Odum: It’s Time for a Grand Bargain

Posted March 26, 2009 at 2:44pm

We’ve all heard the idea “Those who do not learn from history are doomed to repeat it.— But there is an environmental example where if we do learn from history, we can successfully repeat it.

In designing a carbon dioxide cap and trade system, we will do well to remember acid rain.

Remember acid rain?

You don’t hear much about it these days. That’s because back in the 1990s, the government implemented the Acid Rain Program, based on a flexible, cost-sensitive cap-and-trade program.

The results? Extraordinary!

The Environmental Protection Agency reported nearly 100 percent compliance in reducing sulfur dioxide emissions. In fact, power plants participating in the program reduced these emissions 22 percent below mandated levels. And the cost? After several years it had dropped to less than a third of the most wildly optimistic pre-program projections and is expected to stay there.

So, we did it before and we can do it again.

I share President Barack Obama’s aspiration for a future where the United States is less dependent on foreign oil and enjoys the economic and environmental benefits of a greener energy mix. But I’m also concerned that, beyond the aspiration, we’ve yet to see a realistic road map for filling the gap as we move from one energy mix to another. Wishing doesn’t make it so. Neither does aspiring.

Alternate energy isn’t instant energy. Any greener energy future will be decades in the making. America has an immense, incredibly complex energy system built over more than a century, at great cost. It can’t be changed overnight. Nor is alternative technology sufficiently advanced to provide energy at prices people can afford and at a scale that will make a difference. It is ambitious, but reasonable, to double the power contribution of wind and solar over the next three years. But we’ll have to keep doubling it every three years for more than two decades to reach even 25 percent of our energy mix. That’s quite a gap.

The bridge to a low-carbon energy future must rest on piers of oil, coal and natural gas. By 2050, the world will demand twice as much energy as today. Do the math. There’s no way to make the transition without a key role for oil and gas.

It is both interesting and intriguing that what the president is saying about our economic quandary can also be said about our energy quandary: “It is serious. It didn’t happen overnight. And it is going to take time and effort to turn it around.—

Exactly on target for energy as well! We need an “energy stimulus— — not money, but action and access.

This is why we must take full advantage of our own significant, and largely untapped, offshore oil and gas resources. Developing these resources will create solid, long-term jobs, help provide energy security, reduce our dependence on foreign oil and generate much-needed government revenue while we work toward a greener future.

I’m convinced, and our record proves, these offshore resources can be produced safely and responsibly, providing significant national benefit without a penny of stimulus money. Oil and gas production technology, science and safety have improved dramatically over recent decades. Even so, some areas must stay off-limits to drilling. But, just because some areas shouldn’t be drilled doesn’t mean all areas shouldn’t be explored. Work could get under way quickly in many places with the administration’s green light.

We must break out of the stalemate between “drill on sight— versus “all hands off.— This hasn’t gotten us any closer to an actionable plan and it won’t get us any closer. Producing more of our own oil and natural gas is consistent with the reach for greener energy. We will need vast quantities of all energy sources to meet this nation’s energy challenge. CO2 solutions for fossil fuel usage must be in the mix. From a policy perspective, this includes harvesting “low hanging fruit— with efficiency mandates on transport, buildings and manufacturing, and broad deployment of carbon capture and storage technology with clear financial incentives to use it.

And it means ongoing CO2 emissions reductions across the board through new technology and other innovations. To do that with a robust, free economy, CO2 must have a value, preferably one created through market-based trading. That is why I favor a carbon cap-and-trade system.

Cap-and-trade is designed, above all, to deliver an environmental outcome, in that the cap must be met. This certainty is critical for the environment. Further, it can meet the full environmental objective by promoting the best ideas at the lowest possible cost to the economy.

As with many other forms of trade, our national CO2 trading system could link with others over time to create a global carbon market. The broader that market, the more innovation it can cover, which further reduces costs.

A properly designed cap-and-trade program will offer policy flexibility important for businesses and consumers during the transition. For example, in Phase III of the European Union’s emissions trading system, some allowances will be distributed for free so as to protect certain businesses from unregulated competition.

I believe a policy that “phases in— an auction system is important in that it will prevent a price shock to the economy. Along with many other companies and organizations, Shell is a member of the U.S. Climate Action Partnership and supports its call to Congress for just such a phased approach.

I am particularly concerned that a full, immediate auction will put U.S. businesses exposed to international competition from unregulated sources at a competitive disadvantage in the global marketplace. This could drive even more companies to move their operations overseas, taking badly needed American jobs with them. We want to cut emissions, not employment. We cannot lose sight of that. Free allowances in the early years, based on a company’s current emissions, will soften the transition to a low-carbon economy for industry, business and consumers and achieve the same environmental benefits.

Policies are also needed that encourage industry and the government to develop and deploy new technology critical to meeting environmental goals.

To achieve reduction targets of around 80 percent by 2050, supported by both Obama and USCAP, we’ll need a host of climate technologies that don’t even exist today — ones that will require huge investments in research and development. Free allowances in the early years encourage such investment.

Let’s remember acid rain. With that kind of common sense and flexibility in our approach to CO2 we can have both: environmental improvement and strong economic health.

Marvin Odum is president of Shell Oil Co.