Climate Change:

CRA's Montgomery, Greenpeaces's Davies debate strategic approaches to CO2

How can the U.S. most effectively cut carbon emissions? The issue is highly controversial, and is at the center of the current stalemate over revising the Clean Air Act. Should America cap carbon emissions, as Europe is doing? Or should the US focus on new programs and incentives to develop technologies that reduce or prevent C02 emissions -- the primary greenhouse gas that many scientists say is warming the earth's atmosphere. In this edition of OnPoint, two analysts debate their very different views of the costs -- and benefits -- of these approaches to greenhouse gas reductions. Join OnPoint as David Montgomery of Charles River Associates and Kert Davies of Greenpeace USA go head-to-head on this contentious issue.

Transcript

Colin Sullivan: Welcome to OnPoint. I'm Colin Sullivan. Today we're joined by Dr. David Montgomery, a director at Charles Rivers Associates, a consulting firm, and Mr. Kert Davies, a research director at Greenpeace USA, and also Brian Stempeck, a senior reporter for E& Daily and Greenwire, to discuss climate changes, and current climate policies that might be moving on Capital Hill. Thank you, everyone, for being here. Dr. Montgomery, I'd like to start with you. There are currently two bills on Capital Hill that are kind of defining either side of the climate change debate. One is Senator Hagel's bill on technology. The other is the McCain-Lieberman approach to cap-and-trade. Which bill would you support, and why would you support that bill?

David Montgomery: Right now, I think the highest priority on climate change is, stimulating the kind of long-term R&D that it's going to take to develop the technologies that we require in the long run, to do anything effective on climate change. That's, by far, I think, our highest priority, and the place where resources need to go at this point.

Colin Sullivan: So, you're against a cap-and-trade approach against a mandatory cap? You don't think that it's not time for that, the time is not right for that sort of approach?

David Montgomery: I think that a cap-and-trade system now, is likely to impose very high costs on the economy, with relatively small potential emission reductions, compared to what we need and can accomplish in the long-term, by investing appropriately in R&D.

Colin Sullivan: Mr. Davies, you disagree?

Kert Davies: I totally disagree. We're very supportive of the McCain-Lieberman effort and believe that a cap is essential to stimulate the drive towards solutions of many kinds, on this issue.

Brian Stempeck: Dr. Montgomery, you recently authored a paper, last month, in which you said, "Cap-and-trade is fundamentally a misfit for this environmental problem." Everyone has been talking that the scheme, it seems to be the common solution to any real environment air quality, pollution-type problem. So, with sulfur dioxide in the '90s, why isn't this approach, why doesn't it work for climate change?

David Montgomery: It doesn't work for climate change, because of the long time scales, and the fact that in climate change, just about the whole story is the development of new technology. The reason that the private sector will develop new technology is because of economic incentives that are off in the future. A cap on emissions today, no matter how tight it is, or how high it drives the price of carbon, is not going to matter for R&D, unless it's believed to be credible and long-lasting. And unfortunately, or fortunately, the U.S. Congress cannot bind its successors not to change a policy. And carbon prices that are high enough to stimulate R&D, simply are not going to be credible. They're not going to be believed by the private sector, and they're not going to bring about the kind of R&D that we need.

Brian Stempeck: What's the solution then? In your paper, you talk about more tax credits for research, different ways to encourage R&D. But the White House is already doing that. We've been talking about that for years. They constantly say, "We're spending more money than any country in the world on carbon sequestration on hydrogen. But it's clearly not making very fast progress. Is there some new way to encourage better research, or target the research in a more effective way?

