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SnapshotInconvenient No Longer

By: John Tepper Marlin

For: The Sallan Foundation

Date: January 3, 2012



1 © 2011 The Sallan Foundation, Inc. All rights reserved. http://www.sallan.org

Snapshot

Inconvenient No Longer

Who was prepared for the annus horribilis of 2011, when GOP climate-change deniers were at

work opposing progress on environmental issues? They even challenged the EPA’s right to issue

regulations, repudiating the authority of the Clean Air Act signed into law more than four decades

ago by Richard Nixon.

In December, the League of Conservation Voters called the current House of Representatives,

dominated by Tea Party activists, the “most anti-environment in the history of the Congress”.

When President Obama overrode the EPA plan to lower the atmospheric ozone limit to 65 parts

per billion from the Clinton-era 84 ppb, who could blame environmental advocates for feeling

friendless in Washington?

However, I would argue, the night is darkest just before the dawn.

President Obama has held firm on other hotly contested environmental issues. He has delayed the

Keystone XL pipeline pending environmental review. He has issued new national fuel economy

standards requiring 54.5 miles per gallon by 2025. He has allowed the EPA to issue important,

long-awaited national standards for electric utilities, cutting their mercury and other toxic

emissions.

Most important, I would argue that the climate-change deniers are steadily losing their credibility.

Public opinion is catching up to environmental science in three ways.

1. The Market Favors Greener Fuels

The Wall Street Journal on November 28, 2011 crowed that green jobs were not growing much,

whereas the “non-green oil-and-gas jobs” were growing fast. Of the million jobs added to the

U.S. economy since 2003, one-fifth are in the oil and gas industry.

However, the excitement about job growth in “oil and gas” is mostly on the gas side. The

interests of the natural-gas industry are diverging from those of Big Coal and Big Oil. Once

brought to the surface, natural gas is a greener fossil fuel than oil or coal. It is far more efficient

at heating than oil and is more abundant in the United States. It can help reduce our dependenceon Middle Eastern oil and when burned creates fewer emissions. Most important, natural gas has

some key market advantages for consumers:




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The cost of switching from oil heating of a large water tank to on-demand gas heating in

a high-oil-cost area pays for itself in two or three years. (In this low interest-rate financial

marketplace, where else can you get anything like a 40 percent annual return?

Natural gas is much less polluting than heating oil. The abundance of U.S. natural gas

could buy time to get the rest of a sustainable system in place. New York State is bent on

lowering the sulfur content in No. 2 heating oil and New York City passed a law in 2011

that will phase out use of No. 6 and No. 4 heating oil.

The problem with natural gas is the way it is being extracted from shale formations far

underground. The ingenious technique of hydraulic fracturing, “fracking”, involves

pumping water and sand and chemicals into the shale, forcing natural gas up to the

surface via separate collection pipes. The chemicals are the biggest problem known to

date. They are not removed by usual water treatment processes, so fracking is properly

controversial near large population centers and sources of drinking water.

Hence, it is good news that venture capital specialists are currently putting more of their money

into new power plants built around renewable energy rather than ones using fossil fuels. For the

first time in 2010, investments in electrical generation from wind, sun, waves and biomass source

exceeded investments in natural gas, oil and coal – by $187 billion to $157 billion worldwide,

according to Bloomberg New Energy Finance.

2. The Market Favors Greener Products and Buildings

Business is discovering that it is profitable to do the right thing by the environment. Ecology is no

longer just a niche for off-beat brands like Ben & Jerry’s and the Body Shop. Large retail

corporations like Wal-Mart have found that pursuing environmental goals is consistent with cost-

cutting and higher profits. Some like Whole Foods have been growing fast by targeting

environmentally conscious consumers. Duke Energy is one of a number of electric utilities that

actively support a cap-and-trade system and is committed to investing heavily in wind power.

A good place to identify market-driven environmental progress is in the U.S. building industry.Big city buildings are major users of energy, which, by the way, place costly stresses on existing

utility systems. In the process they are major emitters of carbon dioxide whether on-site or from

electric power plants. They use close to three-fourths of U.S. electricity and 40 percent of energy,

according to the US Energy Information Agency Annual Energy Outlook.




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The market test is whether lowering energy costs will be reflected in the value of real estate –

energy is 30 percent of a building’s operating cost. This connection has been documented by

Berkeley faculty:

A study of U.S. commercial buildings in 2009 using CoStar data and EPA energy

efficiency ratings, finds that energy efficiency is rewarded with higher rentals and

building valuations.

Returns to residential buildings that obtain the "Green Mark" in Singapore are

“substantial”, according to 2011 research.

