices will be passed on to the auto industry. This commodity is so versatile; it’s just used in so many ways. They’ll all be affected.”
Any law that regulates emissions of carbon, in fact, would reach into every corner of American life and virtually every aspect of the economy. And so hundreds of trade associations and interest groups in every sector of the economy — from Wall Street investment bankers to Midwestern farmers to California software engineers — have awakened to the risks and potential rewards of a carbon constraint law.
Real estate brokers, already caught in a tightening credit market, worry about the added costs for their buyers if homebuilders have to use extra insulation and more-efficient appliances to reduce carbon emissions. Labor unions are concerned that one of the consequences of a limit on greenhouse gas emissions in the United States will be to move thousands of jobs overseas to countries that don’t have such limits.
Farmers see opportunity in the growing popularity of ethanol fuel and the use of trees and crops to sequester carbon from the atmosphere, but they worry that their own fuel costs will skyrocket. Brewers, meanwhile, fret that increasing ethanol production will boost the price of the corn they use in making beer, forcing them to raise the price of a six-pack.
“This is the largest-scale policy problem I’ve ever seen,” said Brooks Yeager, vice president of the nonpartisan Climate Policy Center and a former U.S. negotiator on environmental issues. “If it’s not the biggest thing Congress ever does, it’s one of the biggest two or three, ever. The scale and scope would be at least at the level of the New Deal, or Social Security.”
Climate-change legislation would not just be an environmental bill — it would also be a farm bill, a labor bill, a humanitarian bill, a defense bill, a tax bill and a foreign policy bill.
Cement companies and other industries that use lime, for instance, brandish the threat of foreign imports while lobbying Congress to protect them. “Any dollar cost on carbon would be added right on to the cost of cement, and makes importing cement that much more attractive,” said Andy O’Hare, vice president of regulatory affairs for the Portland Cement Association. “In a worst-case scenario, capping our carbon emissions could obliterate all cement manufacturing in the United States.”
O’Hare’s group estimates that 30 percent of the cement used in the United States is already imported from China and other countries that don’t regulate carbon emissions, and such imports could wipe out a pricier domestic product. “You’re going to need cement whether you like it or not. It’s a strategic commodity,” he said. “Imagine making the U.S. dependent on an OPEC of imported cement.”
But the stakes in this debate are broader than any one industry or economic sector. Scientists say that if Washington does not find a way to reduce carbon emissions, the United States — which has 5 percent of the world’s population but uses 26 percent of the world’s energy — could be culpable in a worldwide environmental and humanitarian catastrophe. But writing a law that affects every sector of the economy will require thousands of calibrations and fundamental decisions such as the points at which emissions should be regulated — coal mines, smokestacks, houses? — and what level of government should be in charge. Getting it right could generate thousands of new jobs and billions of dollars in new revenue. Getting it wrong could wreak economic havoc and cost thousands of jobs, without significantly cutting emissions.
Adding to the complexity of the endeavor is its protracted timeline: Scientists say any policy to curb carbon emissions will not succeed unless it is accompanied by regulations that can be implemented and updated for at least 50 years, and maybe even twice that.
“Unlike every other environmental problem we’ve tackled, this isn’t something you just do and then you’re done,” said William A. Pizer, a senior fellow at the nonpartisan think tank Resources for the Future. The law would have to operate over decades, perhaps centuries.
That’s one reason, Yeager said, that it’s imperative for Congress to come up with a plan that wins broad support from the wide array of industries that will be affected, as politically arduous as that will be. Only a law enacted with bipartisan, multi-industry backing will be able to forestall subsequent attempts to weaken it.
“Major industry, labor, agriculture — they have to feel like they’re coming along. We can’t build a 50-year, very strenuous emissions reduction program with a partisan bill,” said Yeager.
On Capitol Hill, backroom conversations have been going on all year. “We’ve been talking to God and the world,” said Bill Wicker, spokesman for Senate Energy and Natural Resources Chairman
No doubt the bulk of the initial effort by Congress — the Environment and Public Works Committee in the Senate, the Energy and Commerce Committee in the House, as well as various task forces and party leadership groups — will be in trying to reach agreement on how to regulate and reduce carbon emissions from power plants and motor vehicles, which will have the largest and most obvious economic and atmospheric consequences. What follows is a look at some of the broader implications of a limit on carbon emissions — the better to illustrate the extraordinary, perhaps unprecedented reach of any climate-change legislation.
