Environmental and social justice opponents of fossil investments need to think carefully about the consequences of preventing all forms of new fossil infrastructure and maintenance. As Catherine Wolfram at the Haas School of Business explains, if fossils are phased out faster than clean energy is phased in, consumer prices go up and the fossil firms profit. A carbon price – often opposed by the same U.S. “progressives” as a tax disproportionately borne by low income households – is the optimal way to restrain fossils while steering consumer money towards government rather than the fossil firms’ pockets. Government can then use it to subsidise low incomes. By opposing both, progressives are enabling fossil prices to rise like a tax, except that money is going to the wrong place entirely. Wolfram points at the blocking of the construction of a new gas pipeline that left New Englanders paying prices three or four times higher than the rest of the country.
This article was originally published in The Hill with the title, “Progressives Should Have Supported Manchin’s Permitting Reforms: Here’s Why.”
When Congress passed the Inflation Reduction Act last year, the U.S. took a huge step forward toward a long-overdue transition away from fossil fuel energy. Sen. Joe Manchin’s (D-W.Va.) crucial 50th vote for the bill came in part after Senate and House leadership promised to find a way to enact permitting reform for energy infrastructure projects. But language introducing permitting reform was stripped from the National Defense Authorization Act on Tuesday [December 6], leaving that promise at risk of going unfulfilled.
Opposition to fossil investments
Opposition from the Congressional Progressive Caucus was pivotal to this outcome, but some of the reasoning behind their opposition is perplexing and counterproductive.
Manchin’s proposed permitting reforms aim to increase the federal government’s ability to get critical energy infrastructure built. His proposal would shorten National Environmental Policy Act (NEPA) review to a maximum of two years for big 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 galling: a requirement that federal agencies issue all the necessary approvals for a natural gas pipeline in Manchin’s home state of West Virginia.
Majority Leader Chuck Schumer (D-N.Y.) noted that Manchin’s proposed language would help expedite the construction of clean energy projects, accelerating the benefits from the 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 will have a lot more trouble meeting our emissions goals.
Opposition to Carbon Pricing
After the IRA passed, progressives celebrated the fact that it represented a different approach to addressing climate change than the one favoured by centrists and economists. Instead of pricing carbon, we’re subsidising clean energy.
But this stance by progressives on the permitting bill creates some of the very same consequences they themselves fear from carbon pricing. For example, in one widely circulated article critical of carbon pricing, the authors argue that “We cannot raise the cost of energy for millions of underpaid Americans — many of whom are Black and Indigenous — and expect the policy to stick.” Yet, blocking permitting reform does exactly that.
Blocking fossil projects is raising consumer prices
Indeed, the arguments that the progressives make against carbon pricing are exactly why they should have supported Manchin’s permitting reforms. Blocking fossil fuel projects makes it more costly to deliver energy with existing fossil fuels. In effect, it creates a kind of carbon price, just one that’s haphazardly applied, usually extremely high, and where the revenues accrue to fossil fuel producers instead of the government. Call this a “shadow” carbon price. At the end of the day, low-income households’ energy bills go up.
Consider one example. Five years ago, Kinder Morgan proposed building a natural gas pipeline that would have connected New England markets with the rest of the United States. 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, devoid of any way to bring that same relatively inexpensive natural gas into the region, were saddled with prices that were three or four times as high. High natural gas prices also created high electricity prices because the region’s electric grid is dependent on gas. Things could get worse this winter — electricity grid operators are warning of rolling blackouts.
A Carbon Price works better
If instead, the pipeline was allowed but emissions reductions were achieved through a far more moderate carbon price on natural gas emissions nationwide, consumers across the country would have experienced milder price increases and the market would have economised on emissions. What’s more, with a true carbon price, revenues would have flowed back to government coffers, useful for any number of things, including helping low-income households with higher bills. Instead, the private firms that control the flow of natural gas to New England make large profits.
Many policies leave us with hidden high carbon prices. Every time a city bans gas stoves, states stop pipelines, or shareholder activists prevent investment in new energy infrastructure, we are raising the price of energy to consumers and, in some cases, driving up profits for fossil fuel companies.
Don’t phase-out fossils faster than clean energy is phased-in
Many who are interested in addressing climate change strive for an orderly transition. Yet 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 disorderly and expensive, leading to things like $20 natural gas prices in one part of the country while the rest of the country pays a fraction of that.
There are other legitimate concerns with the Manchin reforms. Short-circuiting the regulatory process could leave essential environmental justice considerations out of the conversation, for instance. We can address these important concerns, but that need not stop investments.
There is room for a happy medium. Centrists like Manchin can concede that not all fossil fuel infrastructure investments are worth making. Economists can concede that we can make much progress even without an explicit economy-wide carbon price. And those who worry about the consequences of carbon pricing for ordinary households should stop to recognise that other policies, including bans on fossil fuels investments, impose high costs too, and often are in essence a more dysfunctional form of carbon pricing.
Catherine Wolfram is the Cora Jane Flood Professor of Business Administration at the Haas School of Business, University of California, Berkeley
This article is published with permission
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