Bill McKibben
and Heatmap https://mailchi.mp/heatmap/republicanferc1-6690043?e=450d8dccde and Climate Brink
are celebrating that “all new licenses for LNG export terminals are hereby halted, until the policies used to figure out if they’re in the “public interest” can be updated to include modern economics and science.”
It’s pretty amazing that the policies used to figure out if "[LNG exports]" are in the “public interest” have not already been "updated to include modern economics and science." Who would want less?
My supposition is that a competent updating based on the science would result in the projects being approved if only climate change considerations are (only now?) being taken into consideration. The miniscule impact non-approval of this project will have on international gas prices and hence the minimal impact it will have of reducing natural gas use means its approval will have a minimal impact on CO2 emissions. If the projects wold have been approved w/o climate change considerations, I doubt that factor, properly considered, would make a difference.
I fear, however, that opponents of the project want and expect far more, total blockage of these projects. Matt Iglesias
interprets the “pause” as rejection has the best political economic take-down of the decision. Roger Pielke
at Honest Broker does the same from a more technical angle (and the best Dall-E image 😊). Noah Smith
is more sanguine, pointing out that the decision some of the loss to US producers will be recouped by US users of natural gas.
With all this high-powered content what should I add?
1. Very pedestrianly, I will run through how a regulatory decision about whether to approve or disapprove of fossil fuel producing or transporting project that potentially affects emissions of CO2 SHOULD proceed: simply according to standard cost benefit analysis with the added elements of taking account of externalities (costs or benefits that are not received by and do not enter the financial calculations of project proponents).
One kind of externality would be local environmental effects, costs, at the project site or along the transportation route that will occur with the project compared to without it. Surely this has already been done for the LNG projects.
The more important externality is the cost of the additional CO2 emission that will result from the projects going ahead compared to their not proceeding. In turn this requires an estimate of the amounts of additional CO2 emitted and the cost to be assessed for each unit of CO2 emitted.
The latter is enormously difficult, but I am going to pass over it here by pointing to the current USG estimate https://www.epa.gov/system/files/documents/2023-12/epa_scghg_2023_report_final.pdf of the cost of CO2 emissions of $51/MT of CO2. Presumably the review during the “pause” will use this value for the cost per MT of CO2 emitted.
The crux of the issue, however, is how much additional CO2 WILL be emitted as a result to the project. At first glance this might seem like mere arithmetic. A project will export N MT of LNG which when burned will emit N’ MT of CO2 according to the chemical equation CH4 + 5O2 = CO2 + 4H2O which means that 1 MT of LNG (essentially pure methane) when burned = 2.75 MT of CO2. And 2.75 x $51 = $140/MT of additional cost to be applied in the cost-benefit analysis of the project.
This, however, is not correct because the entire output of the project does not result in additional CO2 emission. As Yglesias points our we need to ask:
· How much does blocking the terminal actually reduce global natural gas consumption rather than redirecting [the source] from the US to Qatar [or Australia] or Russia?
· How much does increased gas consumption displace coal and oil?
These are the questions that a proper review would have to answer. But to give a flavor of the answer, consider that the US exports about 3% of total gas used worldwide and the paused projects can only be a fraction of that. [Does any reader know the proposed quantities of gas are involved in the paused projects? I did not find it.] This additional amount of gas would reduce world price of gas by (US exports/Total use) x (paused project exports/US Exports) x (price elasticity of supply) = % decrease in price of gas. In turn this would lead to some increase in the USE of gas, some of which would substitute for some oil or coal.[i] I have no numbers to put in here, but my intuition is that total use of gas, net of substitution for other fossil fuels, would be a very small fraction of the amount exported by the paused projects. Therefore, the additional CO2 emissions resulting from the allowing the projects to proceed is correspondingly small. Looked at the other way, pausing the projects is forgoing the return on the projects at a very high cost per unit of CO2 emissions avoided.
2. It’s also worth noting the attitude of the opponents[ii] of these projects -- beyond wanting to see less production and transportation of fossil fuels in the US regardless of costs and benefits -- is the idea that this is a good (activist) guys vs bad (producing firms) guys drama. Robinson Meyer puts it at Heatmap, “It’s one of the most significant triumphs yet for the global climate activist movement, which seeks to throttle and eventually shut down the world’s fossil fuel industries.”
I think this is a mistaken, almost juvenile, way of looking at things. Fossil fuel producing and transporting firms are only middle men for users who, given relative prices, want to burn fossils fuels for the users’ benefit. And that would be fine except that when users make that decision, the relative prices that go into the decision do not include the climate change harm that the CO2 emission entails. The only "bad guys" in this picture show are the voters who are not demanding a tax on net emissions of CO2 to give users the correct relative prices and the activists who are not trying to persuade them otherwise.
3. Frankly it is hard to see how this decision is good electoral politics for Democrats. It plays into the hands of Republicans who foolishly claim that Biden has inhibited fossil fuel production, when in fact the US is producing more oil today that at any time in history and more than any other country even while CO2 emissions per dollar of GDP continues to fall. And I find it hard to believe that there are more swing voters who want to see lower fossil fuel production and exports than share the outlook of the opponents of these projects.
4. I am deliberately avoiding the issue of whether the decision will be seen as a signal that the US is a less reliable supplier of gas to Europe as it faces Putin’s invasion of Ukraine and uncertainties in the Middle East.
[Standard bleg: Although my style is know-it-all-ism, I do sometime entertain the thought that, here and there, I might be mistaken on some minor detail. I would welcome comments on these views.]
[i] The same reasoning applies in reverse to use in the US, pushing use and emissions up a bit.
[ii] I am aware I am violating my own "rule" here about never criticizing presumed motivation of a policy position, only consequences.