Below is an excerpt from a CCNF debate between Bob Inglis — former Republican Representative (SC, ’93-’99, ’05-’11) and current Executive Director of the Energy and Enterprise Initiative (“E&EI”), and Sam Thernstrom —Executive Director of the Energy Innovation Reform Project, Senior Fellow at the Center for the National Interest, and former Resident Fellow at the American Enterprise Institute. The virtual debate, titled “Conservative Policy Ideas on Climate Change,” was held at Earth Day Texas in Dallas. The transcript below was minimally edited for brevity and readability.
Michael Quirke: Mr. Inglis, I’ll start with you, what can or should be done about climate change as nation?
Bob Inglis: Basically, what we have here is a problem of economics because of environmental consequence, and so the opportunity at hand is to address the economic problem and then the environmental consequence will take care of itself. Now that last part does require a lot faith in free enterprise. Some people don’t have as robust of a faith in free enterprise. Some people, especially on the environmental left, think that what we need to do is cap and regulate carbon emissions, and then reduce that cap, because it’s a scientific problem and we therefore have to address it as a scientific question and the best way to do that, they think, is through regulation.
What we [(the free enterprise proponents)] think, is that a better, more dynamic way to address the problem is to send an effective price signal, because then all kinds of exciting things happen in the free enterprise system. But like I said, this requires faith in free enterprise.
Quirke: Please flesh out what “free enterprise” means. How is this different from the President’s Clean Power Plan, which is regulation of CO2 emissions under the Clean Air Act? (This CAA regulatory regime grew out of the Supreme Court decision of Massachusetts vs. EPA, in which the Court found that CO2 is a pollutant, because the term has a super broad definition, and ordered the EPA to determine whether that pollutant endangers public health and welfare. The EPA subsequently found that it did with its “Endangerment Finding,” so the duty to regulate CO2 under the CAA was triggered.)
Inglis: Yeah, the CAA is precisely the worse way to address the problem, because it is a very clumsy method. For starters, it is not what the CAA was intended for, but probably the biggest flaw is that if the President is successful after all the litigation he has spawned – litigation he has in fact already spawned – then there will be a domestic-only pricing of carbon dioxide through the most burdensome way possible, which is the regulatory system. So what you end up with is America as a double loser: We will first lose employment, as people and businesses pick up and move to places where they don’t regulate CO2 and, by moving to these places, they will actually emit more, so we lose in the race to reduce emissions. So it’s a double-loser proposition. That is why we hope the President can see a way out of the box that he is in.
Quirke: Roger, and you are a well known advocate of the revenue-neutral carbon tax. Please tell me how that would actually work, because how would you know what the right price on emissions should be? How do you strike the balance between having a price signal with enough pinch to affect change and having one that gives people enough opportunity to adapt and develop new technologies. For instance, David Hone, chief climate advisor for Royal Dutch Shell (who is an advocate for the pricing of carbon by the way), recently mentioned in the Forum how it took 50 years to go from DARPA to the modern internet. He emphasized how there are currently no alternative energy sources for jet travel or industrial burners (absent nuclear power). His point was that this is a huge technological challenge. How do you strike the right balance?
Inglis: Well, I’m a Republican, not a libertarian. There used to be a big difference, but now not so much. As a Republican, I think it’s appropriate for government to be involved in basic research. If I were still in Congress, I would surely be voting for basic research. When technology moves toward commercialization, that is when you want government to step back and have private enterprise take over. Now, drawing that line is a challenge. I mean, how do you know when to let DARPA go and let the internet-PC become Bill Gates’s thing? But the point is that the internet started as a government project, and we are grateful for that. Now in the case of energy, what we have is not really rocket science. So for example, I could cut one third of my energy use right now in South Carolina if I just put a solar hot-water heater on my roof. I don’t have one – even though I am “in the business” – because it doesn’t make any economic sense to have one. The return on investment just isn’t there. But if I were paying the true cost of coal-fired electricity, I’d be getting one of those solar hot-water heaters. Again, this is not rocket science, it is just a black tank on a roof. That is why we think price signals really work. It generates consumer-driven demand, which causes all kinds of exciting things to happen. But it is important to maintain a role for government in basic research. So for example, when it comes to better batteries and things like that, and solar cells, there are some exciting breakthroughs there. It’s pretty exciting, and government should be involved in that.
