Scott Anderson - The Switch Interview

- Our goal is to use science and use markets to meet environmental objectives. We consider climate change to be the overwhelming issue of our time, and maybe for all time, so it's important that we explore each and every opportunity that we have to address this problem. We are especially fond of opportunities that are good for the economy and the environment at the same time. Environmental Defense Fund was the pioneer of the concept of emissions trading, and we advanced that idea during the Clean Air Act amendments that led to the trading program in SOX. Shortly after the trading program was implemented, the number of ways that people found to reduce SOX emissions and the cost of reducing SOX emissions plummeted much further and much faster than anyone had expected, which shows the power of market forces when they're harnessed to pursue environmental goals. - So if the world decides to go down a carbon reduction path how is this gonna affect the way we produce energy and create energy? - The first thing one has to do when considering what the impact of carbon controls will be is to bear in mind the impacts of not having carbon controls, so we can't simply isolate on one factor in the system. As far as the impact on carbon controls on energy prices, that's not a simple matter either. In the short run, measured in the next decade, say, in the United States, most reputable studies indicate that we can meet our 2020 targets for reducing carbon emissions with actually no net increase at all in energy prices, in fact there are enough opportunities, primarily in the efficiency area, where we can meet those 2020 targets and save money at the same time. - The 2020 targets are what? - Roughly 20% reduction. - From-- - From, say, levels of 2005. There are a number of other studies that do indicate that to meet that 2020 goal could cost as much as $20 per ton, but our belief is based on McKinsey and our own analyses that one can actually do it at no net cost at all. In Texas we have done a study that indicates that through a combination of several dozen measures that the state of Texas could actually save $22 billion a year while reducing greenhouse gas emissions by 150 million tons per year. In the last session of the Texas Legislature, Environmental Defense Fund supported a bill we call the No Regrets bill, and it was adopted by the state legislature and it's currently being implemented by various state agencies. Even if people are wrong about global warming, why not do these measures anyway since it will save people money? Examples would include capturing fugitive emissions of methane at natural gas production facilities in instances where it's economic to do so, but people have not pursued the opportunity. - [Interviewer] So you end up with more natural gas-- - End up with more natural gas to sell and less methane in the atmosphere. There are numerous things that can be done with building efficiency, appliance efficiency that can actually save us money at the same time we reduce emission. - Sure. And that efficiency trigger doesn't happen without a price on carbon. - Right. So I would explain cap and trade system like this, five parts. First, one needs to use science in order to establish a maximum amount of permissible greenhouse gas emissions, call that the cap. Second, that total amount of allowable emissions needs to be divided up into emission allowances. Third, the emission allowances need to be distributed in some fashion to people in the economy. Fourth, you need a rule that creates a market, and the rule is people are allowed to buy and sell their emission allowances, so now you have a market. So the fifth and final step in cap and trade is to let the market work. Those people who can make more money by selling their allowance and meeting their own emissions reduction targets in some other way will sell their allowance and they'll make money, and the people who buy the allowance will not be purchasing the allowance unless they think they'll be better off by making the purchase, so through the power of the market, what that means is through the buying and selling of emission allowances we will meet the cap, we'll stay below the cap, but we'll do so in the most efficient, lowest cost manner possible. - So why is a cap and trade better than just a straight carbon tax? - Yeah, the reason we prefer a market-based approach is we think that a properly functioning market is the best allocator of resources. The problem with taxes is that it rests decisions in centralized authorities that are almost certain to get it wrong, whereas with a market the law of supply and demand and the number of different actors in the market, each responding to their own perceptions of what works and what doesn't, what's valuable and what's not, collectively leads to a better decision than happens when you let a single authority exert its own opinion by fiat. - Any way that happens, though, there are, for a while, there are new costs in the system. Somebody's buying and selling, and that cost is gonna be passed through, right? - As I noted earlier, between now and 2020 we expect little to no increase on prices from carbon controls in the United States. Once we get beyond 2020 there will certainly be an increasing cost to comply until such time as new technologies and processes come into play, which will help moderate and reverse those rising costs. Certainly a lot of the available techniques to reduce carbon emissions are quite expensive, carbon capture and sequestration is not a cheap enterprise. - What is carbon sequestration? - Carbon capture and sequestration, frequently known as CCS, is a process where CO2 is captured from an industrial source, either a power plant or a fertilizer plant, and then compressed and put into a pipeline and transported by the pipeline to a location where there's a suitable geologic storage site. The CO2 is then injected beneath the ground in a highly compressed state where it behaves like a liquid rather than like a gas and is injected into formations that have been selected because there's every reason to expect that they will be able to retain the CO2 on a permanent basis. - What kind of impact could it have, let's just take coal fired power plants which produce a lot of CO2. - According to the International Energy Agency, by mid-century CCS has the potential to deal with somewhere between 15 and 55% of the CO2 that needs to be taken out of the atmosphere in the next 50 years. Some people estimate roughly speaking that the CCS industry by mid-century will be handling a volume of material that's in the same order of magnitude as the existing oil and gas industry. You can't do carbon sequestration in just any geologic setting, you have to pick the right site, and then secondly it's not doable unless the economics are right. Now, that's a perfect illustration, in fact, of why a trading mechanism, a cap and trade system, is better than a carbon tax. Under a carbon tax, the people in the favorable geology will end up paying the same amount of tax as someone in unfavorable geology, but if they can trade their obligations back and forth the people with the good geology, the people who can sequester at the lower cost, can end up sequestering their own CO2 as well as someone else's, so the overall cost to society of reducing CO2 is less in that circumstance than if everyone paid the same tax. - A facility right outside of Houston is looking at doing carbon capture and storage. What are some of the parameters that might help to make that one work? - Well, in the case of the Parish Project it's important that there be government assistance to help finance it, 'cause it does not make economic sense as we sit here today, but with the government's assistance it does make economic sense for NRG to move forward, and this is one of the more important demonstration projects that are coming. I don't call this an experiment, I call this a demonstration project. - So they're gonna capture CO2, and how are they gonna use that? - They will capture the CO2, and they will transport it a short distance to oil fields that, although they produced a lot of oi