Energy Policy Q&A with Congressman Sean Casten
When will Congress get to a major “infrastructure bill” that has significant energy provisions in it, and what’s likely to be included? How could COP26 in Glasgow help city leadership achieve carbon neutrality? How does the Energy Innovation and Carbon Dividend Act compare to a price signal on carbon?
Special guest speaker U.S. Representative Sean Casten (IL-06) discussed clean energy policymaking under President Biden and the new Congress on January 29, 2021 as part of the BU Institute for Sustainable Energy’s (now the Boston University Institute for Global Sustainability) Energy of the Future webinar series.
The following audience Q&A is excerpted in part. Watch our webinar recording to catch the full conversation.
Question from Jacquie Ashmore, ISE Executive Director: There’s some speculation that if legislation to support the clean energy standard and the 2035 target doesn’t attract 60 votes in the Senate, assuming the filibuster remains in place, then the Administration could turn to budget reconciliation to support achieving this goal. What’s your thinking on whether that might unfold, and, if so, what it might look like?
Congressman Casten: The filibuster is a totally anachronistic tool, and so does the Senate decide, if we can’t get priorities through, to make a rule change to get rid of the filibuster, or do we start trying to jam things into budget reconciliation? I don’t know the answer to that. Personally, I wouldn’t be inclined to take either question off the table. Ultimately, it won’t be my decision, because this will be decisions made on the Senate side of the Hill. I will say, to be candid, that I think the test case for how much the Senate chooses to flex is probably not going to be a clean energy standard. I think we’re going to see, probably in the next few months, some of the COVID relief bills, some of the additional funding that’s going to be required, some fairly structural things that have to happen to get the economy recovered from COVID. And I think those will probably be the high-profile test cases of how much does the Senate want to flex.
Question from Peter Fox-Penner, ISE Director and Professor of Practice, Questrom School of Business: To follow up on that, can you lay out your schedule for Congress, not just the House, but from what you can read of the Senate tea leaves, and with respect to what are the major things that Congress has to get to before it gets to a major “infrastructure bill” that will have significant energy provisions in it?
Congressman Casten: In the discussions that we’ve had with House leadership and with the Biden White House, I think it’s safe to say that we are at this moment, we are in a triage moment, and we just have to focus on the triage.
…There is a very broad, and, I think, bipartisan recognition that as we get into the spring, even if we don’t have COVID under control, construction is a great way to get the economy going. Outdoor work, you can do it safely, and so I think you’re going to start to see a lot of pushes around pretty major infrastructure packages. You’ll probably see the conversation start in a month or so. I think it’ll probably be a little longer to come through. I think it’s really significant both that the Biden Administration has said they’re going to treat the climate crisis as an emergency and not worry about the cost. And we in the House changed our rules, this term, to say that for COVID and for climate matters, we’re not going to imply our PAYGO rule. In other words, we’re not going to have to find a way to cut expenses from some other bucket to pay for that. Because the costs of inaction are far greater than the cost of action. So we now have the statutory tools, both from the House and from the White House, to make a significant infrastructure investment that is climate-focused, and so I think there’s a potential for a real infrastructure piece. Now once those two are done, some of these larger structural issues that you mentioned, things like a clean energy standard, I think those are going to take time, but my hope is that as we work through those, with any luck, we’ll find some way to ease back some of these constraints that no good policy can move forward unless it has 61 votes in the Senate.
Question from Peter Fox-Penner, ISE Director: What do you expect will be in the infrastructure bill? A major Wall Street bank predicted what’s “in” will include storage tax credit, support for clean manufacturing, EV infrastructure, green hydrogen, and CCS (carbon capture and storage). They said the clean energy standard is kind of on the bubble, don’t bet on it. Does that sound about right to you?
Congressman Casten: I sure hope not. Remember what I said at the start, we’ve got to do what’s scientifically necessary, not what’s politically possible. Any serious plan that includes CCS is not a serious plan. Right, there’s no way that you take a technology like coal-fired power that is not economic as it sits here right now and make it economic by increasing the capital costs so that you can increase the operating costs and put more parasitic loads on the plant. It’s something you throw money off to buy off some coal-state Senators. And then you waste finite resources to do something silly. I think what an infrastructure plan should be, and I hope has in it is huge increase in EV infrastructure—charging infrastructure; huge increase in mass transit and high-speed rail, which Biden has certainly talked about; big money for transmission, let’s de-bottleneck the country, let’s truly have a national electric grid so that we can connect renewables to other parts of the grid and give them long-term contracts where they can offset that; big increases in broadband; and then a whole lot of push I think more in the vertical infrastructure, and how do we make our buildings, our homes, our schools, our federal buildings more energy-efficient, reduce the pole for energy at the downstream end of the wire, so that we don’t have to build as much on the front end. And I think those pieces are going to be fairly critical, and that’s of course before you get into all the questions around resilience—should we be building more property on Miami beach? That’s a tough question. If we are, what’s it going to look like?
