The Unexpected Costs of Opposing Fossil Fuels – Energy Institute Blog

Progressive opposition to Manchin’s proposed permit reforms has unintended and unintended consequences.

Originally posted on The hill with the headline, “Progressives Should Have Supported Manchin’s Permit Reforms: Here’s Why.”

When Congress passed the Inflation Reduction Law Earlier this year, the US took a big step forward in a long-awaited transition away from fossil fuel power. Senator Joe Manchin’s (DW.Va.) crucial 50th vote because the bill came in part after Senate and House leaders vowed to find a way to enact permitting reform for energy infrastructure projects. But the language introducing permit reform was stripped of the National Defense Authorization Act on Tuesday [December 6]leaving that promise at risk of not being fulfilled.

Fountain: pixabay

Opposition from the Congressional Progressive Caucus was instrumental in this outcome, but some of the reasoning behind their opposition is baffling and self-defeating.

Manchin’s proposal allow reforms are intended to increase the federal government’s ability to build critical energy infrastructure. His proposal would shorten National Environmental Policy Law (NEPA) up to a maximum of two years for large projects (one year for smaller projects) and give the Federal Energy Regulatory Commission the ability to designate electricity transmission projects in the national interest. Other provisions include one that some find particularly vexing: a requirement that federal agencies issue all necessary approvals for a natural gas pipeline in Manchin’s home state of West Virginia.

majority leader Chuck Schumer (DN.Y.) noted that Manchin’s proposed language would help speed construction of clean energy projects, accelerating the benefits of IRA subsidies. This is a crucial point: one more natural gas pipeline won’t threaten the clean energy transition, but if renewable energy developers can’t get the necessary permits to take full advantage of the tax credits in the IRA, we’ll have much more trouble reaching our emissions targets.

Fountain: Wikipedia

Instead, progressives focus on the fact that permitting reforms allow fossil fuel projects to move forward. Rep. Ro Khanna (D-Calif.) has call it a “gift to the fossil fuel industry.”

After the passage of the IRA, progressives celebrated the fact that it represented a different approach to addressing climate change than that favored by centrists and economists. Instead of putting a price on carbon, we are subsidizing clean energy.

But this stance by progressives on the permit bill creates some of the same consequences that they themselves fear from the price of carbon. For example, in a widely circulated article Critical of carbon pricing, the authors argue that “we cannot raise the cost of energy for millions of low-paid Americans, many of whom are black and indigenous, and expect the policy to stick.” However, blocking permit reform does exactly that.

In fact, the arguments progressives make against carbon pricing are exactly why they should have supported Manchin’s permit reforms. Blocking fossil fuel projects makes it more expensive to supply power with existing fossil fuels. In effect, it creates a kind of carbon price, just one that is applied haphazardly, usually extremely high, and where revenue accrues to fossil fuel producers rather than the government. Call this a “shadow” carbon price. At the end of the day, low-income households’ energy bills rise.

Consider an example. Five years ago, Kinder Morgan proposed building a natural gas pipeline that would connect New England markets with the rest of the United States. The environmental opposition helped kill the proposal. Last winter, while the rest of the country generally paid less than $5/mmBtu for natural gas, New Englanders, deprived of any way to bring that same relatively inexpensive natural gas to the region, were hit with prices that were three or four times higher. High natural gas prices have also led to high electricity prices because the region’s power grid is dependent on gas. Things could get worse this winter: Power grid operators warn of rolling blackouts.

If, instead, the pipeline were allowed but emissions reductions were achieved through a much more moderate carbon price on natural gas emissions across the country, consumers across the country would have experienced more moderate price increases and the market would have saved on emissions. What’s more, with a real carbon price, the revenue would have flown back into government coffers, useful for many things, including helping low-income households with higher bills. Instead, the private companies that control the flow of natural gas to New England make huge profits.

Many policies leave us with hidden high carbon prices. Every time a city bans gas stoves, states shut down pipelines, or activist shareholders prevent investment in new energy infrastructure, we are raising the price of energy for consumers and, in some cases, increasing profits for companies. of fossil fuels.

Many of those interested in tackling climate change are striving for an orderly transition. However, if we refuse to build or maintain fossil fuel infrastructure before we have built a robust clean energy system to replace it, we are left with a transition that is messy and costly, leading to things like skyrocketing natural gas prices. $20 in a part of the country. while the rest of the country pays a fraction of that.

There are other legitimate concerns with Manchin’s reforms. Shortening the regulatory process could leave essential environmental justice considerations out of the conversation, for example. We can address these important concerns, but that doesn’t have to stop investments.

There is room for a happy middle ground. Centrists like Manchin can concede that not all investments in fossil fuel infrastructure are worth it. Economists can concede that we can make a lot of progress even without an explicit carbon price for the entire economy. And those who worry about the consequences of carbon pricing for ordinary households should pause to acknowledge that other policies, including fossil fuel investment bans, also impose high costs and are often, in essence, a more dysfunctional form of carbon pricing.

Keep up with the Energy Institute’s blog posts, research and events on Twitter @energyathaas.

Suggested citation: Wolfram, Katherine. “Shadow Carbon Pricing: The Unexpected Costs of Opposition to Fossil Fuels”, energy institute blog, University of California at Berkeley, January 3, 2023, https://energyathaas.wordpress.com/2023/01/03/shadow-carbon-pricing-the-unexpected-costs-of-fossil-fuel-oposition/