Creating a 'Pollution Casino': Why the Energy Bill May End Up a Boon for Our Dirtiest Industries

Let's take a look at why Waxman-Markey has the support of big polluters such as Shell Oil and Duke Energy, and not many environmental groups.

As the states move to establish quotas for renewable-energy production, the federal government -- for once -- hasn't lagged far behind.

At the end of May, the House Energy and Commerce Committee passed "The American Clean Energy and Security Act," also known as the Waxman-Markey bill, which seeks to create a cap-and-trade system to forcibly lower carbon-dioxide emissions. The goal: to ease global warming and avert catastrophic climate change.

But Waxman-Markey, backed by big polluting industries such as Shell Oil and Duke Energy, hasn't garnered full support from environmental groups. Many oppose the bill, citing its incentives are too diluted to be effective and will actually sacrifice billions in revenue that should be invested in clean energy, while others critically support it, urging Congress, as it attempts a historic first by directly addressing climate change, to toughen it.

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"There are serious flaws with this bill. The political process is pushing for expediency over strengthening the context, and we think that climate change is too important to get it wrong," says Tyson Slocum, research director at Public Citizen's energy program, from Capitol Hill. Public Citizen is a national nonprofit consumer advocacy organization.

The current drive to get the bill signed into law is twofold: First, the Environmental Protection Agency's March ruling that carbon dioxide threatens the public's health has put pressure on Congress to act, and second, the U.N. plans to hold a Climate Change Conference in December in Copenhagen, which many consider a last chance to create a global plan of action before the Kyoto Protocol expires in 2012.

"This bill is possibly the most hamfisted, complicated, expensive way for lowering emissions that could ever be imagined," Ronald Bailey, Reason magazine's science correspondent and adjunct scholar at Cato, says of the onerous 946-page bill. "If you understand cap-and-trade, it's theoretically brilliant -- but that's not reality."

To understand the bill's flaws, first a quick 101 on how cap-and-trade works. The government imposes a limit, or cap, on industrial emissions, requiring major polluters to buy permits from the government or other companies to pollute -- hence the 'trade.' But this also works as an incentive, because companies that reduce their emissions by investing, say, in renewable energy, can sell their excess permits on the open market and make a profit.

But as it stands, the bill distributes 85 percent of those permits to favored industries for free. "If you create a new legal right to pollute and then give it away, that's not an effective strategy," says Slocum, adding this helps fatten polluter's profits without making a dent curbing actual emissions. "The only rationale for this is that special interest has flexed its political muscle."

Indeed, this is politicking as usual. Many permits were given away to woo lawmakers in regions rich with coal, not to mention the industries themselves, which haven't been regulated in the past and lobby heavily for their interests.

The bill would give a large number of permits to coal-fired electric utilities until 2025 to help them make the transition to clearer fuels. But some environmentalists insist all permits should be auctioned off and the money invested in renewable energy.

Just how willing are industries like coal to protect their interests? According to "The Climate Change Lobby," a study conducted by the Center for Public Integrity, last year more than 770 companies and interest groups spent $90 million funding climate-change lobbyists in Washington -- of which The American Coalition for Clean Coal Electricity spent $10.5 million alone. So it's no surprise that with Waxman-Markey on the table, and where billions of federal dollars are at stake, vested interests are lining up eager to tailor climate policy in their favor.

Criticism is also levied at the bill's allowance for $2 billion in carbon offsets, $1.5 billion of which would be international. Carbon offsets are the market-based solution for consumers and corporations alike to reduce or negate pollution through cost-effective alternatives, such as planting trees in India to negate emitting carbon at home. Offsets are a seductive sales pitch to trade or buy pollution back, but it doesn't work.

In Europe, the European Union's Emissions Trading Scheme kicked off five years ago, but the market was flooded with permits, making it cheap to pollute -- compare $38 per ton of carbon dioxide, which now trades at $12 per ton.

"The problem with Europe is that each country got to set its own emission allocations, and the temptation to cheat was overwhelming -- in fact, all of them cheated," says Bailey, noting ETS has yet to deliver any greenhouse-gas reductions. According to the Wall Street Journal, European emissions have actually risen by 1 percent per year since 2005.

