Climate Burnout


Shale gas makes it easy to be green.

Fortnightly Magazine - December 2010

In terms of the political calculus, GHG regulation faces an uncertain future, at least into 2013. And as a flood of cheap gas erodes the perception of an impending environmental crisis, politicians will have less incentive to impose carbon constraints. Does shale gas signal the end of the road for greenhouse gas regulation?

Three years ago, Fortnightly published an excerpt from a speech delivered by economist and bestselling author Steven D. Levitt. In “Horse Manure Crisis,” (December 2007), we recounted an anecdote about the mounting problem of horse manure in New York City in the 1890s. As Levitt explained, manure in the streets was causing health problems that officials feared would impose a practical limit to a city’s growth. Then, of course, Henry Ford industrialized the process of building automobiles, and horse manure became a non-issue.

Levitt told this story to illustrate his point about climate change—namely that all the hand-wringing would prove to be unnecessary. “Almost every problem we’ve faced in society over the last 200 years has been solved almost effortlessly by technology,” he said.

Although Levitt didn’t predict shale fracturing technology, it fits the thesis. If massive gas resources like the Marcellus and Barnett shale formations can be tapped affordably, then natural gas seems likely to become the fuel of choice to power America’s economy for decades to come. Further, North America’s subsurface formations are hardly unique; shale formations are being explored in Europe, Asia, Australia and South America. Increasingly over time, cheap gas will supplant coal in the global power-generation market, potentially eliminating a major share of the world’s current GHG emissions—15 percent or more by some estimates.

Of course, curtailing GHG emissions by 15 percent of today’s total over the next few decades won’t stop climate change—particularly if the world’s economies continue growing and burning more fossil fuels than they do today. But in terms of politics and legislation, that hardly matters.

EES North America

As a flood of cheap gas erodes the perception of an impending environmental crisis, politicians will have less and less incentive to impose carbon constraints. No crisis, no political will. No political will, no regulation. End of story.

What About EPA?

The mid-term elections altered America’s political landscape, in effect taking climate regulation off the table for the 112th Congress—and possibly setting up a barrier to prospective regulation by the Environmental Protection Agency (EPA).

In mid-November, Senate Majority Leader Harry Reid (D-Nev.) reportedly promised incoming Sen. Joe Manchin (D-W.Va.) that he would abandon carbon cap-and-trade legislation. Further, as this issue went to press, Sen. Jay Rockefeller (also D-W.Va.) was expected to meet with Reid to discuss his plans to introduce a bill in the lame-duck session of the 111th Congress that would block GHG regulations being promulgated by the EPA.

Since the Obama administration took office, the EPA has been working to craft a series of rules and regulations implementing its authority to regulate GHG emissions as pollutants under the Clean Air Act. These rules would begin affecting power plants in January 2011, when the EPA’s Tailoring Rule would impose GHG restrictions on projects regulated under EPA’s New Source Review permitting process.

Last summer, the Senate voted 53 to 47 to block a bill sponsored by Sen. Lisa Murkowski (R-Alaska) that would’ve stripped EPA of GHG regulatory authority—including auto-tailpipe standards that automakers already are working to implement for the 2012 model year. Reid opposed Murkowski’s measure, but it’s conceivable he’d support Rockefeller’s more conciliatory bill in the lame-duck session as a way to pre-empt another attempt by Murkowski next year, when the Republican caucus will be six-seats larger in the Senate, and in control of the House.

Of course, the president still holds veto power, and he almost certainly would use it to stop legislation curtailing EPA’s regulatory authority. Nevertheless, the political winds clearly have shifted against GHG legislation, leaving the industry to deal with an uncertain set of new EPA regulations—uncertain because they already face court challenges that seem unlikely to be resolved before the 2012 elections, after which they’ll depend on the favor of whoever occupies the White House.

The point is, political winds are fickle things, destined to shift and shift again, as swing voters throw their weight to the left or the right, in reaction to whatever issues dominate the headlines at voting time. In terms of the political calculus, GHG regulation faces an uncertain future, at least into 2013. And with shale gas entering the mix, climate change is starting to look like a dead issue, at least in terms of federal policymaking.

Hope for Coal

A sweeping legislative framework like federal carbon regulation can’t happen without sustained political will—usually driven by public sentiment, evidence of a crisis, or both.

Public sentiment toward environmental issues ebbs and flows, but climate concerns have never gained strong currency in the United States. Compared with issues like jobs, war or terrorism, global warming seems like an esoteric problem to the average voter. The consequences of inaction are too general to inspire a bona fide movement among the body politic. As a result, public sentiment will never drive carbon regulation to the finish line.

That leaves the perception of crisis as the remaining driver. As the House of Representatives showed when it approved the Waxman-Markey cap-and-trade bill, many legislators perceive a looming crisis, and they believe carbon regulation is the answer to addressing that crisis.

At least they did in 2008.

Since that time, shale gas developments have driven gas prices down to absurdly low levels. This is driving the least-economic coal-fired plants out of the market, producing tangible evidence that technology and market forces will solve the climate problem.

Superficially, this would seem to be bad news for coal—not to mention virtually every other source of energy. But in the longer term, coal companies believe they can hang on and compete effectively, fueling at least those existing power plants that were built or modernized in the last couple of decades. Coal isn’t actually going away; it’s just being usurped as the king of power fuels. And as demand for gas increases, prices will rise accordingly, improving the comparative competitiveness of coal.

So ironically, coal companies should be happy about shale gas, because it’s eliminating a deadly uncertainty that had trapped coal in regulatory limbo. By changing the outlook for federal GHG regulation from “inevitable, but when?” to “why bother?,” shale gas might be just the thing to keep coal in the mix for decades to come.