|The Week That Was
January 27, 2001
NEW ON THE SEPP WEB
David E. Wojick, a journalist and policy analyst who resides in Virginia and Ontario, has written a penetrating analysis of the UN-IPCC news release that made headlines (in the Washington Post on Jan 23). It should be required reading for all who want to understand the grand scheme behind the drive to ratify the Kyoto Protocol, the treaty that would control energy consumption of industrial nations.
The Week That Was January 27, 2001 brought to you by SEPP
Here is an excerpt from the Washington Post that gives the SEPP reaction to the IPCC release:
The global warming issue has proved highly contentious among environmental scientists, with many respected figures arguing that Earth undergoes periodic climatic changes with or without contributions from mankind. Fred Singer, professor emeritus of environmental sciences at the University of Virginia and former director of the U.S. Weather Satellite Service, called the new report "a political statement" based on theoretical models that does not conform to existing scientific data from thermometers at weather stations, Earth-circling satellites and high-altitude balloons. Almost all instrumental data, he said, show no warming trend in the past 60 years, and he called data that do "suspect."
And here is a quote from the release itself. It contains the following incredible statement by IPCC chairman Dr. Robert Watson (an American!):
``The United States is way off meeting its targets,'' said Watson. ``A country like China has done more, in my opinion, than a country like the United States to move forward in economic development while remaining environmentally sensitive.''
Many seem taken aback that the IPCC Third Assessment Report-in-progress is painting a darker picture of the climate change threat. But after studying the IPCC's institutional structure, I am no longer surprised by its menacing tone. Here's why. Although news reports often describe the IPCC as a scientific body of 250 or even 2,500 scientists, in fact it has no scientists -- it is not made up of people at all, but of nations. While it includes many people, including many fine scientists, in its loosely defined volunteer organization, the panel members themselves are countries, mostly underdeveloped countries. This is important.
The IPCC should be called the "UNIPCC" to identify it as a UN agency with UN goals. The IPCC is a joint subsidiary of the UN Environmental Program and the (UN) World Meteorological Organization. All member countries of UNEP and WMO, most of the countries in the world, are also members of the (UN)IPCC. UNEP is a radical green organization based in Nairobi, Kenya. It mainly promotes something called "sustainable development." This sounds good, but a fundamental tenet of sustainable development is that the Western way of life is not sustainable, and has to stop -- the sooner the better. Now the plot gets thicker. UNEP has organized, and helps administer, all the global and regional environmental conventions supported by the United Nations. In particular, UNEP organized the 1992 UN Framework Convention on Climate Change (UNFCCC), which created yet another UN environmental organization, the Conference of the Parties or COP. The UNFCCC COP includes over 180 countries as parties, the vast majority of them underdeveloped.
It is the COP that is meeting this week in The Hague to hammer out rules that require Canada and the United States to use a lot less fuel and electricity. The IPCC was organized in 1988, and produced its first Assessment Report in 1990, specifically to provide the scientific framework for the 1992 UNFCCC. Likewise, the 1995 IPCC Second Assessment Report was the primary input into the 1997 Kyoto Protocol to the UNFCCC. In fact, the UNFCCC says explicitly that the IPCC is the COP's mandatory scientific source and the COP provides the tasking for the IPCC. In short, the IPCC is the scientific arm of the COP, and both are creatures of the United Nations Environmental Program.
Here's the key. Article 4 of the UNFCCC requires the 24 most developed countries, including Canada and the United States, to pay all of the developing countries' costs associated with climate change. These payments to developing countries include the cost of "mitigation" -- which means cutting their own use of fossil fuel, plus a lot more, such as the way they grow rice in China. They also include the cost of "adaptation" to climate change, whatever that means. We do know that adaptation includes damages for any "adverse effects" from a changed climate, such as bad weather, flood or drought. Moreover, we will pay for any economic losses due to our own emissions reductions and adaptation. These costs could even include OPEC's loss of revenue, estimated at $60-billion per year, if the developed world reduces its oil use to meet the Kyoto targets.
In addition to paying for all this, we are to provide, or "transfer," all necessary technologies free of charge. We will also pay developing countries to build the local "capacity" to manufacture and implement these technologies, and therefore to compete with us in the global marketplace.
