Mik McKee, The Climate Trust
As published by Sustainable Business Oregon – February 26, 2015
Since publication, the Oregon Clean Fuels Program has been signed into law by Oregon Governor Kate Brown
On Tuesday the Oregon State Senate passed the Oregon Clean Fuels Program (SB 324) by a 17-13 vote. This measure, which now goes before the Oregon House, extends the 2009 Clean Fuels Act beyond its 2015 expiration date, and requires oil and gas producers to reduce CO2 emissions from the burning of their fossil fuels by 10% over the next decade. SB 324 is a worthy attempt by Oregon lawmakers to directly mitigate greenhouse gas (GHG) emissions and position the state as a leader in the fight against climate change.
Unsurprisingly, this bill has generated opposition. State Republicans and members of the Western States Petroleum Association assert that implementing a low-carbon standard will cause gasoline prices to increase by between 33 cents and $1.06 per gallon. They argue this will result in Oregonians paying as much as $285 million more at the pump per year, with, according to Senator Alan Olsen (R-Canby), the burden being disproportionately born by working families and people living in rural areas of the state.
State Democrats and the Department of Environmental Quality, on the other hand, contend the financial costs associated with SB 324 will be relatively modest – perhaps an increase of 4 to 19 cents per gallon by 2025. They argue the need of take action against climate change today more than justifies this cost, and point to California as an example of how building a green economy can lead to job growth.
The controversy surrounding SB 324 is reflected in the larger national and global conversation about the financial costs associated with global climate change, who will ultimately bear these costs, and most importantly, when.
A relatively new voice in this debate comes from the Risky Business Project, an organization co-chaired by Michael R. Bloomberg, Henry Paulson, and Tom Steyer. This group takes a non-traditional approach to GHG emissions and climate change by educating people – primarily business and political leaders – about the economic risks we face in the United States.
In January, Risky Business released Heat in the Heartland, a report describing the impact that a hotter climate with more unstable weather patterns will have on one of the world’s most productive agricultural regions. The report presents its findings in terms of ranges (i.e. “[B]y the end of the [21st] century the Midwest will likely see an overall agricultural loss for corn and wheat of 11% to 69%”) and while careful not to point to a smoking gun, makes a compelling case for reducing GHG emissions from a pure dollars and cents perspective.
A related article discussing the financial insecurity the “carbon bubble” poses to the global economy was published in Forbes this week. The article cites two studies, one commissioned by the Green European Foundation and another one published by Nature magazine, extolling the need to limit the average increase in global temperature to 2 degrees C. The study goes on to say that to successfully achieve this, oil and gas companies must not extract the bulk of the carbon they have in their petroleum reserves.
This problem is complicated by the fact that many of these companies are publically traded and valued based on the anticipated revenue they will derive from the eventual sale of the oil and gas in their reserves. Many pundits, fearing that the financial shock caused by large oil and gas companies suddenly laden with stranded assets will have a negative impact on the global economy, argue against government-imposed regulation of GHG emissions. However, some firms, like Aperio, assert that the key to minimizing the financial impact lies in proactively divesting from oil and gas stocks before catastrophic climatic events force governments to act.
The controversy over SB 324 illustrates the fact that reducing GHG emissions and limiting the impacts associated with climate change is going to have costs. While it is critical that this economic burden is spread equitably across all segments of the population, the Risky Business Report and the Forbes article make clear that if we don’t start paying for mitigation efforts now, the future financial costs of climate change are going to be much worse.