Quirke: And on that note of RD and the role of government, I am now going to hand it over to Sam Thernstrom. Mr. Thernstrom, fell free to respond to anything Mr. Inglis said and please offer us your ideas on what can or should be done as a nation regarding climate change.
Sam Thernstrom: Sure, let me offer a couple comments on the carbon tax and then tackle the larger question. I think the title of this panel is “conservative policy ideas on climate,” and I’d like to speak to that specifically, because this is not just what we should do as a nation, but also how my fellow conservatives should think about this question. And what I am interested in is climate policies that are both politically viable – so they potentially appeal to mainstream Republicans (not just a small fraction of unconventional Republicans) – and effective at driving decarbonization. That is what we are talking about here. How do we get to near-zero emissions from the power sector, as well as other sectors (though I will focus on the power sector). So in my mind, the carbon tax flunks both of those tests [(viability and effectiveness)], but there are other policies that don’t flunk those tests. So I respectfully disagree with Mr. Inglis, I do not think a carbon tax is a free enterprise approach to this. I don’t think it’s a free market approach. In fact, it’s the opposite of a free market approach. A carbon tax is a political valuation of something that is in fact highly contested today. The science tells us what the climate risks are. It does not tell us what the price on carbon ought to be. We don’t have a social consensus on that question.
Quirke: I am going to interject here, because a big part of the question is what spurs on that innovation that we want. Mr. Inglis’s position is that it’s the price. I mean, if we left it to the free market – given such things as market failures and a tragedy of the commons – future generations are screwed, right? If we leave it to the free market, it will kind of be like the whales and whale oil in the 19th Century, wouldn’t it? When there are no more whales left, we then switch to kerosene to light lamps. My point is how do we tap the innovative power of the market? That is, if we decide to mitigate; if this is something we care about. Bottom-line, how do you spur on that innovation?
Thernstrom: That is exactly the right question. How do we spur innovation? And the record we have on this is pretty clear actually—it is that policies like carbon taxes, which place a low price or low regulatory burden on carbon, don’t actually produce the deep decarbonization progress we need. This is where we do have a fundamental political divide in this country. Democrats and a number of climate activists will tell us that we have all the clean energy technology we need, we just need the political courage to deploy them. In fact, that is simply not the case. Clean energy costs anywhere from 30% to 300% more than carbon-intensive energy. The solution to that, in my mind, is not to place a 30% to 300% tax on existing energy sources to make those existing clean energy sources competitive. The solution is to work directly on the innovation challenge. How do we make those clean energy sources cost and performance competitive?
So working directly on the innovation challenge is different than pricing carbon. What we need to do is look at this from what I call a technologist’s perspective. That is, look at different sectors, e.g., electric power generation, and look specifically at the different technology options we have, identify the challenge areas, and figure out how to overcome them.
Quirke: And please flesh that out if you could. I read your fairly recent piece in the Weekly Standard about how we could capture carbon emissions in the power sector and then use that captured CO2 for enhanced oil and gas drilling to gain more production from otherwise depleted reservoirs. If you could, please explain how that would work and what the role of government should be in that example.
Thernstrom: My belief is that if you care about stabilizing atmospheric concentrations of greenhouse gases, you have to assume that the world is going to want to continue to use its coal resources (because they are abundant and affordable and widely distributed). So the question is not when is the world going to make a political decision to leave that coal in the ground, it is how can we develop the technologies to enable us to capture the emissions from coal and safely sequester it underground. And the path to doing that, I believe, is not simply government R&D (although there is a role for that), and it’s certainly not a low price on carbon, because that will not make these technologies cost competitive. It would involve a targeted set of policies that would make carbon capture and sequestration (CCS) affordable in today’s economy.
And there are a few different ways of doing that. One concept would be a tax credit that spans the delta of the cost of capturing carbon and the market value of that carbon in carbon utilization markets, primarily to use it for oil production. And the beautiful thing about that is that the additional oil production that you would when you capture that carbon and pump it into an oil well and use it to produce additional oil – the revenues of that oil production – would pay for the tax credit in the first place. There are other policies that we can also pursue that will facilitate the development of CCS technologies: tax re-bonding authority and regulatory reforms to keep the EPA out of the regulation of these wells and keep that at the state level, where, for instance, in Texas, it’s being regulated very effectively. So it is a mix of things, but what it isn’t, most importantly, is just taxing carbon. It is thinking specifically how are you going to stand up that industry and make CCS productive and economically competitive today.