A study of U.S. buildings shows that economic premiums for rentals and sales prices for

green buildings are substantial and have not been reduced by the recent volatility in the

housing market or by the increased availability of green buildings. Premiums persist for

both thermal efficiency and other sustainability features. The average premium within

rated buildings was a 3.5 percent higher rent ($0.95/sf) for every dollar saving in building

energy costs, and a 4.9 percent ($13/sf) higher building valuation. These studies reinforcemy own perception of what is happening in the green marketplace in New York City and

area.




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The “low-hanging fruit” of “negative-cost” energy-efficiency investments that McKinsey

& Co. diagrammed in 2007, 2008, and 2009 is now bending to eye-level. One missing

piece has been financial support for homeowners who see the logic of investing in

insulation or on-demand heating but just don’t have the cash on hand. New York State in

June passed an On-Bill financing law enabling homeowners to make energy-efficiency

investments that are paid for over time on their electricity bills.

I have reviewed lists of hundreds of names of entrepreneurs in green incubators or

providing green services in New York City or on Long Island. I have assigned these

names to industries based on the services they provide. The largest single group, it turns

out, is made up of individuals and firms working on ways to introduce or disseminate

green practices in building construction or management.

A green architect in Woodstock, NY switched to the latest version of the REScheck

software of the U.S. Department of Energy in order to comply with the residential Model

Energy Code. The architect, Curry Rinzler, found that the latest software gives less credit

for heating efficiency than the old one. When he called the Department about this, they

said that marketplace incentives for more efficient heating were now abundant. They

therefore shifted the attention of the software to other variables. Mr. Rinzler got the

credits he sought by complying with the code for the geo-placement of the building.

3. Public Opinion Is Catching Up to Climate-Change Science

Public opinion is catching up to science. According to a Pike Research survey in 2011 of a

sample of more than 1,000 people, solar and wind energy both have the approval of three-fourths

or more of those surveyed. Electric vehicles are not far behind in support. Where public opinion

lags is on specific legislation to put a price on carbon (i.e., to make the social cost of carbon

emissions part of business costs). The same Pike Research survey that showed broad approval of

solar and wind energy projects showed a lack of faith in cap & trade, with approvals below 20

percent.

A cap-and-trade system was the centerpiece of the Waxman-Markey bill that passed the House in2009. Cap and trade was devised as a way to induce the marketplace to establish a price per ton of

carbon through a system of emission permits and a declining annual cap on permitted emissions.

However, lobbying on the cap-and-trade legislation was fierce, with 1,098 different entities such




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as corporations and unions weighing in during the 111th Congress, according to Open Secrets.

It’s no secret that most of the lobbying was on behalf of Big Fuel.

After the 2010 elections, the House majority shifted to a GOP that was repopulated with many

new Tea Party members opposed to virtually any environmental legislation. Here is what

happened:

The planet did not have a seat at the GOP table. Gradually, the reason became clear – the planet

was on the menu.

The presidential candidate who seemed earlier to be respectful of the warnings of

environmentalists, Jon Huntsman, was reported in early December as joining the other candidates

in questioning the threat of climate change – "the scientific community," he said, "owes us more".

A funny thing happened along the way to this victory for the CO2 climate-change deniers.

Moderate and liberal Republicans, according to the Pew Research Center, have been forced off

the fence, creating a mini-schism in the party. In 2009, just 41 percent of moderate Republicans

believed there is solid evidence for global warming; in 2011, the share rose to 63 percent.

Retired Republicans who were environmental leaders are prodding GOP members of Congress to

pay more attention to the evidence.

4. Looking Ahead to the 113th Congress

Clearly, there are big reasons for being optimistic about environmental progress – the Tea Party

has overplayed its hand in the 112th Congress, the marketplace is catching up to science, and

business executives are looking for energy-efficient buildings and are willing to pay more for

them and invest their own money in them. And don't forget the American public's appreciation of

green issues is growing steadily and is driving change on the ground.

Does a little green optimism diminish the need to campaign for stricter environmental laws? No.

The nation and the world need the price of carbon fuels to rise closer to their true social cost,through a tax or a cap. This is essential to speed up the functioning of the marketplace, as

economist Arthur C. Pigou argued a century ago. While in the 111th Congress the broad cap-and-

trade bill never got to the Senate floor, a bill focused only on large entities might fare better.

Senator Maria Cantwell's bill (Cantwell-Collins) was a simple and brilliant concept along these




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lines, targeting large utilities and "upstream" pollution. However, it appeared late in the game and

was described as insufficiently “detailed”. If some large businesses such as electric utilities get

behind such a bill, as they should, it might get some traction in the 113th Congress.

Could 113 be a lucky number? Stay tuned.

Dr. Marlin was formerly Senior Economist, Joint Economic Committee, U.S. Congress, 2009-

2011, and Chief Economist, New York City Comptroller's Office, 1992–2006.

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