Energy Policy: Preempt EPA Rulemakings with Carbon Tax?

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The incoming Congress may consider enacting a carbon tax to preempt the U.S. Environmental Protection Agency (EPA) (Washington, D.C.) from issuing draft rules on greenhouse gas emissions, speakers told an energy briefing in Washington on Friday. "I don't see cap and trade coming back--it's politically poisonous," said former congressman Rick Boucher, now a partner at the law firm of Sidley Austin LLP (Chicago, Illinois). "But over the next year or two, greenhouse gas (GHG) regulation is a near certainty, given what EPA is doing. The question is how."

"Energy industries may prefer a stable carbon tax compared with unpredictable EPA actions," continued Boucher, formerly chairman of the House Energy & Commerce Committee's subcommittee on energy and air quality. "In the end, the industry may prefer a stable carbon tax in exchange for preempting EPA action on GHGs. President Obama said he wouldn't propose a carbon tax, but he didn't say he wouldn't accept one proposed by Congress."

Boucher spoke at an executive briefing organized by EnergyBiz magazine, a publication of EnergyCentral (Aurora, Colorado). If a deal to avert further GHG rules from the EPA cannot be reached, Boucher said he expects the agency will issue GHG rules for oil refineries and existing power plants. Earlier this year, EPA proposed a GHG emissions rule for new power plants. For more on that draft rule, see March 30, 2012, article - EPA Strikes Again With 'New Source Performance Standard'.

And while EPA regulation has affected the coal industry and coal-burning utilities, the former Virginia congressman said coal has been hurt more by low-priced natural gas: "$3 gas is the biggest challenge facing coal."

Other panelists at the "Future of National Energy Policy" briefing differed with Boucher on the likelihood of a carbon tax. "Congress faces so many higher priorities than climate change," commented Rep. Ed Whitfield (R-KY), chairman of the House Energy & Commerce Committee's subcommittee and energy and power.

"A carbon tax is certainly possible, but politically it won't be possible to get the tax high enough to change consumer behavior," said Clarence "Bud" Albright, senior vice president of policy and government affairs for CenterPoint Energy Incorporated (NYSE:CNP) (Houston, Texas).

"Unfortunately, our nation's energy policy has been its environmental policy," Albright continued. "The Environmental Protection Agency is trying to become the Environmental Perfection Agency. A zero-emission society is not achievable in our lifetime. Energy policy has got to be more than environmental policy. In Texas, we will be short of electric supply because of environmental regulations."

Other panelists joined the CenterPoint executive in calling for a reorientation of national energy policy. "Our nation's energy policy dates from the 1970s, and it's based on an assumption of scarcity," said Karen Alderman Harbert, president and chief executive of the U.S. Chamber of Commerce's Institute for 21st Century Energy. "But we're now in a state of energy abundance."

The shale revolution "is not the result of a federal mandate," she continued. "Mandating something doesn't get it done. Rewarding something does. Energy businesses don't want to put their capital into a mattress, they want to put it to work to hire more people and generate more business. But it's really hard to do business here."

Harbert pointed to Canada, which streamlined 40 agencies into three, and capped at 24 months the amount of time those agencies had to reach a decision on an energy project. By contrast, she noted a transmission project in Virginia took 16 years to litigate and two years to build.

"This country needs comprehensive tax reform and comprehensive entitlement reform, but we also need comprehensive energy reform," she told the briefing. Harbert said none of these needed reforms were going to be easy: "In fact, it could get really ugly, but business will be at the table, and energy needs to be part of efforts to cut spending and raise revenue."

Taking a look at global energy issues, Harbert predicted the world will have an additional 9 billion people by 2050, and the global economy will increase 250% from what it is today. "All of this will have a huge impact on energy issues globally," the Chamber official said. "There will be a 90% increase in energy use, and half of that will come from China and India. Energy is Job No. 1 for those countries. China may not be building one coal-fired power plant per week anymore, but their demand for energy is still growing dramatically." By contrast, the U.S. suffers from what Harbert called "the BANANA syndrome--Build Absolutely Nothing Anywhere Near Anyone."

The only speaker not to criticize the Obama administration's energy policy was Dan Reicher, a professor at Stanford University and a member of the Obama administration's transition team following his election in 2008. While making it clear that he did not speak for the Obama administration, Reicher said the administration's "all of the above" energy policy is working. "The 'all of the above' approach can create a significant number of jobs and make an impact on climate change. Our economy, our security, and the planet will be better off for it."

Reicher predicted U.S. energy policy would be strengthened if legal changes were made to certain corporate structures--such as real estate investment trusts (RIETs) and master limited partnerships (MLPs)--so they could invest in renewable energy. Companies using those structures have invested widely in extraction of fossil fuels, but are prohibited from investing in renewable energy, he said, adding that Congress and the U.S. Treasury Department are considering changes that would allow REITs and MLPs to make these investments in renewable energy.

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