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ROGER FELDMAN, Co-Chair of Andrews Kurth LLP Climate Change and Carbon Markets Group has practiced law related to the finance of environmental and energy projects and companies for 40 years.  In particular, he has analyzed and executed a wide variety and substantial value of project financings.  He chairs the American Bar Association’s Committee on Carbon Trading and Finance, serves on the Board of the American Council for Renewable Energy, and has been a senior official in the Federal Energy Administration.  He is a graduate of Brown University, Yale Law School and Harvard Business School.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Washington Viewpoint by Roger Feldman


August 2008

Even More Than Paris

by Roger Feldman  --   Andrews Kurth, LLP
(originally published by PMA OnLine Magazine: 2008/09/01)
 

With the Olympics over and the World Series still too far out of sight, it seems that the only circus for the American people to focus on--to keep their minds off the price of bread and oil--is the Presidential Campaign.  Inevitably, pundits have begun to ululate about something called “energy,” and the “policy makers” have been pressed into the service of the image makers.  Paris Hilton, who thinks both candidates’ energy policies together are what America needs, may this year have emerged as some sort of savant.  Sober columnists have come to effectively agree with her, viz. the solemn pronouncement from Newsweek: “Judged by their rhetoric, you might think McCain and Obama differ dramatically.  But their agendas overlap substantially.”  Could be, in a nation where Boone Pickens is the Ralph Nader of the year, and where windmills have become both candidates’ symbol du jour.

On the other hand, it may be that this “sophisticated” thinking of Paris and the pundits really reflects ultimate self delusion of American society as a whole with respect to energy.  It reflects the three great myths which are the hallmarks of the “fin de siecle American” thinking:
 

        Things askew are always saved by the occurrence of a culminating event which induces a new approach to matters.
 

        America’s God-given destiny is ever upward progress through technology.
 

        The “invisible hand” to guide energy can be wrapped in a soothing velvet glove.

Perhaps a word of clarification on each of these high-falutin’ propositions is in order, since they permeate both campaigns and feed the national psyche. 
 

        The notion of the “tipping point” (still a non-fiction best seller) is that the occurrence of a critical event will cause momentum for change to become unstoppable.  It has been merged with the notion that our country will bumble along making trade offs between competing interests until things get bad enough--say oil goes over $150/barrel or gasoline prices breach $15.00--and then Americans will pull their socks up, work together, and arrive at a pragmatic middle ground solution of their problems.
 

        What occurrence of the tipping point will mean is that the new adaptive technology will supplant the old, to all of our benefits, and ever onwards and upwards!  (This is a technologist’s version of the historian’s theory that democracy will always produce great men in times of crisis.)
 

        And that this is so in America because the free market will provide its own directional signals toward the right fixes (an invisible hand will serve to guide our leaders, anointed in crisis, and petty dissension between industries and between regions will give way to the higher laws and national economic need and requirements for survival.

Put only slightly more blandly:  we need to do everything, including all necessary new things, and we need to do them well.  We have;  we will . . .

We wish.  

The beginning of energy wisdom is to recognize the distorting warps in our need/response continuum scenario, and critically examine those assumptions.  There are many elephants in this model policies room, but three that stand out: 

 

        There is a huge vested interest in every facet of our energy infrastructure.  This means both that there is a powerful population that will fight to preserve its profit, and a huge cost in replacing, modernizing, and extending it.  The taste for marginal risk-taking in this country is inherently governed by capital market’s aversion to real long-term risk when it’s predicate is . . . structural change.  We are now a nation that wants sure things with high returns.  This reality may not be compatible with the degree of radical change which is required. 

        We want this change to always be environmentally assured and full proof positive.  There is societal and hence governmental risk aversion, and varying degrees of insistence that the cost of such risk be borne by the perpetrators of it, not treated as societal costs, because in our system the perpetrators may also be the profit beneficiaries as well. 

        We would like to believe that globalization does not have inevitable hostile competitive challenges as well as opportunities, with the result that, increasingly, we are not the masters of our own fate in making the changes that we want.

The dance of these three elephants in the policy room has a potentially distressing meaning:  drawing toward “the middle” of seeing the other guy’s point of view--in effect, circling the wagons--will not necessarily produce an optimal “greatest good for the greatest number” unless it is accompanied by corresponding policies by each of the affected constituencies.  American history has shown the political and substantive difficulties of calling for “moral equivalent of war” and the need to sacrifice or conserve;  it hasn’t proven to be the impetus for change in the same way that response to price signals has.  Nor, however, does it produce a nation of nuclear plants, a web of smart grids to deliver renewable energy,  cleancoal powerplant/carbon sequestration solutions, or an independent economically competitive solar power industry. 

Rather, it points to a mythical character in the fundamental energy-related planks of both parties:  that levying a carbon tax (whether directly or through “cap and trade”) can--simply by reason of the cold galvanic shock of domestic energy cost reshaping--provoke a new entrepreneurial goal to remake an America proof to the bullets of expensive oil.  (Indeed, this strategy may even be akin to bleeding the patient to remove his fever.)  Whether a tool for social engineering or hands-off faith in the invisible hand--choose your party, choose your interpretation--it is a plank underpinned by the three myths mentioned above and doomed to be undermined by the three dancing elephants I have identified. 

It will take more than Paris to achieve a critical mass of energy wisdom to keep America in the twenty first century. 
 


ROGER FELDMAN, Co-Chair of Andrews Kurth LLP Climate Change and Carbon Markets Group has practiced law related to the finance of environmental and energy projects and companies for 40 years.  In particular, he has analyzed and executed a wide variety and substantial value of project financings.  He chairs the American Bar Association’s Committee on Carbon Trading and Finance, serves on the Board of the American Council for Renewable Energy, and has been a senior official in the Federal Energy Administration.  He is a graduate of Brown University, Yale Law School and Harvard Business School.

 

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