This summer has been difficult enough for the real estate and construction industries, and a law to limit global warming could hit them hard: The greenhouse gases produced directly from heating, cooling, lighting and powering U.S. homes and commercial buildings account for nearly one-third of the country’s carbon emissions.
Lawmakers have long said that any climate-change measure will include mandates to increase buildings’ energy efficiency. That has builders concerned about increasing construction costs, and it has real estate agents worried about what will happen when those costs — an extra 10 percent to 15 percent for a more energy efficient building, by industry estimates — are added to home prices.
“Any new national building code would be a big problem for us. Builders just can’t absorb those costs, especially right now,” said Elizabeth Odina, federal legislative director at the National Association of Homebuilders.
But realtors don’t want to see the costs passed on to buyers. “It’s expensive to be green, but we don’t want the costs to trickle down and hurt homeowners,” said Mary Trupo, a spokeswoman for the National Association of Realtors. “If we feel that policy is going in a direction that we don’t feel comfortable with, we’d step in.”
There would be some clear winners in a federal energy efficiency mandate. Manufacturers of insulation and energy efficient home appliances are pushing hard for such provisions. But that’s a small part of the overall economic impact, because carbon regulation could increase the cost of basic building materials such as steel, cement and aluminum. That’s because those materials, including lime, are among the most energy- and carbon-intensive materials to manufacture. Add in the higher costs of fuel and transportation for heavy trucks and cement mixers, and that further pads the costs of building — not just homes and office buildings, but cement bridges and steel girders as well.
“The impact of climate change is growing in its breadth, and the impact of doing something about it is very broad for us. It could affect financing, developing, construction and building codes,” said Odina.
For example, new building requires environmental permits and compliance with the Endangered Species Act. “But if climate change changes animal migration patterns, or there are more endangered species in new areas where there hadn’t been, that will make it harder to build,” Odina said.
Homebuilders are also concerned about a proposal for breaks on “carbon neutral” mortgages for buyers who live close to their workplaces or in densely built neighborhoods that require less driving. “Whenever you talk about financing housing, it impacts our builders. It’s everything — financing, developing, construction, building codes. Right now, the industry’s not doing so well. In this kind of an environment, the builder’s not going to be able to absorb those costs,” said Odina.
Builders and manufacturers both say they see some form of carbon control as inevitable. But as with many other industries, their lobbyists are working to deflect the brunt of the economic burden elsewhere. Homebuilders say they will ask Congress to extend a $2,000 credit for constructing energy-efficient homes, now set to expire at the end of next year. That could ease the burden on builders and buyers, but it would strain the resources of the federal government, which, as the nation’s largest landlord, will be grappling with the surging costs of constructing and maintaining its own buildings.
It’s about much more than ethanol, although the rapidly increasing production of fuel alcohol from corn is already having a big impact on the economics of the Farm Belt.
U.S. farms are major consumers of fossil fuels and producers of the greenhouse gases carbon dioxide and methane. Farms also offer thousands of acres of plants that could act as “carbon sinks,” sucking up and storing millions of tons of CO2.
Farmers say the details of how all these agricultural elements are balanced in a climate-change bill — renewables such as ethanol; gasoline and diesel fuel for equipment; carbon storage in plants — could make or break them.
“Agriculture, by and large over the years, has been an emitter, a source of carbon rather than a sink,” said Dale Enerson, director of the carbon credit program of the North Dakota Farmers’ Union. “As we cleared forests to make cropland, that let off a huge emission of carbon dioxide. We’re also big energy users. So it’s not all favorable for agriculture in a carbon-constrained world.”
Regulating and pricing carbon for a cap-and-trade market — which limits emissions but allows companies to buy and sell credits for permission to exceed them — would create a potentially valuable commodity for farmers in carbon credits. And that, Enerson said, is where farmers hope to cash in A- at least enough to make back what they lose on higher fuel costs. By converting some cropland to forests or untilled greenery that would absorb carbon gas from the atmosphere, farmers hope to build a market for “carbon offsets,” under which they would receive credits for absorbing emissions and sell them to the industries that were generating CO2.
