Jim Burnley doesn't mince words. after serving as Transportation Secretary under President Ronald Reagan from 1987 to 1989 and spending the next 20 years as one of the nation's most prominent transportation attorneys, lobbyists, and power brokers, he has, if nothing else, earned the privilege of candor in a town often bereft of it.
Now senior partner at the Washington law firm Venable LLP, Burnley is spending most of his time helping his transportation clients navigate the American Clean Energy and Security Act of 2009, a 1,100-page bill that seeks to reduce carbon emissions by 80 percent or more between 2012 and 2050 by imposing a national limit on greenhouse gases.
Burnley pulls no punches when the talk turns to the bill's controversial centerpiece—a complex system called "cap and trade," where emission limits are set for each industry, and industries are forced to amass credits or buy allowances equal to their emissions levels. As he sees it, cap and trade amounts to little more than a command-and-control exercise that will wreak havoc on supply chain economics. "This is industrial policy straight out of the 1930s," he said in an interview.
Yet for all its many critics, the bill continues to move forward. The legislation, sponsored by Reps. Henry A. Waxman (D-Calif.) and Edward J. Markey (D-Mass.), was narrowly passed by the House of Representatives on June 26. No companion bill has yet been offered in the Senate, though Majority Leader Harry Reid (D-Nev.) is believed to support the Waxman-Markey legislation. President Barack Obama has said he expects to sign climate-change legislation sometime this fall.
"Massive energy tax"
Burnley and others in and out of transportation contend that when the federal government creates a scarce new commodity—in this case, the right to emit carbon—and then mandates that businesses buy it, the costs will inevitably be passed on to users in the form of higher prices. Transportation interests worry the industry will be disproportionately affected by the cap-and-trade provision. For instance, the existing language calls for 85 percent of all emissions credits to be given away for free initially. However, from 2014 to 2016, the so-called "refiners" category—under which transportation is lumped—will only receive 2 percent of the credits given out during that time, even though by most estimates, the supply chain is responsible for 30 percent of all CO2 emissions in the United States.
As a result, the transportation sector would have to buy credits equal to the 28 percent differential between the free credits it receives and the amount of carbon it emits. This would cost the industry billions of dollars, lead to a spike in oil prices that would be passed through to shippers, and contribute to a severe shipping and economic slowdown, critics warn.
Based on private-sector estimates that, over 10 years, the cap-and-trade measure would cost polluters in all industries between $650 billion and $1.3 trillion, freight costs could rise anywhere from 6 to 10 percent or even higher, analysts say.
"There will be significant increases in fuel costs for all modes," says C. Randal (Randy) Mullett, vice president, public relations and government affairs for Con-way Inc.
And in what some consider an ironic twist, carbon emissions would end up being reduced as an economic contraction leads to fewer goods being shipped and fewer conveyances needed to haul them.
"It is a horrific outcome if you are in the transportation world," Burnley says.
G. Tommy Hodges, first vice president for the American Trucking Associations, said in congressional testimony in early June that the 2 percent allotment only covers refiners' emissions at the facility level and ignores emissions from the burning of petroleum products. This oversight, Hodges warned, leaves "downstream users, such as trucking companies, exposed to dramatic and sudden fuel price spikes." ATA urged Congress to craft carbon-reduction laws that treat so-called mobile sources such as commercial trucks differently from traditional sources.
There is no shortage of groups lining up against cap and trade. The conservative think tank Heritage Foundation has called the proposal a "massive energy tax" that will damage the economy, increase unemployment by about 30 percent, send energy prices soaring, and do little to actually reduce global warming. Heritage projects that cap and trade would lower temperatures by a scant 0.2 degrees by the end of the century.
Global consultant CRA International, in a study commissioned by the National Black Chamber of Commerce, predicts motor fuel prices—the study doesn't distinguish between gasoline and diesel fuel—would climb 59 cents a gallon by 2050 if the current version of cap and trade becomes law.
Some predict even bigger fuel hikes. The American Petroleum Institute, the petroleum industry's trade group, says the law could increase energy costs by 88 cents a gallon for diesel fuel, 83 cents for jet fuel, and 77 cents for gasoline.
There are international trade risks as well, critics warn. Heritage says that because India and China will not move in lockstep with U.S. environmental goals, the legislation may compel U.S. manufacturers to move operations to countries with less-stringent environmental laws.
The other side
Supporters of cap and trade argue that such a system is a more flexible option than a "carbon tax" that would fall equally on everyone's head.
Advocates of carbon-reduction mechanisms like cap and trade say they may trigger higher energy costs in the short run but will yield significant savings starting as soon as 2020, as businesses and consumers find ways to reduce their energy consumption.
In a two-year study released in May, the Union of Concerned Scientists (UCS) said the United States could by 2020 reduce emissions by 26 percent below current levels, with businesses and consumers saving $346 billion in that year. The study also predicted that by 2030, emissions could be slashed by 56 percent, with resultant savings of $465 billion.
Carbon-reduction technologies installed in freight trucks could produce net savings—savings after efficiency investments and higher energy costs are factored in—of $38 billion by 2030, while keeping emissions constant at 2005 levels, according to the UCS study.
Eric de Place, senior researcher at Sightline Institute, a Seattle-based think tank that supports the legislation, says he expects cap and trade's impact on the freight industry to be "relatively modest." He declined to provide specific numbers but said it might end up increasing fuel prices by a "few nickels" per gallon over the decades.
De Place also cited International Monetary Fund data showing that if the cap and trade provisions were applied on a global scale, they would shave only one-half of 1 percent off world economic activity over the next 50 years. He says concerns that cap and trade will trigger the greatest transfer of wealth in history are "nutty."
Asleep at the switch
As for what's next, opponents of the Waxman-Markey bill are hoping its most onerous language will be watered down or stripped away when it reaches the Senate. However, given Majority Leader Reid's support of the House bill, Burnley calls such wishes "naive in the extreme."
Burnley says the transportation industry fumbled its opportunity to lobby for its interests as the bill was being crafted and must now face the consequences.
"The transportation community was asleep at the switch," he maintains.