The time frame for paying all these subsidies to developing countries is unlimited, but presumably it lasts at least throughout the 100 years cited by the (UN)IPCC. How much we owe, and for what, is up to the COP, where Canada and the United States each has one vote out of 180 or so. All of the above explains why so much discussion at The Hague negotiations concerns "mitigation," "capacity building," "technology transfer," "adaptation," and "adverse effects," very little of which the general media reports. The developing countries, which hold the great majority of votes on the COP, take these financial requirements very seriously. Most Canadians don't even know about them.
The recently leaked summary is a case in point. It raised the upper limit of possible global warming from 4.5 degrees to 6 degrees C in 100 years. But no new climate science supports this change, which was created when computer modellers added some scenarios in which humans burn all the oil, gas and coal on Earth in the next 100 years. The scenario is ridiculous but it worsens the forecast, which is the (UN)IPCC's goal.
Bottom line -- the (UN)IPCC is a party to the UN climate change agenda, along with the UNFCCC COP and UNEP. Under their agenda, the developing countries stand to get vast sums of money, and free technology, from developed countries like Canada and the United States. The fact that many of the volunteer scientists who contribute to IPCC reports do not share this agenda is carefully hidden by a smokescreen called the Summary
From a Letter to the Editor, USA Today
The canceling of the construction and the closing of a number of nuclear plants in the 1970s and 1980s, based on the economics of the time, has come back to haunt us. Here in California, not having these plants has made all the difference between importing vastly overpriced electricity and having our own source of clean and reliable power. The Rancho Seco nuclear unit near Sacramento and San Onofre Unit 1 could have saved California many times what it would have cost to continue running.
The lesson of this disaster in California is that it is worthwhile developing a national energy strategy that balances both diversity of sources with generation location to ensure reliable supplies at stable, economic prices. The lack of a national energy strategy for the last eight years has triggered this broken electricity supply system in California that could drive the nation into a recession.
California bids come in at $0.065 per kilowatt-hour for a long-term contract. Nuclear is now $0.022/kwh. That leaves $0.04 for repayment of capital.
At 6000 hrs per year, a 1200 Megawatt plant can generate 1.2 x (6 x 10^9) kwh.. At 4c /kwh this becomes $290 million. For a plant whose capital cost, including interest on construction is $2 billion, this is still a reasonable rate of return of 14.5%. Has anyone got a couple of billion to lend me? It seems like a good deal to me.
Sites exist in California at Rancho Seco, Humboldt Bay, Mendocino County,
From the LA Times of Jan 26:
With rolling blackouts now a daily threat, the Golden State approaches Third World status. Will it be long before we must ask whether we can drink the water? I exaggerate, of course, but not by much.
We have had an utter failure over past years to build sufficient capacity in electric generation and transmission for a future that has arrived with a vengeance, leaving little for public officials to offer except empty and inflammatory rhetoric about purported "profiteering" and "price manipulation." That is a bit much coming from politicians who would sooner lose an arm than cut taxes.
The state government is about to enter the power business as a middleman because the major electric utilities have been bankrupted by the state and so cannot find partners for long-term contracts. The rationale is that this will avoid increases in electric rates and minimize taxpayer costs.
Really, now. Let us consider some production costs. Even with highly efficient generating equipment and with natural gas prices lower than now being paid, generating costs alone are about 5.5 cents per kilowatt-hour. Pollution credits are about 4.5 cents. Operation and maintenance are about half a cent. Add half a cent for the risk that future politicians will renege on the contracts if daily spot prices for electricity fall below the contract price. We already are at 11 cents per kilowatt-hour and have not included depreciation on the large capital investments.
Therefore, those who argue that the state will be able to obtain long-term contracts at 5.5 cents per kilowatt-hour are inhaling big time. The 8.5-cent figure to which some refer looks dicey as well. (The 6.9-cent average bid in the state auction this week is difficult to interpret because it excludes an important category of peak prices.) Customers of the three major private electric utilities, even with the recent rate increase, are paying about 7.7 cents per kilowatt-hour, excluding delivery costs. So from where will the difference come, as Gov. Gray Davis seems to be committed to the proposition that prices for consumers shall rise no more?