“Only in recent years, after we have started to realize how it’s important to replant trees, we’re getting towards the point where agriculture can be a sink rather than a source. So now we’re marketing carbon credits as a new crop for our farms,” said Enerson. “If we can do that, it’s our feeling that a cap-and-trade system would eventually have a net benefit for agriculture.”
Not everyone is sold on this Farm Belt entrepreneurship, though. Some environmentalists have misgivings about the political popularity of ethanol; distilling so much more of it, they fear, might produce as much carbon dioxide as the corn fuel would save when burned in automobiles. And, they say, embracing the farmers’ proposal of a new carbon credits market would reduce incentives for polluters to simply cut back emissions.
In a preview of their negotiating position, agriculture groups say that if the legislation includes generous provisions for the kind of carbon offsets farmers want, they are more likely to support a stringent limit on carbon emissions, which would come down harder on polluting industries and create a better market for farmers’ carbon credits.
Setting a price on carbon through a cap-and-trade system would cost industries that produce CO2 and benefit those such as farmers who could offset the industrial emissions — but the corporations that broker those deals could benefit most of all.
In recent years, many of Wall Street’s financial giants have shifted their position from opposing a climate-change policy that would raise energy costs to supporting the creation of a new commodity market that they would control. Investment banking firms such as J.P. Morgan, Goldman Sachs and Merrill Lynch have told Congress that if it’s going to put a cap on carbon, it should be a tight one.
Merrill Lynch is one of several global investment firms that already act as brokers in Europe’s carbon-trading program, and it’s maneuvering to do the same should a U.S. market emerge. It has already opened a carbon-emissions trading desk in Houston.
“It’s something we’ve invested a lot in and have a lot of new hires in,” said Merrill Lynch analyst Asari Efiong. “We want to be well positioned should new legislation create a U.S. carbon market.”
For financial firms as well as for farmers, that means keeping the price of the commodity high. In July, J.P. Morgan analyst Blythe Masters told the Senate Environment and Public Works Committee that her company is pushing for legislation with no price control or safety valve on carbon credits — a position that puts the company on a collision course with labor groups and electric utilities.
If Congress creates a carbon market, Merrill Lynch is pushing for the government to initially auction off most of the carbon credits — the shares, in a sense, that would be traded in that market — to the highest bidders. The alternative is that the credits get initially apportioned, for free, to various entities based on how much CO2 they use, which is what the European Union did when it created a carbon market in 2005. Environmentalists and corporate carbon brokers say the European system of pollution allowances has been a mistake because it has kept the price of carbon too low to create incentives to reduce emissions, or to turn a brisk profit by brokering carbon trades. U.S. utilities, heavily dependent on coal for fuel, are pushing hard for a system that would apportion the carbon credits based on a company’s current emissions, arguing that an auction system would create too high a price for both the electric companies and consumers who pay electric bills.
But it could be a windfall for the carbon brokers. “The first days of Europe’s carbon market showed that there were flaws in the system,” said Merrill Lynch’s Efiong. “There needs to be a more robust scheme in the U.S.”
Said J.P. Morgan’s Masters, “By establishing a price for carbon through a robust cap-and-trade system, Congress will unleash the forces of supply and demand.”
On Wall Street, corporations are positioning themselves to manage a new market in carbon dioxide — a commodity that may soon be valuable but is also essentially invisible. And so one software company in Silicon Valley has already figured out how to turn a profit by quantifying carbon.
APX Inc. of Santa Clara, Calif., has developed a software system that it says is capable of tracking and essentially putting serial numbers on carbon emissions, making it a potentially invaluable tool in a cap-and-trade economy.
Tom Lewis, the company’s chief executive, says he’s not concerned about the price of carbon — as long as, one day, there is one. “We don’t trade, we’re not an exchange — we’re market-agnostic,” he said. “What we do care about is that if and when carbon turns into a commodity, there is one and only one tracker. We would want to be the program used by the government to do that.”