"Offsets literally provide massive incentives for polluters. Rather than transforming their business practices, they can simply write a small check to an Indonesian farmer, whose activities may not offset their industrial emissions," says Slocum, who also warns that carbon markets are new, unregulated and far from transparent. "This legislation relies on the good graces of Wall Street to behave itself in a brand-new trillion-dollar derivatives market. Wall Street does not have the public interest in mind. It will turn this market into a massive pollution casino that will enrich investment banks at the expense of an accurate price signal."

Or solid action -- like cutting emissions. Today.

"There's a big disconnect between what Washington is producing and what science demands," says Nick Berning, spokesman for environmental advocacy group Friends of the Earth, which does not support the bill due to its "unambitious short-term targets." While the international community is calling for cuts in carbon emissions 25-40 percent below 1990 levels by 2020, Waxman-Markey aims for a mere 4 percent. "Global warming cannot be reversed -- it's not the type of issue you can take one shot at it with a weak bill. The time to act is now, but this bill undermines emission reductions by giving bailouts to polluters."

Particularly worrying, says Berning, is the coal industry's support for this bill, "a sign there are significant problems." The bill focuses on investing in a renewable energy standard that requires 6 percent of electricity to come from renewable fuels by 2012, and includes carbon capture and storage incentives, also known as CCS, which seek to curb fossil-fuel emissions by storing CO2 underground.

Many environmentalists contend coal should not be considered a source of renewable energy. Coal emits 40 percent of America's carbon dioxide emissions -- roughly the same emissions from cars, trucks, busses, trains, planes and boats combined, according to the "Coal is Dirty" Web site, a project managed by Rainforest Action Network and Greenpeace USA.

Coal (and CCS) figure largely in the bill because coal is a plentiful, cheap form of energy that currently fuels half of America's power grid. If we stopped burning coal tomorrow, the economy would simply collapse. But not just America is dependent on coal -- the world is. Coal accounts for roughly 70 percent of China's energy supply, and China is now producing coal-fired power plants like Detroit once produced cars to meet its burgeoning energy needs.

Coal may be cheap, but it's also the dirtiest fossil fuel on the planet. "Clean coal is like a healthy cigarette," says attorney Blan Holman on Thisisreality.org's Web site, a project of the Sierra Club and the National Resources Defense Council, among others. Coal burning is a leading source of mercury contamination, and its combustion releases dioxide, hydrochloric and sulfuric acid, ammonia, arsenic and lead, for starters, killing 24,000 people prematurely a year, according to the American Lung Association. Then there's the extensive damage mining does to landscapes, water supplies and ecosystems.

One of coal's byproducts is coal ash, of which roughly 130 millions tons is produced each year. Coal ash is so toxic, the Department of Homeland Security considers it a security risk and won't allow Sen. Barbara Boxer, D-Calif., who chairs the Senate's Environment and Public Works committee, to reveal 44 dump sites the Environmental Protection Agency deems highly hazardous. (For a longer look at coal ash, this month's GQ contains an article about Tennessee's Kinston power plant, which experienced a spill last December 100 times larger than the Exxon Valdez's.)

In February, NASA climatologist James Hansen was quoted in the U.K. Guardian, saying, "The dirtiest trick governments play on their citizens in the pretense that they are working on 'clean coal.' ... The trains carrying coal to power plants are death trains. Coal-fired plants are factories of death."

Only, coal isn't going away. The government, backed by the coal industry, which insists coal is a reliable, long-term energy solution, is charging ahead funding so-called clean coal projects.

On June 12, the Obama administration kick-started FutureGen, an ill-fated project scrapped by the Bush administration for being too expensive, to construct the country's first so-called clean coal power project to the tune of $1 billion. Much focus will be on CCS, or sequestering carbon, which is still largely a theoretical approach to capturing and storing CO2.

"Coal is carbon that is already sequestered -- let's find a way to leave it in the ground," says Berning.

