A Free-Market Energy Blog

Risky Argumentation: Henry Paulson (2014) Recycles Ken Lay (1997)

By Robert Bradley Jr. -- June 30, 2014

“The business voices change, the decades change, but the arguments are familiar. Problem is, the global average temperature today is not appreciably higher than when Ken Lay penned his op-ed. The year 1998 would be the temperature peak, in fact, that marked the beginning of ‘the pause‘.”

Henry Paulson began his recent New York Times opinion-page editorial, “The Coming Climate Crash,” as follows:

“There is a time for weighing evidence and a time for acting. And if there’s one thing I’ve learned throughout my work in finance, government and conservation, it is to act before problems become too big to manage.”

Ken Lay ended his Houston Chronicle opinion-page editorial of December 5, 1997, “Let’s Have an Ounce of Global-Warming Prevention,” [1] similarly:

“It’s time to stop debating the issues surrounding climate change initiatives and focus instead on simple, realistic, cost-effective solutions. This is one area where an ounce of near-term prevention will be worth considerably more than a pound of cure later on.”

Consider this parallel 17 years apart. Paulson 2014:

“We need to craft national policy that uses market forces to provide incentives for the technological advances required to address climate change.… [A] price on carbon would change the behavior of both individuals and businesses.”

Lay 1997:

“To solve the climate change problem, we need to implement those systems that reward people for saving energy, reducing emissions, and building a culture that identifies and corrects inefficient use of resources.”

And yet another similarity in argumentation:

Paulson 2014:

“[The] decisions we’re making today … are locking us in for long-term consequences that we will not be able to change but only adapt to, at enormous cost.”

Lay 1997:

“The international climate change treaty negotiations in Kyoto offer the chance to prevent … a global warming scenario that might otherwise prove extremely expensive.”

The business voices change, the decades change, but the arguments are familiar. Problem is, the global average temperature today is not appreciably higher today than when Ken Lay penned his op-ed. The year 1998 would be the temperature peak, in fact, that marked the beginning of “the pause.” Lay’s Op-Ed Ken Lay’s full op-ed, “Let’s Have an Ounce of Global-Warming Prevention,” [Houston Chronicle, December 5, 1997, p. 47a], which is no longer available on the Internet, is worth reading to see how climate alarmism was spun in the Clinton/Gore years by the cronyists (Enron had seven profit centers around pricing CO2):

The international climate change treaty negotiations in Kyoto offer the chance to prevent, at surprisingly low cost, a global warming scenario that might otherwise prove extremely expensive. Unfortunately, the career naysayers will attempt to confuse the debate, while companies that neither challenge nor support the scientific foundations for near-term action could waste a tremendous opportunity to stimulate realistic climate solutions.

Since, for most companies, control of greenhouse gas emissions is not an important issue, incremental and flexible regulatory programs would have negligible near-term impacts on the U.S. economy.

Exports, for example, would suffer little, because of their relatively small energy component and the likelihood that energy prices will not increase significantly. Additionally, the cost of carbon reductions will decline as mass production meets the growing domestic and overseas market for “green” technologies. According to the Alliance to Save Energy, smart regulatory programs could even create as many as 800,000 new jobs.

There are three reasons why regulatory action is warranted. First, the science—although not conclusive—is substantial, and the absence of ironclad certainty does not justify apathy. Although industry has frequently opposed environmental or health regulations that were later justified by proof measured in deaths, illness and injury, industry has not always cried wolf—productivity and competitiveness can be hindered by poorly designed regulation. This is why we should rely on systems such as emission credit trading to mitigate the impact of climate change.

Second, the cost of obtaining “dead certain proof” could be high. Even if one argues that the science is not perfect, one must also acknowledge that the cost associated with certainty could be measured in more heat waves, pest infestation, storm damage and rising sea levels. A realistic regulatory program would set in motion public and private sector initiatives to capture the cheap reductions as soon as possible, while we continue to validate the science.

Third, the cost is low for insurance that takes the form of new national regulatory programs. With the right policies, such as a carbon credit trading program and incentives to start reducing carbon emissions sooner rather than later, the cost of control for the next five years would be negligible.

Stephen Decanio, an economist with President Reagan’s Council of Economic Advisers, has pointed out that to cut emissions from 1990 levels by 20 percent, eight climate economic models show gross domestic product losses of .9 percent to 1.7 percent, but that a 1.0 percent loss of GDP would amount to “less than six months of normal economic growth.” This means a half year’s delay in reaching the standard of living that would have been achieved without emissions curtailment—hardly the end of Western economies.

Why is there so much confusion about costs? When economic modelers use different assumptions, the models yield a wide array of results. But when Robert Repetto of the World Resources Institute recently analyzed many of the economic models forecasting impacts of a carbon control program, he found that when they used the same assumptions, the models gave generally similar results, namely a small and potentially favorable macroeconomic impact. This makes sense, since for 95 percent of U.S. industrial employment, energy costs are less than 5 percent of the value of total output.

The regulatory flexibility currently advocated by the more pro-active members of industry builds on 20 years of experience with air pollution credit trading in the United States. The General Accounting Office and U. S. Environmental Protection Agency have documented that between 1976 and 1995 these programs saved U.S. industry billions of dollars, as compared with alternative command and control regulatory schemes. Current economic studies show that carbon-control costs could be reduced by 70 percent if international credit trading is employed.

The keys to success are simplicity, incrementalism, and an early start date. Steady reductions of 1 percent to 2 percent per year from our currently high emissions base will prompt a clear demand for solar power, wind power, fuel cells and other 21st century technologies, thereby creating a demand for efficiency in energy and manufacturing.

To solve the climate change problem, we need to implement those systems that reward people for saving energy, reducing emissions, and building a culture that identifies and corrects inefficient use of resources.

Meanwhile, low-cost carbon reductions will be achieved, as well as nitrogen dioxide, particulate and sulfur emissions reductions. If the problem turns out to be a mirage, we can stop. If the problem is more severe than expected, then we can phase in larger reductions.

It’s time to stop debating the issues surrounding climate change initiatives and focus instead on simple, realistic, cost-effective solutions. This is one area where an ounce of near-term prevention will be worth considerably more than a pound of cure later on.

4 Comments


  1. Tom Tanton  

    Nice historical juxtaposition, Rob. While the debate about whether AGW is occurring has been re-invigorated, the debate about responsive actions’ effectiveness and efficiency continues unabated. Turns out most every ‘response’ from the statists and warmists (is there truly any difference?) acts diametrically opposite to their stated intent.

    Carbon tax? Increases global emissions (through leakage.) Renewable energy mandates? Much more reductions achievable through other means.

    It’s funny how the greatest GHG emission reductions have occurred in instances WITHOUT government intervention.

    Reply

  2. John W. Garrett  

    You have to remember: Henry Paulson was in the transaction business (that’s what Goldman does— it’s the croupier in the casino).

    Anybody who knows anything about investing understands that Goldman is the antithesis of investing.

    Paulson’s whole career depended on his ability to pander and to believe whatever story it was necessary to believe on any particular day.

    Reply

  3. Joseph Somsel  

    Funny how neither author mentioned building more nuclear power plants.

    Reply

    • rbradley  

      Yes, good point, Mr. Somsel.

      Both would say, however, that their pricing schemes would naturally encourage nuclear or nuclear does not get to play….

      Reply

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