The potential for new data systems for tracking and trading a brand-new commodity is one reason Kenneth Richards, a professor at Indiana University’s School of Public and Environmental Affairs, says a climate-change law “is going to be a bonanza for the high-tech industry.”
Tech groups say the new opportunities could be endless. For example, one proposed government mandate would implement “smart” power grids, which could monitor how much electricity each home is using and alert users to reduce consumption until lower-rate, off-peak times — it could even be programmed to deliver current to high-energy appliances such as dishwashers only in the middle of the night. The idea has stirred plenty of interest from companies that range from the makers of microchips to the installers of broadband communications cable, which would transmit the data.
Companies such as Google say they are paying close attention to Congress’ climate-change proposals — and looking out for their own opportunities. “It’s clear that Congress is going to be taking up carbon legislation,” said Dan Reicher, director of Google’s climate-change office. “We don’t know how long that will take, but it’s important for us to act smartly now.”
If they persuade Congress to write global warming legislation with just the right details, Wall Street, Silicon Valley and the Farm Belt could come out ahead in an economy where carbon is constrained. But in states such as West Virginia, Wyoming, Michigan and Montana, thousands of workers will be lucky if a climate-change law lets them break even.
Workers in high-carbon industries, such as automobile manufacturing and coal mining, could face sweeping job losses from a law that required the country to cut its CO2 emissions. Labor unions say they recognize that a climate-change law is probably coming, but they are lobbying hard to tilt it in their favor — and their longtime allies in the Democratic congressional majority appear to be listening.
Unions are among the nation’s most powerful political forces, and most members of Congress would agree with Jason Grumet, executive director of the National Commission on Energy Policy, who says of the prospects of passing a climate change bill: “If you don’t have organized labor, you can’t get something through.”
According to a report by the Congressional Budget Office, or CBO, “Any policy that reduced U.S. emissions of carbon dioxide would inevitably create costs for existing workers. Job losses could occur throughout the economy but would probably be especially large (in percentage terms) in industries associated with high-carbon fuels.
“The unemployment-related costs of a CO2 cap,” the report went on to say, “would fall disproportionately on the approximately 80,000 people who work in the coal mining industry.”
Robert Baugh, executive director of the Industrial Union Council of the AFL-CIO, has been telling lawmakers that if there’s going to be a climate-change measure, support from labor unions will be conditioned, at a minimum, on a provision that is also an important goal of their employers in the major carbon-emitting industries, especially coal-powered utilities.
These utilities, businesses and their workers say that if there is to be a climate-change plan, it should include a “safety valve” limit on the price of emissions credits. Under such a system, if the price of carbon emissions in the market reached a fixed price — $12 a ton, for example — the polluters would not have to pay any higher price. Otherwise, proponents of this approach say, market forces could drive the price of emissions credits so high that buying them would prove economically ruinous to some industries.
Predictably, the safety valve has come under fire from environmentalists, who say the principal benefit of the emissions credit system would be that higher prices would force a reduction in emissions.
But the unions’ greatest fear about a climate-change law is potent, and very real, many economists say: U.S. jobs in carbon-emitting industries will be pushed overseas — to China and other economies unconstrained by pricey carbon regulations — unless any global warming law on the books in the United States includes some way to force similar restrictions on other countries.
Opponents of limiting carbon dioxide emissions have argued that such a law would put the United States at a competitive disadvantage with countries such as China and India that do not and probably will not have such restrictions. Indeed, China is expected to overtake the United States this year as the largest source of CO2 emissions.
The consequences for U.S. trade and jobs, and the price of consumer goods, will be a major factor in shaping any climate bill.
Lawmakers and lobbyists for a range of interests, including power companies and labor unions, say that any law restricting U.S. carbon emissions that doesn’t include strong provisions aimed at other countries will send U.S. jobs straight overseas. Though environmentalists including former Vice President Al Gore say the United States should set an example with or without international cooperation, others point out that if the jobs go overseas, so will the carbon emissions they produce — undercutting the economy and the environmental aims of cutting carbon.
