Inconvenient Realities of Cap-and-Trade: Little Impact on Global Warming, Big Impact on Taxation and Economy

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Inconvenient Realities of Cap-and-Trade: Little Impact on Global Warming, Big Impact on Taxation and Economy

By Don Longo

OREM, Utah -- Although the so-called "cap-and-trade" bill currently being considered in Congress will likely take a backseat to health care reform and possibly even a second economic “stimulus” package this summer, convenience and petroleum industry executives continue to be wary of the Democrat-sponsored climate change legislation.

Bill Douglass, founder and CEO of W. Douglass Distributing Ltd., a full-line petroleum distributor and operator of Lone Star Food Stores, based in Sherman, Texas, this week sent CSNews Online a copy of a presentation on the future of energy by Keith O. Rattie, chairman, president and CEO of Salt Lake City-based Questar Corp., a natural gas provider.

"Attached is a lengthy explanation of ‘global warming’ and the misguided Obama ‘cap-and-trade’ taxation plan," wrote Douglass, a leading proponent of c-store industry issues on Capitol Hill and last year’s inductee into the CSNews Convenience Store Hall of Fame. "Your future and the economics of our country depend on the proper understanding and decisions made in this legislative debate."

Speaking to students and faculty at Utah Valley University in Orem, Rattie, a former Chevron executive, discussed his personal quest to understand and be part of the nation’s transition from dependence on fossil fuels to alternative energy sources.

"After graduating with my degree in electrical engineering, I made a decision to go to work for an oil company—Chevron—on what turns out to have been a false premise: I was convinced that by the time I reached the age I am today that America and the world would no longer be running on fossil fuels," said Rattie in his April address. "Chevron was pouring lots of money into alternatives—and they had lots of money and the incentive to find alternatives—and I wanted to be part of the transition.

"Fast forward 33 years—Today, you students are being told that by the time you’re my age the world will no longer be running on fossil fuels."

Promising an honest conversation about energy policy, global warming and America’s energy future, Rattie went on to point out that:

-- The greatest challenge facing mankind today is figuring out how to meet the energy needs of a planet that may have 10 billion people living on it by the middle of this century. "The magnitude of that challenge becomes even more daunting when you consider that of the 6.2 billion people on the planet today, nearly 2 billion don’t even have electricity—never flipped a light switch."

-- In the mid-70s, when he first started with Chevron, the consensus was that America and the world were running out of oil. The media then was declaring a scientific consensus that the planet was cooling, and that fossil fuels were to blame. "That thinking led to the now infamous 1977 National Energy Plan, an experiment with central planning [including massive taxpayer subsidies] that failed miserably."

-- Today, the fear is that the earth is getting hotter, humans are to blame and "we’re all doomed unless we find alternatives to oil, gas and coal—fast. Once again, we’re being told that the job is too important to be left to markets."

However, Rattie contends that just as the doomsayers of the 1970s proved to be remarkably wrong, so too are the doomsters of today. "Over the past 33 years mankind has consumed more than three times the world’s known oil reserves in 1976—and today proven oil reserves are nearly double what they were before we started," he said. The situation with natural gas is even better. "And, of course, the 30-year cooling trend that prompted the global cooling scare in the mid-70s abruptly ended in the late '70s, replaced by a 20-year warming trend that peaked in 1998."

As an engineer who has followed the global warming debate for more than 15 years, Rattie concludes the mainstream media’s claims of a scientific consensus on the issue mislead the public and policy makers—and often reflect another agenda.

Rattie acknowledges the earth appears to be warming, but by only about one degree over the past 100 years. And, while carbon dioxide concentrations in the upper atmosphere have been increasing, the amount is small—from about 280 parts per million in 1750 to about 380 parts per million today.

"What that tells you is that carbon dioxide ... is a trace gas, comprising just four out of every 10,000 molecules in the atmosphere." Without CO2, earth would be a lifeless ball covered with ice, he pointed out.

In addition, Rattie pointed out no one knows how much warming will occur in the future, nor how much of any warming that does occur will be due to man, and how much to nature. "No one knows what the impact of warming will be, nor how easily people, plants and species will adapt to warming," he added, and gave several examples of areas of global warming where different members of the scientific community has expressed disagreement with one another.

"But the reality for American consumers is that whether you agree that the science is settled or not, the political science is settled," maintained Rattie, pointing out the Congress has promised to "do something" and that carbon dioxide regulation is coming. President Obama’s hope of shrinking the massive federal budget deficit depends on vast new revenues from a tax on carbon energy, the so-called cap-and-trade bill introduced earlier this spring.

Under cap-and-trade, the government would create a market for carbon dioxide by selling credits to companies that emit it. They would set a cap for the maximum amount of CO2 allowed, with the cap lowering over time. Theoretically, companies would invest in lower-carbon technology, thus reducing emissions to avoid the cost of buying credits from other companies that have already met emissions goals. The costs of the credits, of course, would be passed on to consumers.