Quirke: Mr. Inglis, feel free to respond, and in terms of real-life context, feel free to talk about CCS or another mitigating technology, as an example.
Inglis: Of course I am very excited whenever any conservative says climate change is real and let’s do something about it – that is a good day – so I certainly welcome this discussion on what to do about it. You know, what we’ve been stuck in is a debate over the science, so if we can get the debate to shift to solutions on a national scale, we’ll be popping corks of Champagne bottles at RepublicEN.org. It will be a great day when that happens.
Again, I am a Republican and not a libertarian, so some of what Sam is talking about I can go for, like basic research (some of my libertarian friends, not so much). But when you are talking about “stand[ing] up new industries,” that is where I get squeamish, even as a Republican, because it sort of sounds an awful lot like government putting its thumb on the scale of this technology or that. That is not the dynamicism of the free enterprise system. That is a wise government–you have to assume that there is a wise government that can makes wise policy and is going to choose the right technologies; and that is a series of assumptions that most conservatives, that I know, are not willing to make.
That is, if they really do believe that people left to the liberty of enlightened of self interest will pursue their self interest. This is Milton Friedman talking about negative externalities, and how if you attach a cost [to those negative externalities], good things happen. We had an event at the University of Chicago titled, “What would Milton Friedman do about climate change?” And that was essentially the answer we got: Milton Friedman would want to internalize negative externalities, because then all kinds of good things happen in a free enterprise system.
Quirke: And I am going to interject there, and correct me if I am wrong, but negative externalities are costs of your decision that you do not incur, but someone else does.
Inglis: Yes, it’s pumping stuff into the air that gives my industry, Inglis Industries, the ability to sell my widgets at a lower price, which is great for my customers and me, but stinks for my neighbors, because they’re breathing all that stuff in. So if society allows me to socialize my soot in that sort of way, then I am happy as a clam at Inglis Industries and my customers are happy too. But I have to assume that Milton Friedman was right and that “there’s no such thing as a free lunch. Society is paying the full cost of the widgets that Inglis Industries is making, it’s just that some of the cost is being borne by my neighbors, and that is a market distortion. You got to fix that. If you fix that, then there’s some competitor across town that can make the same widget or a similar widget without those emissions, and society will advance if I go out of business.
Quirke: Yes, and in the example of CCS [(to ground this in a simple real-life example)], only a few people are doing it. NRG is attempting it outside of Houston, but the only way they can do it is by using the captured CO2 for enhanced oil and gas drilling a few hundred miles away, and it took some creativity to come up with that scheme, because it’s apparently really hard to do. But to illustrate Mr. Thernstrom’s point, what is the right price? There’s no perfect answer to that. It is a values-based decision based on risk – how much risk we are willing to place on future generations – and there’s uncertainty in terms of the extent of impacts. So I pose that to you Mr. Inglis, what is the right price, and how would that be worked in?
Inglis: Well that is an interesting question, what is the right price? And again, if we get pass the denial, we at RepublicanEN.org are very happy. You know, Michael Boskom, one of President Reagan’s economic advisors, told me to make sure to talk about the marginal harm caused by the next ton of CO2. He told me, “Bob, don’t go back and talk about legacy costs, that’s what creates market inefficiencies. Just talk about the marginal harm caused by the next ton of CO2. That’s the cost you want to attach to Inglis Industries.”
So we start with economics, but I have to agree that economics can’t give you the full answer, because you can do standard discounting and arrive at the value of your great-great-great-
Quirke: Ha, jacked-up trucks will still be filling the highways of Houston with a ¢25 per gallon of gasoline. That won’t have much of an effect in changing people’s behavior.
Inglis: Right, you can make a case in transportation that you need a stronger signal. But in electricity, I think you are going to see that’s ¢1 to ¢2 per kilowatt hour, so it changes the economics of distributed solar and batteries.
Quirke: Mr. Thernstrom, I can see you disagree with that statement. Feel free to respond.
[Video transcript ends. We are running a lean operation at CCNF, so sometimes our operation is less than perfect, and with this session, our recorder ran out of juice. Apologies for the mishap, we hope to continue this dialogue among conservatives in the Forum in the near future.]