The provision of choice for many groups is a carbon tariff, under which imports would be assessed a duty based on the amount of carbon emitted anywhere along their line of production. That would satisfy many of the heavyweight groups necessary to push through a major climate-change bill. But “it would also kick off the biggest environmental initiative in our history with a trade war,” said the Climate Policy Center’s Brooks Yeager.
“The ‘pollution haven’ problem is real,” said Indiana University’s Richards, especially with the economies of China and India roaring. “If we increase the cost of doing business here, and other countries don’t do that, we will see businesses going overseas.”
“But I would not want to be the person responsible for implementing a system of tariffs on what is called embedded carbon,” Richards said, using the term for how much CO2 enters the atmosphere during the manufacture of a product or the growth of a commodity. “That becomes a bureaucratic nightmare.”
Some members of Congress are trying to come up with a way to avoid a significant outsourcing of either jobs or emissions without opening up a trade war, mostly by persuading other countries to reduce their emissions or giving them incentives to do so. Among the incentives would be boosting federal funding for technology partnerships designed to help developing countries reduce emissions, and the promise of high-level diplomatic negotiations with major industrial polluters, aimed at securing binding agreements for reform.
The cost of limiting carbon emissions, passed on to consumers in the price of the products and services they buy, would operate much like a sales tax — and that could have an inordinate effect on the nation’s poor.
A CBO study of the likely effects of a cap-and-trade system for carbon emissions reported in April that “most of the cost of meeting a cap on CO2 emissions would be borne by consumers, who would face persistently higher prices for products such as electricity and gasoline. Those price increases would be regressive in that poorer households would bear a larger burden relative to their income than wealthier households would.”
Several studies have shown that in the long run, costs for consumers as a result of regulating carbon would rise about 3 percent.
“The 3 percent doesn’t look like a lot, but when the people who can least afford it are the ones who are going to feel the most impact, it could really hurt,” said Walter A. Rosenbaum, a political scientist at the University of Florida and an authority on environmental policy.
Some lawmakers say the way to offset that burden would be to increase spending on programs meant to help low-income people cope with high energy bills, especially the Low Income Home Energy Assistance Program, or LIHEAP. For the current fiscal year, which ends at the end of this month, the government is spending $3.2 billion to help poor people heat and in some cases cool their homes. Bush proposed cutting the LIHEAP budget to $1.8 billion in the coming fiscal year; the House has passed a Labor-HHS-Education bill that would provide $2.7 billion for the program; and the Senate Appropriations Committee has approved a bill that includes $2.2 billion.
Some groups worried about the effect of carbon constraints on the poor think the government should go further and use the revenue it would get from auctioning carbon emissions credits to help pay heating costs for the poor.
“If you don’t raise the revenue, the problem for the low-income population’s not going to go away,” said Chad Stone, chief economist at the liberal-leaning Center on Budget and Policy Priorities. “Are you going to ignore it and worsen the problem of income disparity that’s already widening?”
Ultimately, analysts say, countering climate change means transforming the economy and raising the cost of living for every American — and doing so not to reverse the change but only to keep it from getting worse in the decades to come.
“You have to ask people to commit to something that they don’t know will work and for which they won’t see any initial results,” said Pizer of Resources for the Future. “Congress is used to solving a problem that exists, as opposed to preventing one that will come in 20 or 30 years. It’s not like you’re going to see burning rivers no longer burning. You’ll pay all this money, but things will stay the same. But in 50 years, this will be a different world. We may have offset a disaster.”
Pizer added, “It’s a tough sell. It’s a very hard political problem. I don’t know how well democracy works for problems that are really long-term.”
Working out the details of legislation may well take years. And enacting any measure that holds the promise of cutting CO2, keeping the economy stable and having sufficient political support to stay on the books for several decades will require members of Congress to be willing to look well beyond their own constituencies, their own tenure in office and even their own lifetimes, said Rosenbaum of the University of Florida.
“The solutions we have to come up with are ones that many members of Congress have always ideologically objected to,” he said. “If we take the job seriously, it will amount to a restructuring of the American economy in a way that will redefine how we produce and use goods. We haven’t been brought up intellectually to think about a problem as vast as this.”
Energy policy bill (