The Quest: Energy, Security, and the Remaking of the Modern World

by Daniel Yergin

  The Nobel Prize, he said, “has certainly raised the alarm.” It also greatly broadened the recognition of the IPCC and solidified its international role. Shortly after receiving the award, he told an energy conference in Houston that the IPCC’s warning is “not based on theories and suppositions. It’s based on analysis of actual data which is now so extensive and overwhelming that it leaves no room for doubt.”16

  MASSACHUSETTS VERSUS EPA: THE SUPREME COURT STEPS IN

  The political landscape in the United States was changing as well. A number of states adopted state-wide emission targets. Various groups of states established regional cap-and-trade programs. To top off such initiatives, California adopted Assembly Bill 32, which required the state to return to 1990 emission levels by 2020.

  In 2006 the Democrats captured control of both the Senate and the House of Representatives, for the first time in twelve years. With this came a Democratic leadership determined to pass climate change legislation. Nancy Pelosi, the new Speaker of the House and the first woman Speaker ever, announced that climate change was her “flagship issue.” And to drive home the point she established a special new Select Committee on Energy Independence and Global Warming.17

  Just a few months later, in the spring of 2007, the legal terrain also changed, and decisively so.

  Years earlier, in 1998, Carol Browner, Bill Clinton’s Environmental Protection administrator (and later Barak Obama’s White House czar for energy and the environment), was jousting in a congressional hearing with Tom Delay, the then Republican Majority Leader. You are trying to regulate greenhouse gases, Delay insisted. No, Browner replied, we’re only studying them. This went on for a while, until Delay challenged her flat out. “Do you think that the Clean Air Act allows you to regulate the emissions of carbon dioxide?” he asked Browner.

  “I think we are granted broad authority under the Clean Air Act to,” Browner responded.

  “Would you get me a legal opinion on that?” DeLay retorted.

  “Certainly,” said Browner.

  Later Browner recalled: “And so I went back, and the lawyers took a look and they wrote a memo saying ‘we probably do.’”

  In 2001 the incoming Bush administration resolutely did not agree. It concluded that this interpretation could not possibly be right. Greenhouse gases were never even mentioned in the original Clean Air Act. Carbon dioxide “is not a ‘pollutant’ under the Clean Air Act,” Bush had said with some finality in 2001. And that seemed to be the end of it.18

  But as it turned out that was not the end. For that memo was then taken up and put to use by various plaintiffs, including the state of Massachusetts, which sued the EPA for not regulating greenhouse gases—specifically CO2—coming out of automobile tailpipes. Though the court of appeals ruled against them, the U.S. Supreme Court agreed to hear the case.

  The oral arguments took place at the end of November 2006. The assistant attorney general of Massachusetts argued that the EPA’s failure to regulate CO2 emissions from new autos would contribute to global warming, which would cause sea levels to rise, submerging the state’s coastal regions. The Bush administration countered that the Clean Air Act did not give the EPA authority to regulate CO2 and that Massachusetts had no legal standing to be bringing the case because climate change was a global issue and Massachusetts was only one of 50 states.

  The exchanges with the justices were spirited. The Massachusetts assistant attorney general tartly told Justice Antonin Scalia that the eminent justice had confused the stratosphere with the troposphere. Justice Stephen Breyer said that while one could not prove that regulating tailpipe emissions by themselves would be sufficient, combine that with other measures, “each of which has an impact, and lo and behold, Cape Cod is saved.”

  On April 2, 2007, the Supreme Court delivered its opinion in what has been called “the most important environmental ruling of all times.” In a split 5–4 decision, the Court declared that Massachusetts had standing to bring the suit because of the costly storms and the loss of coastal shore that would result from climate change and that the “risk of harm” to Massachusetts was “both actual and imminent.”

  And in the heart of its opinion, the Court said that CO2—even though it was produced not only by burning hydrocarbons but by breathing animals—was indeed a pollutant that “may reasonably be anticipated to endanger public health and welfare.” And just to be sure not to leave any doubt as to how it felt, the majority added that the EPA’s current stance of nonregulation was “arbitrary” and “capricious” and “not in accordance with the law.”19

  The consequences were enormous; for it meant that if the U.S. Congress did not legislate regulation of carbon, the EPA had the authority—and requirement—to wield its regulatory machinery to achieve the same end by making an “endangerment finding.” Two out of three of the branches of the federal government were now determined that the government should move quickly to control CO2.

  The Bush administration had to figure out how to respond to the Court’s decision. Around this time, the answers were starting to emerge from the 21 different research programs from James Mahoney’s Climate Change Science Program. “The preponderance of results indicated a real problem,” recalled Samuel Bodman, then Secretary of Energy. “But dealing with it is a bear.” Meanwhile, internationally, British prime minister Tony Blair and German chancellor Angela Merkel were continuing to press Bush on the issue.

  For all these reasons, climate change was clearly back on the political agenda of the administration. In his 2007 State of the Union Address, Bush declared that the United States should “confront the serious challenge of global climate change.” But it certainly would not go the cumbersome route of Kyoto and the United Nations. Instead it sought to go down a different path; it brought together a new grouping of seventeen nations that produced the bulk of the world’s man-induced CO2 emissions. The Bush administration came up with a name for this new group: the Major Emitters.