The only other option is the taxpayers' wallets. Suppose that, by some miracle, the state is able to obtain electricity for 10 cents per kilowatt-hour; that leaves a difference of 2.3 cents above what consumers are paying. Since consumption in the three utilities' service areas is about 210 billion kilowatt-hours per year, the shortfall would be $4.8 billion per year.
Call me wild and crazy, but I assume that the surplus in the state budget will not last forever. Will K-12 education spending be reduced? Proposition 98 spending mandates and the teachers' unions--not to mention the sorry performance of California public schools--will prevent it. Cuts in health and human services? Not likely, given the prospect of an economic slowdown. Less spending on higher education? Please; this is a middle-class subsidy that few politicians dare challenge. Less for youth and adult corrections? The prison guards' union begs to differ. And so on. Major categories of spending are included in the budget precisely because they have important constituencies, and that is why they are difficult politically to cut. A nice tax increase perhaps? Maybe, but that will not be good for the economy as a whole.
Accordingly, we now hear talk of confiscating the utilities' hydroelectric assets in order to "protect" the taxpayers. This is much like a kidnapper demanding title to the house in exchange for returning the ransom. The plain fact is that the state has destroyed two old, proud and honorable companies that have lived up to their legal obligation to serve. They are entitled legally to a fair and reasonable return, and a court already has ruled precisely that. So add a cool $12 billion or so to the bill; spreading that out over, say, 10 years, with interest, adds another cent or so to the price of a kilowatt-hour. More fundamentally, the state government has shown itself willing to enact deeply misguided legislation, falsely labeled as "deregulation," and then to force the punitive effects on the private sector. Does anyone believe that this will reduce the riskiness of future investment in the state?
The fun really begins next summer. We can barely handle wimpy winter peak demand; wait until the air conditioners are turned on. The snow pack in the north is only two-thirds of normal, and hydro facilities in the Pacific Northwest have used up more water resources than is typical for this time of the year. Past capitulation to the environmental and consumer lobbies is the gift to California that will keep on taking: Either the taxpayers or electricity consumers will be hit hard.
This problem could have been solved months ago. Duke Energy last summer
offered 2,000 megawatts of capacity for five years at 5 cents per kilowatt-hour,
with no response from Sacramento. A moderate 15% to 20% increase in rates--painful
but hardly catastrophic--combined with permission for the utilities to
sign long-term contracts would have rationalized the market, enabled the
utilities to operate soundly, provided incentives to conserve and strengthened
political support for increased construction of generating and transmission
capacity. Because of an unwillingness to stand up to the consumer and
environmental leftists, the problem is tougher now, but hardly without
solution. Rates must rise, the utilities must be allowed to make rational
business decisions, more capacity must be built, and the government must
get out of this market.
Benjamin Zycher is an economist and an Adjunct Fellow at the Claremont Institute. E-mail: Bennyz@pacbell.net
SEPP Comment: Amen -to all three comments. It is clear now that the basic problem started decades ago when the California Greens opposed nuclear plants and delayed their construction by various legal maneuvers, driving up costs sky-high. (They also opposed all other energy developments, including pipelines for oil and gas and transmission lines for electric power.)
[Pre-eminent in this assault was the Foundation for Taxpayer and Consumer Rights (FTCR), which seeks to end the "disastrous experiment of entrusting the health, safety and economic well-being of California consumers and small businesses to profit-driven energy corporations." We quote their famous orphan defense: "During the 1970's and 80's, the state's three largest electric utilities foolishly built expensive, dangerous nuclear power plants costing billions of dollars. The nuclear power plants caused their electric rates to skyrocket."
Four years ago, when the Cal legislature passed the misbegotten and mislabeled "deregulation" scheme, the major utilities went along, hoping to recover their stranded costs. Nevertheless, with consumer prices fixed and little incentive to conserve, demand rose rapidly. And, forced to sell their power plants and forbidden to enter into long-term supply contracts, these same utilities were now forced to pay exorbitant spot prices on the open market. The perfect recipe for bankruptcy. Unfortunately, even without any federal subsidy to California, this mess will cost the US consumer in higher prices for electricity, for natural gas, and for many consumer items, especially food.
Worst of all, this experience with a sham deregulation scheme could give real deregulation a bad name. On the other hand, watch hi-tech industry move from Cal to the Southwest and maybe even to Virginia. Thank you, Sacramento.