David Montgomery: I think there are, and I think that that's what we need to think about. Unfortunately, this is a really difficult problem. And it's particularly difficult for me, because I have, for a long time, written and supported the notion that cap-and-trade is, by far, the most efficient way of dealing with many environmental problems. And it is, for ones that we can address in the short run, and need to work on in the short run. Difficulty, it doesn't work with the long time scales for climate change. And that's very difficult, because I'm also convinced that most of the R&D programs we've had in the past, have been pretty much failures, as well. So, what are we going to do about that? The problem is if a promise is not going to work, a promise of future carbon limits and future carbon prices that are enough to stimulate investment. The only alternative to a promise is a check. So, we need to figure out a way to write a check now, that's effective. And I think we knew it needs new ideas, ideas that strike me as having merit, and having some economic substance behind them, are things like prices, using prices to stimulate the kind of breakthrough enabling technologies that would lead to what we need in the long run. Industry, R&D consortia may be effective. And there's some models out there for ways to design R&D programs that I think are much better than what we've used in the past. And one of them is the G-CEP [Global Climate and Energy Project] program, as it's called, at Stanford University, which has been funded with hundreds of millions of dollars by a group of private-sector firms. And it's, I think, providing a model for how we could go about designing programs that would stimulate the right kind of research, if we're willing to put enough money in to them today.

Kert Davies: It's interesting that you bring up G-CEP, because G-CEP was funded by Exxon. And I know that your studies in the past have been funded by the American Petroleum Institute. And many of the firms that you work with now, and the organizations that are attacking McCain-Lieberman are also funded by Exxon, in a shrouded way. And clearly, Exxon is against cap-and-trade, because they don't want any cap on carbon emissions. It's bad for their business. So, what we see is, these kind of studies that the doom and gloom reports that you do, that basically put a pin on anything progressive, within a cap-and-trade system, are simply an effort to stop progress on climate change legislation. The Hagel bill codifies the Bush doctrine, which says we should prop up coal, and prop up existing energy technologies with further subsidies on research, 10-year research programs.

Brian Stempeck: There are things, clearly, that we could be doing now on renewable enery and energy efficiency. I know that's often the argument that comes out of the environmental community. But at the same time, when you have countries like China and India, where emissions are growing at staggering rates, they're building a coal plant every week, they're going to continue burning coal, then you need some kind of long-term technology, based on your need, carbon sequestration down the road. Isn't that the better choice right now?

Kert Davies: Well, sequestration is possible, but it's certainly not proven, and it is going to be very expensive. As an economics expert, you should know that. And nobody is costing out what it's going to take to impose the regulation to require utilities to build these better coal plants. They increase the cost of power significantly. They increase the cost of infrastructure to pipe the CO2 to a disposal site. And we think the money can be better spent, with off-the-shelf technology, renewables and efficiency, to reduce carbon now. And the fact is, this is a long-term problem. But we're too late solving it. We've already driven the truck off the cliff, and now we're talking about brakes. So, what we need to do, is implement solutions that are available now, that are most cost-effective than sequestration, like renewable energy, like efficiency. You can hope for some silver bullet down the road, but we're not banking on sequestration to solve the whole problem.

Colin Sullivan: Dr. Montgomery, Mr. Davies seems to be alleging that you might be a gun for hire, when it comes to putting together a study that says McCain-Lieberman would force electricity prices up by, maybe, 10 percent, as much as 10 percent. Are you a gun for hire? Are you going into your study with the preconceived idea of what your result might be?

David Montgomery: I'm not even going to get into that. I am very tired of arguments ad hominem that seem to be coming from the environmental community, just about all the time. The work that I do, I expect to be judged on its merits.

Kert Davies: So, who's paying the bills? That's a key question.

David Montgomery: Who's paying your bills?

Kert Davies: Well, our members, our supporters pay our bills, not corporations.

David Montgomery: And the environmental groups have an ax to grind that's even more obvious than anyone else's. The fact is that when we do -- I have been doing research on environmental issues for the past, at least, 30 years. I have never done anything that was not, in my professional opinion, a good solid piece of economic research. But the proof of that, is not denying who it is that's paying the bills. I would be doing the same thing, no matter where I was. And the proof of that is in the analysis itself. And that's why I'm saying, I'm not going to get into this debate. I don't care where the money comes from. What we need to judge, when we're doing this debate, is how is the analysis laid out, how is it supported, and how is it argued? It's simply a distraction to -- it's a devaluation of the debate, and it's not one I'm going to get into, to fight over who's sponsoring which study.