  “However, when we sent out the invitations,” said then Undersecretary of State Paula Dobriansky, “the message came back from the other countries that they didn’t really like being called ‘emitters.’ ”20

  It was a reasonable call. After all, “emitters” was, Understandably, considered somewhat negative by those convened. The Major Emitters became the “Major Economies,” which came together at the State Department in September 2007. These were the countries that, collectively, represented 80 percent of world GDP, consumed 80 percent of world energy, and produced 80 percent of the world’s CO2. And, therefore, they were the countries that could have the most impact. Moreover, with countries like China, India, and Brazil included, this new grouping provided a way to manage the contentious divide between developed and developing countries.

  This was quite a different position from that at the beginning of the Bush administration seven years earlier. But the administration’s time was running out.

  26

  IN SEARCH OF CONSENSUS

  The weekend after Barak Obama’s inauguration, phone and e-mail invitations were hurriedly circulated around Washington for his first speech at the White House that following Monday. Those lining up early that chilly morning at the East Gate of the White House, many of them still in the post-inauguration euphoria, thought they were going to an energy event. Yet proceedings in the East Room were really about climate change, the issue that would now define energy policy.

  “The days of Washington dragging its heels are over,” said the new president. He added that “America will not be held hostage” to “a warming planet.” The president’s priority was clear. And with the president aligned, the House leadership set out to make cap and trade the law of the land.1

  The enterprise was in the hands of Henry Waxman, chairman of the Energy and Commerce Committee, and Edward Markey, chairman of the Select Committee on Energy Independence and Global Warming that Speaker Nancy Pelosi had set up two years earlier.

  For Markey, also chairman of the Subcommi
ttee on Energy, climate change had been on his agenda for most of his 33 years in Congress. On the wall of his office, catty-cornered from a large solar panel, hangs a framed front page of the now-defunct Washington Star newspaper from November 7, 1976. The righthand lead is headlined “Natural Gas Supply Cut Is Projected.” The left-hand lead is an interview with a professor from the University of Pennsylvania, warning of coming world crises—one of them being a “world change in climate”—perhaps caused by manmade CO2, but perhaps, the professor allowed, by the natural workings of the glacial cycle.

  And in the middle of the page is a photograph of a mop-haired 30-year-old Markey making his first trip ever in his life to Washington, D.C., to take up his seat as a newly elected congressman. Under the headline “A New Mr. Smith Comes to Washington,” the story compared him with the “idealistic hayseed” freshman played by Jimmy Stewart, who shakes up the nation’s capital in Frank Capra’s 1939 classic film. “I’ve got a few things I want to say to this body,” the Jimmy Stewart character says at the climax of the movie. This new “Mr. Smith,” Ed Markey, had, over his 33 years in Congress, quite a few things to say as well on a number of different subjects—on everything from financial derivates to nuclear power safety and proliferation to telecommunications deregulation. But energy preoccupied him. At the 1980 Democratic convention, he had called, in a prime-time speech, for the United States to be “a truly solar society” by 2030. He had written the first national efficiency standards for appliances in 1987 and had continued to work for his “solar/wind future”—albeit not with anywhere near the impact he wanted. Now in 2009, with Barak Obama in the White House and the Democrats in power in Congress, he was, in concert with Waxman, in a position to push cap and trade, and thus reshape the fundamental economics of a substantial part of the entire U.S. economy.

  CARROTS AND STICKS

  But how did one go about reshaping so much of the economy—energy, auto and transportation, buildings, manufacturing, and all the rest? Waxman and Markey had a two-part strategy. The first part was to bring people on board with the inducements that cap and trade had in terms of handing out allowances for free to specific industries, rather than auctioning off the allowances. That was the carrot. And those carrots were measured in billions of dollars of value.

  The second part of the strategy was the stick—the Environmental Protection Agency. As Markey put it, “It was legislation versus regulation.” If there was no legislation, then the EPA, under the Supreme Court ruling, would go back in time to the pre–Clean Air Act era and begin to regulate carbon dioxide, command-and-control style. And unlike the Congress, the EPA would not be able to offer any inducements or mitigation. No carrots at all. Only the stick. Or, as the CEO of one electric utility described it, “the bayonet.”

  And so they built a considerable coalition. The Clean Air Act Amendments of 1990 and the resulting SO2 reductions constituted the model for what they were trying to do on cap and trade. That was the narrative for what they said would happen with cap and trade—faster achievement, lower costs, bigger impact. But Markey had another narrative in mind as well: the way in which the digital revolution was transforming the American economy. He had championed legislation that had helped to make the digital revolution possible by promoting competition in the cable and phone industries. “We took down all the barriers,” he said. “Everybody could do everything. We created a broadband digital revolution.” When Bill Clinton signed the Telecommunications Act in 1996, not a single home in America had broadband. And now it’s all been transformed. “The job of government is to create conditions for paranoia-inducing Darwinian market competition, and you will have capitalism that is flourishing, and then government can get out of the way,” Markey continued. “If we incentivize, we will unleash innovation.”2

  And if the broadband revolution had created what he estimates to be almost a trillion dollars of new value, then, by his calculation, a similar ruthless Darwinian climate-change-stimulated competition in the much larger energy sector should stimulate whole new industries and create several trillion dollars of new value.