Question from Peter Fox-Penner, ISE Director: What about gas-based CCS, which might actually compete fairly with firmed up solar and wind in some parts of the country, or certainly in some parts of the world?
Congressman Casten: If markets decide to do it, markets will do it. I don’t want to judge that. But I think when you look around, all of the technologies that we could and would deploy if the only driver was what is the lowest-cost source of reliable power. Right, we wouldn’t have coal plants anymore. We wouldn’t build simple-cycle gas turbines, except where we need them just for load farming, because they can quick ramp up and down. And even natural gas CCS, I think it’s hard for me to see how we get back to 1985 CO2 levels if we don’t have some direct air capture. The challenge with direct air capture is there’s no revenue. And so we talk about these ways to say, well, could we help bring this technology forward by either putting it on the back of an asset that is generating electricity or maybe by pumping the gas underground so that we can accelerate the recovery of oil—enhanced oil recovery, which makes it sort of dubious whether it’s actually reducing CO2 emissions. The thermodynamics, the mass and energy balances of that are pretty straightforward. But the economics of saying it, how do you build direct air capture if you don’t have any revenue that’s coming in to justify a fairly sizable capital investment? That’s a hard question, but I’m still left saying, if you take CO2 out of it, would you build? It’s not like people who are building new combined-cycle gas plants are earning triple-digit returns on their investment. You know there’s an old saying in the power industry, everybody wants to be the third owner of a power plant. It’s not so, my point is this is already a capital-intensive, low-margin industry. Putting more capital on that and a higher operating cost, it’s very hard to see that be something that a market is really going to embrace. Can we throw money at it, sure. But it’s hard for me to see a market doing that unless we have exhausted every other opportunity to build lower-cost and lower-carbon generation, which we’re nowhere close to doing that. I come back to the Switzerland example. They use half as much energy as we do per dollar in GDP. They didn’t get there with CCS.
Question from audience: Do you have recommendations to mayors as to what they should ask of the Biden Administration and Congress for cities to be carbon neutral? And what do you think their asks should be, and where should they intervene—should it be during budget reconciliation in a stimulus debate or bill development or some other point?
Congressman Casten: I don’t know that there’s a generic answer, because every mayor is going to have a slightly different set of circumstances. I think one of the things that’s going to be really critical, which becomes an international issue, and the Mayor’s Conference has been fairly vocal about this—in Glasgow (COP26, which should have already happened, but it’s been delayed because of COVID), one of the tracks that they’re on is, we need to come up with standardized international carbon accounting. And if we don’t do that, if you’re the mayor of a city, who buys all of your power from a coal plant in another state, who owns the carbon credit for that? And if by virtue of doing that you shut down a gas plant in your city, how does that allowance go through? If you invest in efficiency that reduces your load, who owns the reduced output from that downstream?
…And I think really pushing for saying we need a consistent set of accounting so that all the mayors are rowing in the same direction and say we know what the scoreboard is, we’re all going to be evaluating the same scoreboard. Let’s go forward. And again the international community recognizes that. The U.S., because we pulled out of Paris, were not at the table when some of those discussions were happening at COP25 in Madrid, where I was last year. We’re now coming back in, we had monitors there, but I think really engaging and getting clarity on that quickly is going to be important.
Question from audience: What’s your view on the Energy Innovation and Carbon Dividend Act, as in the revenue-neutral carbon tax—is that helpful and is it necessary to help build confidence between parties, or too little, too late, and a distraction from bigger action?