"Because virtually everything we do and consume in modern life has a carbon footprint, the cost of just about everything will go up," said Rattie. "Any way you slice it, cap-and-trade is a tax on the way we live our lives—one that by design will produce a windfall for government."

The executive, who now heads up one of the country’s fastest-growing natural gas producers, pointed out the futility of reaching the government’s long term goal of an 80 percent reduction in carbon dioxide emissions by 2050. This "would require a reduction in America’s carbon footprint from about 20 tons per person per year today to less than 2 tons per person per year in 2050—a 90 percent reduction in per-capita carbon footprint," he said.

The last time America’s carbon footprint was as low as 2 tons per person per year was in 1620 when the Pilgrims arrived at Plymouth Rock, according to Rattie.

"Our conversation about how to reduce carbon dioxide emissions must begin with a few 'inconvenient' realities," said Rattie.

First, demand for energy worldwide will grow by 30 percent to 50 percent over the next two decades. Thus, America and the rest of the world will need all the energy markets can deliver. According to Rattie, that means we’re going to need it all—oil, natural gas, coal, nuclear, wind, solar, geothermal and biofuels.

Second, there are no near-term alternatives to oil, natural gas and coal. "Like it or not, the world runs on fossil fuels, and it will for decades to come," said Rattie. "Someday we’ll find alternatives, but that day is still a long way off. It’s not about will. It’s not about who’s in the White House. It’s about thermodynamics and economics."

Rattie asserts previous generations failed to develop wind and solar power because their energy choices were "ruthlessly ruled, not by political judgments, but by the immutable laws of thermodynamics."

Turning diffused sources of energy such as photons in sunlight or the kinetic energy in wind requires massive investment to concentrate that energy into a form that’s usable on any meaningful scale, according to Rattie. "Without a significant breakthrough in high-density electricity storage, wind and solar can never be relied upon to provide base load power," said the engineer, who added "we need all the wind and solar power the markets can deliver at prices we can afford, but please, let’s get real, wind and solar are not alternatives to fossil fuels."

The third reality is that carbon cap-and-trade regulations will drive the cost of energy higher. While Obama’s budget pegs the cost at $650 million over the next decade, some believe the true cost will approach $2 trillion over the next decade, said Rattie. Since the businesses that are forced to buy credits will pass this cost on to consumers—all Americans will pay for it.

Worse than the economic impact, there’s no evidence cap-and-trade will work without viable alternatives to fossil fuels that can be delivered at scale and at a politically and economically acceptable cost.

Even though the European Union implemented a cap-and-trade scheme to meet its Kyoto commitments to reduce emissions, they’ve failed because no country is willing to sacrifice its economy and standard of living.

The fourth reality is that even if America does cut CO2 emissions, the same computer models that predict manmade warming over the next century also predict that Kyoto-type CO2 cuts will have no discernable effect on global average temperatures for decades, if at all, claimed Rattie. The models show that Kyoto reductions would prevent only a small fraction of one degree of warming over the next 50 years. "When was the last time you read that in the paper?" he asked the audience.

Rattie did offer his audience four suggestions for reducing CO2 emissions:
-- Improve energy efficiency
-- Stop wasting energy
-- Rethink nuclear power
-- Substitute low-carbon natural gas for higher-carbon coal and oil.

"Greater use of natural gas produced in America—by American companies who pay American taxes—will help reduce oil imports," said the president of Questar Corp., the parent of Questar Gas, a natural gas utility. "Unlike oil, 98 percent of America’s natural gas supply comes from North America."

Rattie also encouraged the students to focus on new technology, and not just assume solutions will be developed someday. He pointed out "R&D aimed at allowing us to continue to use fossil fuels while waiting for a breakthrough in other technologies seems a rational thing to do."

Before closing, Rattie took another swipe at the current climate change legislation being considered in Congress, calling it a futile attempt to eliminate CO2 emissions related to fossil fuel use.

"The media dwells on the potential harm from global warming, but ignores the fact that the costs borne to address it will also harm us," he said. "We have a finite amount of wealth in the world to address a long list of problems—hunger, poverty, malaria, nuclear proliferation, to name a few ... The opportunity cost of diverting a large part of current wealth to solve a potential problem 50 to 100 years from now means we do ‘less good’ dealing with these other problems.

"Let me close by returning to the lessons my generation learned from the 1970s energy crisis," said Rattie. "We learned that energy choices favored by politicians but not confirmed by markets are destined to fail. If history has taught us anything it’s that we should let markets determine how much energy gets used, what types of energy get used, and where, how and by whom energy gets used. What’s more, no form of energy is perfect, thus only markets can weigh the advantages and disadvantages of different energy forms. Instead, government’s role is to set reasonable standards for environmental performance, and make sure markets work."

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