  As the bill made its way through committee and markup, it grew from six hundred pages to over fourteen hundred pages. Its goal was to reduce carbon dioxide emissions by an extraordinary 83 percent by 2050 from 2005 levels, which meant that, going forward, energy investment in the United States would have one central focus—carbon reduction. Unless some form of carbon sequestration could be economically developed on a large scale, oil, natural gas, and coal would mostly disappear. And all the things that depend on these fuels would change. This was not the energy system that Americans—and the American economy—now knew. The carrot was very large: As a result of all the horse trading and pragmatism, over $2.3 trillion of allowances would be awarded to various sectors in the economy. Moreover, the bill would largely withdraw the authority of the EPA to regulate carbon dioxide under the Clean Air Act Amendments of 1990. The bayonet would be withdrawn.

  Some argued that it could not happen that fast, that the energy sector is more complex, more capital-intensive, more long-term, and thus much slower to change than telecommunications. They doubted that the technologies would be there in scale—and in time. Carbon capture and sequestration had a long way to go before it was proved. Many wondered about the complexity and scale of cap and trade, and thought a tax was so much simpler and more direct. Others said that, in any event, cap and trade was simply a tax disguised in a complex garb, and they took to calling it “cap and tax.” They argued that vast disruptions would ensue. And that the costs were being woefully underestimated. The Midwest, with its coal-fired electricity, would be hit hard. So would agriculture.

  Here the Congress was going to create a vast new market in carbon—bigger than any other market—in the very year that the Great Recession had bred such deep distrust of markets. Carbon would become an “asset,” a “currency.” Cap and trade, critics warned, would not be a boon to the environment but to Wall Street and all the others who would figure out how to trade—and game—the carbon markets, at a time when the repute of financial markets and financial institutions had fallen markedly.

  On the evening of June 26, 2009, the bill passed, 219–212. Forty-four Democrats voted no, eight Republicans voted yes. Still, there would be no new legislation without the U.S. Senate. Nothing would happen unless a bill got through the Senate.

  CHINA: “WIN-WIN”

  In 2007, by some measures, China’s carbon dioxide emissions exceeded those of the United States. By 2030 its CO2 output, if unchecked, could, some said, exceed that of the member countries of the entire Organisation for Economic Co-operation and Development (OECD) combined. China was also facing increasing international criticism over this increase.

  Beijing replied to this in three ways. First, it noted that its energy use and CO2 emissions—when measured on a per capita basis—are only a small fraction of that of the United States and Europe. Second, it emphasized that China is still a relatively poor nation making a transition that Europe and North America—and Japan—made decades ago, and it should not be denied the same opportunities and standards of living as the developed countries. In so doing, it distinguished between the “luxury emissions” of the developed world and the “survival emissions” of developing countries. Third, it pointed out that one reason that its energy use—and emissions—are going up so rapidly is that Europe and North America have in effect outsourced a significant part of their energy-intensive production to China, as their own economies continue to shift to services and consumption. As the former chairman of China’s National Development and Reform Commission expressed it, “A considerable amount of the increase in China’s energy consumption is a ‘substitute’ for energy consumption in other countries and regions.”3

  Internationally, there would be no international climate change regime without China. But China’s own position was evolving. In 2006 the government released a National Assessment of Climate Change. It was the culmination of a fou
r-year study, involving twenty government departments, that very much reflected the framework of the IPCC. It also represented a process of education for the country’s top leadership, which was briefed on the risks.

  The day before World Environment Day, 2007, the government released its first “national strategy on climate change,” which warned that “the trend of climate change in China will further intensify in the future.” It reinforced the emphasis on conservation and energy efficiency, as well as on changing the fuel balance, protecting the ecosystem, restoring forests to 20 percent of total land, and developing world-class energy technologies. New natural gas resources and imported LNG would replace open coal burning in Beijing, Shanghai, and other cities with natural gas networks.

  China’s stance toward climate change shifted for both scientific and practical reasons. Droughts and floods highlighted the risks of climate change. Chinese scientists and the country’s leadership have become preoccupied with what global warming would do in the west, to the “water tower of Asia”—the glaciers and snow mass in the Himalayas and the Tibetan plateau that feed China’s great rivers—and the impact on the country’s water supplies. In the east, rising sea levels would threaten the low-lying coastal regions that generate so much of the nation’s GDP and economic growth. Droughts, desertification, extreme weather, and instability in agricultural production—all these would be possible consequences.

  But the domestic usefulness of the issue should not be underestimated. For climate change provides a very useful envelope for addressing the critical and all-too-immediate local and regional air and water pollution that affect so much of the country and that are an increasingly grave domestic political issue. It also becomes a very convenient tool for driving greater efficiency in the economy and, specifically, in energy use.