The Need to Depoliticize Energy
- June 27, 2018
- Posted by: Daniel Markind
- Category: Marcellus Shale Updates, News
For the second time in two months, a lead energy story comes from Canada.
On Monday, newly elected Ontario Premier (Governor) Doug Ford announced that he immediately would dismantle Ontario’s carbon cap and trade system. Mr. Ford gave no specifics, but his announcement put $2.9B (Canadian) in carbon tradable allowances in limbo. Already California, which was integrating its system with Ontario’s, announced it would no longer accept or trade Ontario carbon credits. Quebec stopped as well.
Cap and trade is an attempt to find a quasi-free market solution to environmental externalities. There are many variations of these systems, but in Ontario companies that emit at least 250,000 tons of greenhouse gasses per year have to purchase an equal amount of “allowances”. The allowances were made available at quarterly auctions and could be purchased on the free market, hence the integration with California and Quebec.
Regardless of how the program is wound down, the fact that Premier Ford is ending it will have repercussions among all such programs. The more potential investors believe a program is subject to political influences the less they will be willing to participate, increasing prices and decreasing efficiency. It’s one more byproduct of the politicization of the climate issue.
Another byproduct is the attempt to use the court system for political purposes. Yesterday US District Judge William Alsup granted a motion by BP, Royal Dutch Shell, Exxon Mobil, ConocoPhillips and Chevron to dismiss lawsuits by the Cities of San Francisco and Oakland attempting to hold these companies liable for the impact to Bay Area residents of climate change.
From the beginning, this case went opposite the way the plaintiffs intended. Attorneys for the defendants obtained copies of bond documents executed by the cities when they issued their revenue bonds in which they made no mention of any threat to public welfare from climate change. The Judge held a special hearing to try to understand the science of climate change. This did not go well for the cities. Anticipated “smoking guns” – in the form of internal emails among employees of the companies suggesting they knew they were causing climate change but were hiding it – never materialized.
Instead, Judge Alsup ruled that while global warming was a real threat, it must be fixed by “our political branches.” “The benefits of fossil fuels are worldwide,” he continued. “The problem deserves a solution on a more vast scale than can be supplied by a district judge or jury in a public nuisance case.”
It is likely that similar suits brought by New York City and other municipalities will end up the same way. This is a good thing, because we need as a society to decide what our future energy mix will be, not by judicial fiat.
Finally, on the same theme three new studies came out over the last two months that contradict the “environmentalist” position about the evils of fracking.
Peer reviewed studies from the University of Cincinnati, Penn State and Yale all reached the conclusion that there is little correlation between hydraulic fracturing and groundwater contamination. The researchers were almost apologetic in their conclusions, noting in the Cincinnati study that the findings contradicted what they had expected. Indeed, the Cincinnati study had been partially funded by environmental groups opposed to fracking.
This does not mean that fracking is pristine. It’s an industrial process that produces externalities like any other. It does contradict all of those people who claim an overwhelming body of scientific evidence exists showing the evils of fracking. I saw many of them in January at the Delaware River Basin Commission hearing in Philadelphia about the DRBC’s proposed fracking ban within the basin. Indeed the science mostly goes the opposite way. Let’s hope that, unlike our immigration “debate”, we in the energy context can move beyond wild assertions and use science as our realistic guide to protect our one lonely planet.
Daniel B. Markind is the Chair of the Business Group at Weir & Partners LLP. Mr. Markind has represented individuals and companies in the energy industry for over 20 years. Mr. Markind is asked frequently to speak at conferences, in the media and at other venues regarding energy issues and their legal and political implications.