The ‘Death Rattle’ of Carbon Policy

In both the EU and the US carbon policy correctness has run its course having been discredited by scandal, the persistence of scientific method, and public pressure to recognize market realities. The proponents of carbon policy changes are caught between panic and despair. They came so close to implementing their policy regimes, and cannot now accept that the world has said ‘No!’

The evidence of the death rattle of carbon policy has been presenting itself for a while but like a degenerative diseases it was slow to develop but relentless in its progress.  The EU adopted phase 1 of its Emissions Trading Scheme setting policy goals of reducing greenhouse gas emissions by 20% below 1990 levels.  Europe went along but the grumbling was quieted by a big dose of emissions allowances to reduce the pain.  Much of the economy was targeted indirectly by the focus on power stations and transport.  Phase 2 was tougher and more allowances left the ETS awash in oversupply with resulting falling prices thus undermining the economic incentives to reduce emissions.  Then an inconvenient truth began to appear—the policy has been sold on the looming prospects of rising temperatures and rising sea levels.  The scandals that discredited the incontrovertible science were caused by the persistence of the scientific method which kept asking ‘why is it that temperatures are not rising as forecast?’  The answer was—-shut up, you idiot—you’ll make a mess of things!

The politically correct policy response was to double down on the carbon policy cram-down process before it was too late.  That is when the death rattle presented itself for all to see.  The extension of the carbon policy tax to airlines in the EU expanded the conflict beyond the continental boundaries.  The nations that just said no in Copenhagen and Cancun and Durban said ‘hell no’ we will not have our flag carriers taxed by the EU.  The EU carbon policy emperor was revealed as having no clothes since it lacks the ability to enforce its political correctness beyond the EU borders.  And even the US said no.

A parallel fate is playing out on the American side of the pond for carbon policy.  President Obama was elected with high public aspirations for hope and change and a better economic future.  In phase 1, he pushed hard for Cap and Trade legislation but despite having majorities from his own party in both houses of the Congress the measure failed.  The environmental advocates of American carbon policy change were incredulous.  The President sought to cast his defeat as an ugly partisan battle against those Neanderthal republicans and tea partiers ignoring the inconvenient truth that his policy had been defeated by the no votes of members of his own caucus from fossil fuel producing states. In phase 2, the president used stimulus funding to create a de facto industrial policy of heavily investing in favored green technologies and instructed the US EPA to turn the cap and trade legislative principles into federal regulations to achieve as much of the carbon policy goal in his first term as possible.  The President then turned attention to health care reform and the economy while the regulators worked behind the scenes.  The president achieved success with the passage of his health care reforms and it did suck up much of the oxygen in the nation’s capital by the strenuous debate.  Meanwhile, one by one the US EPA rolled out new rules that targeted fossil fuel use in power generation and transport following the lead of the EU.

But the US effort to double down on carbon policy regulation was met with a market response wholly unexpected.  Shale development had been growing rapidly from horizontal drilling and hydraulic fracturing success.   The players were largely smaller firms unable to compete against the super majors in deep water drilling.  But they were fast, nimble and efficient at exploiting unconventional shale plays and the market began to notice. By the 2008 recession the unconventional plays in Texas and North Dakota had grown to find new opportunities in the Marcellus and Utica shale in Pennsylvania, Ohio and New York.  In the West the Niobrara shale in Colorado, Kansas and Nebraska and the Monterrey shale in California were reassessed to update their recoverable oil and gas potential.  In the aftermath of the Gulf of Mexico oil spill the administration clamped down on issuing new drilling permits in the Gulf and on Federal lands.  This forced deepwater producers to move offshore oil rigs to other global markets like Brazil or Angola and encouraged others to move onshore and go after the growing potential for oil and gas from shale on private lands as the only game left.

By 2010, the US had a full blown domestic energy production boom in the making creating jobs, producing tax revenue and lifting spirits in a sour economy.  North Dakota unemployment rates are near 4% while California’s still are above 10%. By 2011 the US became a net exporter of natural gas for the first time in more than thirty years. Against that obvious market success, the Administration presented its drumbeat of ever more onerous anti-fossil fuel regulations capped by the newly proposed carbon pollution rule that virtually bans future coal fired generation in the US.

The death rattle grows louder.  In the face of looming carbon policy changes from the Administration, the market offers the public low natural gas prices from growing domestic production.  The government offers carbon taxes, Chevy Volt, and more Solyndra-like investments with money borrowed from China—-in an election year!

Two continents but one story—a decade of political correctness confronts the reality of science and markets.  The EU pursues its policies to the fullest and finds itself with high energy prices, oversupply of emissions allowances as market demand falls along with the EU economy.  The US finds its carbon policy defeated in the Congress and pursued by administrative regulation only to be confronted with a domestic energy boom on private lands the president and his regulators cannot stop pointing a now carbon-skeptical public to the job creating, revenue producing advantages of shale.

Global markets find America’s prospects of low natural gas prices now decoupled from rising oil prices so attractive that there is real opportunity for a rebirth of America’s manufacturing base long ago forced offshore in search of cheaper fuels and labor.  The only thing holding back the industrial investment is America’s uncompetitive corporate tax and repatriation of earnings policies, the uncertainty of looming health care costs, and the prospects that carbon policy advocates will kill the golden goose of domestic energy production of fossil fuels if the President is re-elected and has ‘more flexibility’ since he won’t have to face the voters again and can concentrate on implementing his policy goals—-not ours!

How’s that ‘hopey changey’ thing working out for you?

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One thought on “The ‘Death Rattle’ of Carbon Policy

  1. Superb Gary! I think that where we are going is to seperate the politcal agenda of “science” from the actual scientfic method which is the pursuit of truth, not funding.

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