A GOOD IDEA Path to Economic Transformation

June 17, 2020 |

By Russ Freeman, CEO, Modern Rotating Impact Mill Production Company, llc.

Special to The Digest 

So how do we choose a GOOD PATH from many alternatives carbon sources?

  • Repurposing carbon in Municipal Solid Wastes could be exceptionally attractive to local government facing a pandemic-driven loss of both income and property tax revenue while also facing a dramatic rise in the need for social services. There are business clusters that offer cost savings and proven and fully funded mix waste carbon sourced energy, fuel, food, and housing materials as well as jobs, and tax revenues!
  • Agriculture as a replacement for fossil sourced carbon is attractive to rural communities dependent on agriculture!
  • Other initiatives could be envisioned and supported as “most viable” under certain conditions!

Such interests need a common rallying point to confront those advocating for the status quo.

Then, there is a governments role. Should government?

  • Throw money at it? May be an essential stopgap, but if continued it is a path to a potential inflation-led economic disaster = as a sustainable solution, it is A BAD IDEA.
  • Penalize undesired behavior like a carbon tax. Could help level the carbon-source playing field, but taxing discourages economic growth, biases the market, and biases innovation – which needs to be driven by the market = as a sustainable solution, it is A BAD IDEA.
  • Incentivize desired behavior as by providing carbon credits for either recycling or sequestering carbon. This has worked well to encourage natural carbon deployment. Relatively free access to public resources, depletion allowances, freight subsidies and eminent domain for transportation assets all support the fossil carbon industry. These have helped to create a powerful, well-established, well-financial industry with strong political, financial, and institutional foundations. A century ago, all that seemed good, but we are now seeing that = it has become A BAD IDEA.

So, are there any GOOD IDEAS??

One I am suggesting arose because federal and state governments working together had generally shown that provisions of the Clean Air Act – as initially passed by Congress – were unenforceable. Even though they used the best expertise available at the time, strategies the government had come up with for achieving compliance were continually challenged in and then overturned by the courts. However, since compliance was mandatory and since Congress had granted them standing, environmental groups were threatening to sue EPA to require stopping all new construction. The agency had experienced one incident that temporarily froze construction, and the response led me to believe that such a move would surely result in Congress overturning the Clean Air Act. Thus, our offset policy was conceived and then sold as a stopgap pending Congressional review.  What both States and EPA officially wanted was a Congressional delay in the legally mandated date for getting everyone into compliance with requirements of the Act. What they got, after due Congressional consideration, was incorporation of the offset policy into the act. While bitterly opposed by environmentalists at the outset (Termed by them: “selling pollution rights”), offsets have become what is now known as “cap and trade” – (C&T) a key tool in the environmental toolbox.

Fortunately, in anticipation of the possibility that it might survive, we worked a strong foundation into the proposed stop gap program by including provisions necessary to ensure that the “offsets” would be saleable into the market we expected they would create. This was done by providing a State Certification upon creation and a sustained public record of current ownership. That effectively made an offset-certificate a real property that was transferrable. Offsets were also divisible or combinable into packages, as required to support an application for approval of a new emission source. The role-out model was California, where the State Air Pollution Control Districts stepped up to issuance of certifications and also to maintenance of related property records.

As a model for conceptualizing C&T we used groundwater adjudication, a State process for addressing a situation where more well permits have been issued for pumping more local groundwater than the groundwater body can support. Such a situation can cause drawdown and can ultimately cause depletion of the groundwater, putting all well owners in jeopardy. Adjudication, according to my lay definition (I am not an attorney), involves the courts dividing available water among existing well owners and allocating an equitable amount to each. Then the process of issuing new permits is changed, so that a proponent of a new well in that region must acquire rights from one or more existing well-water-rights owners. In effect, the amount of water in that groundwater body has now become an asset collectively controlled (owned or managed as if owned) by the existing well owners. They can use their water, in some cases sell it, and in most cases, sell the rights to use it.  Thus, it is no-longer a free public good which they have a license to use, but rather more like real estate, it has become a marketable private-owner controlled commodity.

The capacity of the air to accept carbon is an analogy. Issuing offsets incrementally transforms the assimilative capacity of the atmosphere into an asset – having-value-in-its-own-right. This will automatically happen once an upper limit is being enforced and offsets are available and are required to support issuance of any new permits. That value will accrue to any then-existing air-emissions permit and offset owners, with some portion also available to the public. The public share is captured via a fee for service realized through the “ownership-of-record” update process, government set-asides (e.g. the 20% set aside in emissions banking) or a form of property tax.

So, what are the key reasons that a C&T model is a GOOD IDEA as a vehicle for carbon sourcing:

  1. Value of the environmental resource is quickly recognized by the market, meaning that a discounted market value will be realized almost overnight. This can under-pin a value supported public incentive – mitigating concerns over resulting inflation. For example, with initial roll-out of the California offset program California established an Emissions Offset Bank. This State institution made funds available to help implement initiatives that the State had elected to Certify. This further helped to establish and then reinforce offset valuation.
  2. The approach attracts private sector ingenuity into the process of developing offsets in expectation of capturing a share of emerging natural resource asset value. With such a value established by the marketplace, any entrepreneurs can propose means for sequestering carbon to capitalize off-stets. Today – with a proper business plan, they can even access capital markets for funding to implement their concept.
  3. Revenue to support creation of offsets will come either from the fossil resource industry or in some cases the waste disposition industry. Putting such a burden on them to offset the disposition of waste carbon automatically levels the playing field among sources of carbon.
  4. Most importantly, market dynamics will be maintained as drivers. Where a public body controls decisions, consistency and proven results dominate the risk reward model. Where the private sector leads, opportunity and disruptive value tend to dominate that risk/reward model. This is what drives economic growth and continual alignment of the market with ever changing society-driven market values. It offers the best hope that 100 years from now our protégés will not be lamenting the socio-economic situation we have managed to stimulate.

So, who is in charge? The Clean Air Act presents a good C&T model for State total carbon management areas. This approach does not say where carbon should come from, or what it should be used for. It only says: “whatever the source or what ever the use and ultimate disposition, results must fall within a targeted “carbon in use inventory” and that cap on carbon must be met by a date certain. Both factors could then be tweaked by Congress in the future, based on achieved results. This would keep the checks and balances concept of our basic governance structure in place. Congress would need to allocate a carbon inventory among States and State Legislatures would allocate that cap to designated areas within the State.

With this model:

  • Federally mandated national standards are to be attained and maintained, but those are set based on scientific input with only a finding of fact by the bureaucrat in charge.
  • The mandate – a fixed amount of carbon in play with a date certain for results.
  • Implementation by federally approved state implementation plans which are not really plans but rather a compendium of enforceable rules.
  • A State plan approval process that must require:
    • Tradable carbon certificates that meet real property standards,
    • An effective State framework for enforcement of rules in the state plan
    • A State “in the economy carbon entitlements” record of ownership.

This article was written by Russ Freeman, CEO, Modern Rotating Impact Mill Production Company, llc. (A startup company with strong management and proven technology). He can be reached at 586 Twincreek Circle, Pagosa Springs, CO 81147, or via email at [email protected] or via phone at 970 946 6615.

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