Kert Davies: Well, I'll leave that aside for a second. But, your studies, historically, going back to '97, when you studied by attacking Kyoto, is clearly based on very doom and gloom scenarios, economic scenarios, a lack of faith in technology improvements. The study that you recently did around McCain-Lieberman assumed that there would be no improvements, and no innovations by states or local authorities to try to carve into improve this system for 50 to 70 years. And clearly, that is a worse-case scenario that doesn't play out in the real world. So, the funding, I think, is very important, because it's a truth and consequences thing.

Brian Stempeck: Let's talk about what's happening on the ground right now. Over in Europe they just launched an emissions trading scheme, a cap-and-trade plan, essentially. With your report, are you basically saying that something like that is going to fail? Is that not going to work? It seems like they're setting pretty lenient targets right now for emissions, with the promise of a bigger threat in the future, which most people see as an effective way to encourage the same kind of technology you're talking about. Why doesn't that work?

David Montgomery: Well, I think, first of all, the proof is that it is not working. In fact, what we said about the Kyoto Protocol, seven or eight years ago, though I think we've become more sophisticated and understanding the dynamics, is in fact, what's turned out to be the case. No country has shown itself willing to bear any significant cost to meet its Kyoto target. Nobody is going to meet its Kyoto target, because of actions it has taken since it signed the Kyoto, first of all.

Brian Stempeck: Well, you can't say that. Canada, in their budget last week, said they're gonna spend several billion dollars to buy credits to encourage new technologies. Countries are spending money to do these things. How can you say that?

David Montgomery: Well, if you look at where the money is going to be spent, the European Union is doing -- has set up and emission trading scheme, which is essentially giving out credits at a level that's pretty much what industry expects its emissions to be. It's pretty much set up to make sure European industry doesn't have to do anything. And I'd be surprised if Greenpeace disagreed about that assessment. What the European Union is planning on doing, as far as I can see, is buy hot air from Russia, in order to cover its failure to meet its targets through emission reductions within its own country. That's not reducing global emissions.

Brian Stempeck: But that's for the first few years. The expectation is that when 2008, 2012, a tougher round of cuts is coming down the pipeline. All the companies know about it, so they're starting to take action now, and prepare for that. The Russia credits won't last forever. They're only going to last four or five years.

David Montgomery: Well, the Russian credits are, in fact, what Europe is looking for to cover it's 2008 to 2012 obligation. And they're not even talking yet, about what to do beyond 2012. That's the whole problem with credibility. Under the Kyoto regime, we have nothing to give business a signal of what's going to happen after 2012, and all the decisions that matter, whether its building a power plant, or investing in R&D depend on what the regime is after 2012, if all you're relying on is those targets to stimulate R&D.

Kert Davies: But clearly, there is a division within industry, about where to position yourself on this. Look at the recent Business Week story that showed that some companies know that the writing's on the wall, and they need to move forward with this. Many companies are now gaining experience, through the European trading system, that will be invaluable to them down the road, multinationals. And clearly, in the short-term, the targets that were negotiated in Kyoto are not going to do a lot to cut global emissions. But, the fact is, that the architecture of Kyoto is the thing that's important. And the U.S. tried to stop the discussion of the next round of cuts. So, the Bush policy is: delay, stall this thing, leave us in the dark, try to confuse us the science. And clearly, that's also affecting badly the attitude of other countries.

Colin Sullivan: But at the same time, if electricity prices go up in the European Union by 20 percent because of the scheme that's been implemented, should that be a scheme that the U.S. should look at and say, "That's something we should adopt," if that's gonna be the net affect?

Kert Davis: Well, the net effect, we believe, will be positive. And we have a very hopeful attitude that energy efficiency is good for business, and that the stimulation that this trading system, and that the regulation will provide to industry, will ultimately result in more efficient manufacturing, and more efficient products for consumers, resulting in lower bills, and a generally more efficient economy.

Colin Sullivan: Doctor, is that true for you, Dr. Montgomery?

