On Friday, June 26th, the U.S. House of Representatives passed the American Clean Energy and Security (ACES) Act. Viewed by some as the most important environmental and energy legislation in our nation's history, it is clearly the most significant since the Clean Air Act of 1970.
The bill’s four major elements include:
• A clean energy requirement, designed both to set new standards for current types of power generation and to accelerate development and deployment of clean energy technologies such as renewables, energy efficiency and carbon capture and storage.
• An efficiency requirement that provides funding for energy efficiency programs, and the setting of stronger building codes and product efficiency standards.
• A cap and trade program that sets mandatory caps on 87 percent of U.S. greenhouse gas emissions including the electric power, oil, and gas sectors and heavy industry, with a 17% reduction by 2020 and a 50 percent reduction by 2050.
• Measures designed to ease the transition into a low carbon economy by providing assistance to those impacted by a cap, such as industry, affected sectors of America’s workforce, and low income households.

The bill passed by 219 to 212 squeaking by with a mere five votes.  The vote did not break cleanly down party lines, with eight Republicans voting for it and 44 Democrats voting against it.

A closer look at the major interests lobbying for and against the bill reveals some strange bedfellows.  Some of the most radical environmental groups, such as Greenpeace, joined with major oil, gas, and coal producers and organizations representing coal-producing states to fight the bill. 
Many large power generators, as well as a wide swath of more moderate environmental groups joined to lobby for the bill, with the addition of those parties that would stand to gain from the renewables energy, such as organizations representing the wind and solar industries.   

Some initial conclusions
In reflecting on this development and the related issues, I came to some conclusions. The first is that I lack the training and background to assess the underlying science of climate change with respect to the causes, prospective rate of continued change, and consequences of climate change. My trying to second-guess the underlying science of climate change would be akin to trying to assess Curt Lefebvre or Steve Piche on the mathematical theory that underlies NeuCo’s use of machine learning for our closed-loop optimizers. Or trying to evaluate the logic of the expert systems methodology developed by John McDermott, and applied by NeuCo’s Product Management and Technology Development Departments. 

My second conclusion is that climate change modeling, like NeuCo’s models and methodology, must cope with inherent uncertainties and intrinsic ambiguity.  The divergence of opinion among climate scientists is substantial, with respect to the underlying causes, rate of change, and the expected consequences of climate change.  In fact, on the order of five percent of this scientific community is not even sure that climate change is caused by human activity! This means that a significant number of climate scientists have doubts about the models on which U.S. law is being based.

It is not just ACES being based on this complex underlying science, but the current “law of the land.” The U.S. Supreme Court ruled during the last Presidential Administration that CO2 presents a danger to human health and safety, and thus needs to be regulated by the U.S. EPA like the traditional “criteria pollutants” SO2 and NOx, particulates, ground level ozone, and regional haze.       

The current Presidential Administration has responded to the Supreme Court mandate, with the U.S. EPA’s Endangerment Finding, which indicated that CO2 would need to be regulated by the EPA under the Clean Air Act.  This finding, essentially the result of an administrative process for codifying the Supreme Court ruling under existing law and procedures,   creates massive uncertainty for coal-fired generators.

The resulting EPA regulations under the Clean Air Act could impose requirements not possible at current coal-fired plants with commercially feasible capture and sequestration technology. Combined with the lack of any carbon price signal, this possibility makes for an untenable economic situation for our country’s largest, longest lasting, and cheapest source of domestic electricity fuel supply.  

Duke Energy CEO James Rogers has said that ACES “creates regulatory certainty for an industry that spends billions on capital expenditures annually.”  This view is consistent with many other power generation CEO’s that believe a cap and trade program will be far less costly and disruptive than administrative efforts to regulate CO2 under the Clean Air Act. As Rogers has stated:  “While the EPA may have the technical expertise to create environmentally sound regulations, it lacks the explicit legislative authority to craft an environmentally sound program that minimizes costs to consumers and our economy.  So leaving the EPA with the responsibility to develop and implement a program that will touch every aspect of our daily lives is neither appropriate nor in the best interest of our nation.”

Should climate change action require certainty?
But let me go back to the uncertainty of the science underlying predictions about the rate and consequences of climate change. While I don’t have any technical background in climatology, I did spend a lot of time in graduate school learning about probability theory, and applying it to inform long-term generation planning strategies under uncertain fuel prices and demand growth.

With this background, the one thing that  puzzles me is the notion that we need nearly complete certainty in the underlying science before taking measures to prevent possible climate change outcomes that even if uncertain could be extremely costly or even calamitous to our planet.     
Think about car insurance. The average family pays more than a thousand dollars a year to indemnify against the risks of a serious car accident such as totaling one’s car that has a small statistical likelihood of occurring even far into the future. At the same time, some opponents of ACES based their objections on the increase the legislation would have on annual electricity costs.  These estimates, ranging from $85-$184 per year (depending on the source), are a fraction of what we pay for auto insurance without thinking twice. It seems to me that even a small likelihood that continuing on our current path of carbon intensity would end up damaging (let alone “totaling”) the planet would make such a relatively small cost worthwhile, given that many models upon which the U.S. Supreme Court based its 2007 decision on showed the effects of CO2 on climate change to be irreversible.

Our best chance for climate change legislation within the next five years
In any case, it will be interesting to see how this plays out in the U.S. Senate.  Unlike the House, where a simple majority rules, the Senate requires 60 votes to avoid a filibuster.  Clearly there are U.S. Senators who are deeply opposed to anything resembling ACES. There are many others however, that recognize that the next chance to pass legislation addressing climate change in any comprehensive manner – between all the other current pressing problems and the impossibility of making such legislation as the next presidential campaign looms  – may take another five years.

In recognition of this political reality and the potential stakes associated with the consensus scientific view turning out correct, many Senators may end up feeling themselves in a similar position to their counterparts in the House, several of who made statements to the effect, “I have to support this bill because there is no alternative.”

In the power generation industry, however, there is an alternative: having to run plants and make capital decisions without a price signal for carbon and with the massive uncertainty of how the EPA would go about regulating CO2 under the Clean Air Act.  This uncertainty has been heightened by last year’s D.C. Circuit Court ruling that cast doubt on the interstate cap and trade provisions of the CAIR regulations for SO2 and NOx.    
In light of this reality, I am guessing that the major power generators will be continuing to push hard for a Senate bill that is similar to and can be reconciled with the ACES bill that passed the House. And I am already seeing some generators proactively positioning themselves to benefit from what some predict will be a trillion dollar CO2 trading market.  Stay tuned and we shall see.

www.neuco.net

www.theoptimizationblog.com

www.twitter.com/neucoboston