Congressman Casten: I have been very outspokenly hostile to the fee and dividend structure going back for a decade, and so I can’t hide behind what I’ve said before, because you’ll find it if you Google it on the web, but I want to be really clear about it. Take what I said before—if I go to buy a pair of shoes, let’s say I buy a $120 pair of shoes, I pay $120 for my pair of shoes and the shoe store gets 120 bucks. That creates an economic incentive for the shoe store to be in the shoe-selling business, creates an incentive for me to find a $110 pair of shoes if I can. This is basic Adam Smith stuff. If, on the other hand, I say I’m going to pay the government $120, and the government is then going to see to it that I get a pair of shoes, I mean that’s the essence of socialism, right, or communism if you like. That is essentially what a carbon tax is. Because of carbon taxes, you’re going to pay me for the right to have a pair of shoes, and I am then going to see to it that the money I receive creates a shoe manufacturing and distribution industry. A tax and dividend is even worse, because a tax and dividend says I’m going to take that money that you gave me for shoes, and then I’m going to spend it on things that have nothing to do with shoe manufacturing. I’m just going to give it to everybody as a dividend. And it’s really tempting, because you can see a path to making it pass, because every member of Congress wants to play Santa. If we can give our constituents trillions of dollars, it’s easy for us to get reelected. But the goal of carbon policy is not for us to get reelected. The goal of carbon policy is not to pass a bill. The goal of carbon policy is not to figure out how to get bipartisan consensus. The goal of carbon policy is to reduce CO2 emissions, period. And if we take money and then use that money for things other than reducing CO2, then we have this huge bet riding on a guess that raising the price of carbon emissions is going to cause money to flow to people who might reduce CO2 emissions. That is a massive economic bet. And I would just submit to you, I sat on the Financial Services Committee last year. Wells Fargo got $3 billion of fines. Show me an economist who says that that allowed Citibank to provide you a higher rate of deposits on the money that you have in their account. And yet we have economists who will tell you that if you put a price on carbon in a coal plant, it’s somehow going to make a solar developer richer. So I think that the fee and dividend structure is a really, really bad economic idea. That has the particular curse that you could actually probably pass it into law.
Question from Peter Fox-Penner, ISE Director: I thought I heard you support the idea of a price signal on carbon, not tax and dividend?
Congressman Casten: I absolutely support a price signal. The key is that for a market to work, and again I use the acid rain trading protocol, the acid rain program of the Montreal Protocol, as examples of how to do it right, where a source pays a sink, and the revenue received by one is what’s received by the other. So my problem with tax dividends is not that it has a carbon price, it’s that there’s no express flow of money to the person who is reducing carbon. So the bill that we introduced last term that we’ll be reintroducing says that every power generator, every thermal generator gets an allowance to pollute per MMBT with thermal energy or per megawatt-hour with electrical energy and that allowance ratchets down over time to zero. But now, if you are north of that line, you have to buy the excess above. If you’re south of that line, you have something to sell. And you enter into a transaction between two private parties where you’ve now got a long-term contract for either the additional carbon you’re releasing above that level or the carbon that you’re causing to reduce, and there is no government intermediary, we’re taking advantage of markets. And, again, that’s really the way that I think the initial ideas around using market signals to regulate pollution, that’s how they worked. We connected sources and sinks, and where we’ve lost the thread is saying, we’re still going to require the sources to pay, but we’re going to decouple that from the sink and intermediate the government in between to figure out how to allocate those monies.
Question from Peter Fox-Penner, ISE Director: In the taxonomy of language that politicians and economists use, that would be considered a particular form of cap and trade, a very carefully, thoughtfully designed one. How do you get around Senator Manchin and the vilifiers of cap and trade?
Congressman Casten: There’s a question around political language, but you know when I’ve talked about this bill to some colleagues in the coal belt, including in West Virginia, their question is really what is going to happen to the coal producer? And so, let’s take right now, let’s say to make the math simple, let’s say we start with an allowance at a thousand pounds a megawatt-hour, and you can reduce it over time. And what we said in the bill is that if you enter into a long-term contract with a clean source, you can lock in the current rate, so even though you’re getting 1,000 pounds this year, 900 pounds next year, 800 pounds the following year, you can lock in at 1,000 if you enter into a long-term contract with a clean generator. Well, that actually has a lot of benefit to people in a region like Mr. Manchin is from. Because now the coal plants have an allowance to release 1,000 pounds a megawatt-hour. Now they’re going to release about 2,000 if they’re a typical coal plant. So they’re gonna have to buy the other thousand, but they are getting a financial protection and they’re getting visibility to ease that transition out. And what Manchin knows, what everybody in the coal belt knows, is that coal is dying. There’s nothing you can do to bring it back. I joked with one of my colleagues that I said, if your goal is to protect coal jobs, you must hate longwall mining, because longwall mining really killed the coal industry way more than solar did, right, so they know those jobs are going away, they’re focused on how to manage the transition, and this actually gives them a glide path to a transition that a traditional thou shalt pay if you emit doesn’t give them.
Any errors in transcription are the complete responsibility of the ISE.