David Montgomery: You're just dreaming, and you're dreaming about the United States as well. The fact is, we have a highly efficient market economy, in which energy is priced, not to include the externality of CO2, but appropriately to cover what it costs to produce the energy. And American business is not leaving $100 bills sitting on the sidewalk, which is what you're hoping will be the solution for climate change. One of the few things I had respected in the past about Greenpeace's position was that you recognized that this was a big problem that was going to have expensive solutions. And your position was, the solutions, although they're expensive, are worth it, because of the stakes that are there. Don't trivialize the problem by saying we have a huge global problem, and it's not going to cost us anything to solve it, because business will find out a way to do it, that will save themselves money. That's just absurd.

Brian Stempeck: What do you think of companies that are doing things now? You have DuPont as the key example cited of the Business Week and elsewhere. Their company executives say they've saved several billion dollars from energy efficiency changes, a number of kinds of small changes that they've made. And they've made a lot of money doing so, and they're talking about it a lot. Can't other companies do that too?

David Montgomery: No. I think that we have pretty much worked our way through the waste that we're gonna find in the system, if there was. Companies are well aware of the issues now. They're well aware of how to deal with them. Maybe we can knock a couple of percent off our energy use, or our carbon emissions, through these methods. But we're looking at a problem where, ultimately, we are talking about getting carbon emissions down to zero. That's not something we are going to do, without radical new technologies we don't have today.

Kert Davies: Well first, it's ridiculous to state that the energy in our country is priced to include anything but the carbon externalities. It doesn't include any environmental externalities, the cost of asthma from coal plants, the cost of mercury pollution, the cost of air pollution from vehicles, and the cost of coal mining damage. You just don't have a system in this country. We have a system that subsidizes dirty energy, doesn't equally give those benefits to clean energy, or efficiency, and a government that feels the same way.

David Montgomery: That's completely false, and you environmentalists should stop grinding your axes in ways that are simply not true. We have incorporated in the cost of electricity, probably far more costs, than are actually imposed on the public, in forms of health benefits. It's not in the price of the fuel. It's in what electric utilities are required to do, in building scrubbers for sulfur and NOx, and reducing other emissions. We have a system. It's actually not as efficient as emission trading would be, for dealing with some of those pollutants, because it's a heavy-handed command and control regulation, in some cases. But it is doing exactly the same thing to reduce those emissions, that we would have seen if we had done it at the end of making the fuels more expensive.

Brian Stempeck: Let's get back to the domestic front, in talking about climate change, here. Where is the common ground? Is Senator Hagel's bill, his offering to do more technology? Is that the common ground? And is that realistic, given the fact that the White House is trying to cut the budget deficit right now, and there's really not much money to go around. Can we really talk, realistically, about spending more money on climate change technology?

David Montgomery: I don't see why it's not a common ground. It strikes me that the recognition that we are looking at a problem that has to have these technologies for a long-run solution, is one that we ought to be able to find some agreement on. The disagreement is going to be on how much money we need to spend to hedge. And that's going to be tied to people's beliefs about whether we are looking at a problem that is one of huge risks, globally, or one where we're still skeptical about the science. And that's a legitimate debate that needs to be joined, to decide where the funding wants to go. But the notion that we should be putting our greatest effort where we get the greatest pay-off, which is developing the technologies we know we're going to need, strikes me as being the logical common ground.

Brian Stempeck: Kert, is it logical?

Kert Davies: Well, the most encouraging thing is that Hagel has turned a corner here, and is actually saying positive things about policies to solve global warning, rather than in 1997, when he was touting the climate skeptics and using very false evidence to try to bash the Kyoto Protocol. So, we're very hopeful that there is a shift in the Senate, in the dialogue around climate change. The investment in technology, of course, we should look at every option, because we're late. Everything counts, at this point, everything yesterday. But, we believe that there are very important conversations about efficient use of money, as we're spending far too little, in our opinion, to solve this problem. We have to be very careful about where we spend that money.