"CCS is not a real solution It's not deployable and keeps reliance on the dirtiest fuel known to man," says Daniel Kessler, spokesman for Greenpeace, who likens CCS to an old model of dealing with pollution -- sticking it in a hole in the ground. "We are facing unprecedented crisis, and all our resources need to be marshaled to finding real solutions."

According to Jeff Brehm, marketing communications leader at the Electric Power Research Institute, a nonprofit that researches issues of interest to the electric power industry, CCS research "is just getting started" when it comes to putting carbon underground. CCS has been done before, he says, but it hasn't been done long-term, nor on a large scale, and employing CCS technology involves further issues, such as capturing and compressing carbon, which requires an increased energy load -- up to 30 percent more. This means burning more coal.

Or there's storage. CCS works by injecting carbon into underground geological formations, but according to Brehm, geological studies show that California, for example, doesn't have the right geological features for storage. That means having to ship captured carbon to another state, which then creates multistate jurisdictional issues, such as who is liable if the gas leaks?

Currently, says Brehm, CCS technology creates big questions such as, "How do you deal with corrosion? How do you transport the carbon? Some groups suggest a pipeline system to handle the volume, which requires a huge investment in infrastructure. Who's going to fund it?"

Jan Jarett, president of PennFuture, an environmental advocacy organization based in Pennsylvania, the fourth-biggest coal-producing state, and, she says, "ground zero for the clean coal debate," believes there's no real hope of banning coal mining and burning at the moment.

"We're just too reliant on it. Coal creates environmental and public-health problems almost every step of the way -- it would be nice if we could leave it in the ground -- but nothing tells me we're able to stop using it. Nothing," she says. "We have to get our fingers in as many pies as possible and vigorously pursue carbon capture and get the technology perfected. We need to pursue a whole buffet of options simultaneously, because we're well past the place where there are any easy choices."

Still others argue that coal extracts too high a price and instead, we should be focusing our money and time on renewables like solar and wind.

"If we made the coal industry pay the full price of the damage it's imposing on its neighbors and the globe -- such as destroying wildlife and making people sick -- and folded all those costs into the price of electricity, it would be roughly double what it has been," says Ernie Nieme, senior policy analyst at EcoNorthwest, an independent economic consultancy service. "If the price were double, society would soon find cheaper alternatives and begin investing in increased efficiency. Right now, we're paying for their garbage."

This is more or less what critics of the Waxman-Markey bill argue, suggesting that introducing a straight carbon tax -- rather than a complicated cap-and-trade scheme -- will wean us off coal and spur an entrepreneurial "green rush."

"If we put a price on carbon, it will make everything open and transparent and get the entrepreneurial juices going," says Reason's Bailey, who envisions a process mirroring Silicon Valley, where smart people, in pursuit of a market with large returns, would work hard to develop new, renewable technology.

It's already happening. Google, for example, established its "Renewable Energy Cheaper Than Coal" program in 2007, and is pumping $45 million into clean-energy companies to develop renewable-energy technologies. "Even producing unlimited energy from renewable sources won't make a difference, unless we can find a way to make it cheaper than coal," says Google spokeswoman Niki Fenwick, who says Google aims to do this "in years, not decades."

In lieu of federal money going to bail out polluters with free permits, or funding "clean coal" projects like FutureGen, environmentalists would like to see money invested in increasing energy efficiency, such as weatherizing homes, creating fuel-efficient autos, propping up solar and wind technologies and developing infrastructure, such as connecting wind power energy grids together to create a national grid -- all of which could help create green jobs.

According to the National Resources Defense Council Web site, a recent economic analysis shows that investing $100 billion in clean energy would create 2 million new jobs nationwide over two years -- four times as many as the same investment in traditional fuels.

"Our economic capacity and technology is such that we can transition to clean energy, strengthen the economy and create green jobs. There's no reason to be depressed, unless you look at politics and the extent to which polluting industry holds political sway," says Friends of the Earth's Berning. "If we start addressing the problem immediately, our existing technology is perfectly adequate."

But if we don't, the world's population is expected to grow 36 percent by 2030, and its electricity needs are expected to grow 110 percent. Add more coal and CO2 emissions to the mix, and the tipping point is depressingly near.

Dara Colwell is a freelance writer based in San Francisco.