Colin Sullivan: How do you guys think that politics are playing out in this debate? Senator Hagel is probably a presidential candidate for the GOP nomination in 2008. Senator McCain, probably a candidate. They're both staking out their positions on climate change. Are they saying, now, three years before we get into that election season, that climate change is going to be a major issue for Republicans to hash out, when they're vying for their party's ticket? Is that what's going on right here?

Kert Davies: That'd be great. And you also see Pataki rising, as a champion. Schwarzenegger rising. The leadership is coming from the Republicans, at this point. I think, eventually, this issue will be the key political environmental issue. It failed to rise this time, but energy policy is linked to climate policy, is the key decision that our government needs to make.

Colin Sullivan: The politics?

David Montgomery: I'm not an expert on politics, but I do read some things about polls. And, aside from the four of us in the room, and people that we talk to, it's not clear to me that climate change is that, being an issue on the agenda of the American public. When we look at what the major issues are, it's not up there at the high end, and therefore, I'm not sure whether the political parties are going to make it a key part of what they're campaigning about.

Kert Davies: And opponents of climate change policy and opponents of the Kyoto Protocol hope it stays in that place. There is a deliberate effort to keep it there, and keep the uncertainty around the science, as --

Brian Stempeck: But is that also a failure of the environmental movement? I know some within certain environments groups are saying we haven't articulated this message. There hasn't been a really strong message from environmental groups about, what is climate change, what are we doing about it, what should we do about. We have seen various approaches from each group. Is that a failure of the environmental movement?

Kert Davies: It's both a failure, and we've tried every tactic, it's both a failure, and I can tell you successes along the way. Students are acting, as a result of work within the student environmental community. Very effective policies, like McCain-Lieberman, are the result of education of senators. And there are numerous successes. I think the failure is that it's a very difficult issue to communicate to people. And it's not like a burning river, or a smokestack, dirty air, or a very visible change. Sea-level rise is a slow thing. Temperature rise is an incremental damage. It's hard to communicate. The melting ice caps are what is communicating it now. And that's what's going to get it through to people.

Colin Sullivan: As long as we're on the subject of how environmental groups operate, recently Greenpeace had about 10 people arrested in London, for actually disrupting trading on the London trading court. Do you agree with those tactics? Do you think environmental groups in the United States aren't aggressive enough? Greenpeace has often been seen as a more radically activist, especially on the international seen. Do you think environmental groups in the U.S. aren't aggressive enough?

David Montgomery: Well, taking direct action, like what was taking in the U.K. recently, is certainly part of the mix. In that country, it made perfect sense, on that day, to take that action and show people that having the Kyoto Protocol come into force, and meanwhile, trading oil and accelerating and perpetuating the addiction to oil, are in conflict. And in this country, we've taken similar action. We had a couple of people in jail last week for climbing a smokestack in Pennsylvania, last June, to protest the Bush energy policy. We do it all the time, here, too.

Brian Stempeck: Doctor Montgomery, what message is that sending to the American people, on climate change. Are those types of policies effective?

David Montgomery: I don't think so. I think its sending the message that you're worried about. It's sending the message that this is a fringe, this is a lunatic fringe concern, that it's being driven by a group that is kind of demonstrating against this, that and the other thing. And I think it's similar to promoting "The Day After Tomorrow," and the lie that climate change is going to cause immediate catastrophic destruction, or the implication that the reason we've seen hurricanes is, stronger hurricanes, is because of the current climate change. Saying things that aren't true is a very bad strategy for the environmental movement to use to try to get the people's attention.

Kert Davies: We never say things that aren't true. We have a very strong scientific staff, and they keep us in check. It's my job, as research director to do that, as well. I think that our job, as Greenpeace, is to raise the alarm, and to show people the consequences of bad policies and inaction. We have sent scientists around the world to document the loss of glaciers. We are documenting climate change all over the world, and trying to work towards, in the policy arena, suit and tie, as well as on the smokestack.

Colin Sullivan: We're going to have to let that be the last word. Kert Davies, Dr. Montgomery, Brian Stempeck, thank you all for joining us. Join us tomorrow for another edition of OnPoint. Until then, I'm Colin Sullivan, for E&ETV.

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